Not doing due diligence is not a good excuse for finding out poor decisions have been made.
Too often, doctors interested in buying, selling, or transitioning a dental practice don’t look at all of the information they should to make correct decisions. My studies have shown that most doctors know what information they should obtain. The problem they have is:
- They don’t understand what the information means and the interrelationship of that information.
- They feel uncomfortable challenging the information for accuracy.
The doctor should look at financial information, as well as practice-management information. The financial information should include all tax information for at least the
past three years, as well as the income and expense information for the same time period. You need to understand how that information is applicable to your situation. This may necessitate hiring a knowledgeable and competent consultant.
Usually, practice-management information is less used and not as well understood by doctors. The five pieces of information that are a must are:
- Average number of doctor and hygiene visits per month
- Number of active patients (a patient that has been in at least once in the past 18 months)
- Average number of new patients per month (patients that have gone through hygiene)
- Gross production and gross receipts adjustments
- Average number of hours the doctor and hygienist worked per month.
The interpretation of these numbers will show which areas to explore in more detail. I will only address one example of how to interpret this information.
If you are told that a practice averages 150 recall visits per month, you can make some observations. You can assume that the practice has 1,350 patients actively involved in the recall program. This is determined by multiplying the average number of recall visits per month by a factor of nine. The factor of nine was arrived at by taking an actual count of the active patients of a practice and dividing it by the average
number of recall visits per month. The number I came up with most frequently was the factor of nine. If your dental practice has a good recall program, you will come within 5 percent of the practice’s active patient count. An active patient is defined as one who has visited the office for any reason at least once in the past 18 months.
Let’s say the practice has 2,000 active patients and sees 150 per month in its recall program. You need to challenge one of these two numbers. Either the active patient count is wrong, the average hygiene visits per month count is wrong, the recall program is not coming close to meeting the needs of the active patients in the practice, or the average number of new patients per month is exceptionally high
and the practice is not effectively assimilating all the new patients.
If you verify that the active patient count of 2,000 is correct, you can assume that the practice should be seeing 200 recall patients per month. That is an increase of 50 recall visits per month. If the practice could actually increase the number of recall visits per month by 50, can you imagine the positive impact this would have on the
In the same way, if you determine the average number of recall patient visits per month is correct, then in all probability the active patient count would be 1,350. If you are buying the practice, you are not getting as many patients as you might think you are. That could present itself as a major problem.
Doctors feel uncomfortable asking each other the right questions for many different reasons. If they do feel comfortable asking these questions, they feel uncomfortable
challenging the information they receive. If the parties feel uncomfortable dealing with, gathering, and discussing this information, they need to hire experienced, knowledgeable, and competent consultants who can address all the issues and come up with the correct answers. Not doing due diligence is not a good excuse for finding out poor decisions have been made.