7.25.14 Issue #646 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter
 

Why Canít You Pull the Trigger on that Practice Purchase?
By Sally McKenzie, CEO

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It was the practice she wanted in the location she desired. The equipment was in good shape; the production seemed healthy. But “Dr. Paula” couldn’t bring herself to pull the trigger. She was uneasy. She didn’t know why. The selling doctor was very good. He had an excellent reputation in the community. The practice broker was widely respected. Still Dr. Paula was anxious. She was worried that she was missing something.

Dr. Paula’s situation is not uncommon. Many doctors will throw caution to the wind and purchase the first practice that “just feels right.” However, there are many, many more in this post-recession world who drag their feet. They find themselves in a perpetual paralysis of analysis.

While the sellers have brokers advocating for them, buyers often perceive that they are at a disadvantage when purchasing practices. They worry that they don’t have enough data and become skeptical of the seller’s claims. They haven’t had someone they can turn to, someone to really comb through the numbers and the many details that go well beyond the value of the equipment and the overall production - those key systems that will make or break the incoming doctor’s success.

While both an eager buyer and an eager seller often sit on either side of a pending sale, many buyers can be hesitant and need reassurance that this investment is a wise one. Purchasing a practice is likely the most important and most expensive investment that a dentist will make. It’s not surprising that most would want to make that decision based on clear and comprehensive data and information that can be found in a practice evaluation – not to be confused with a practice valuation.

For less than the fee most dentists would charge for a couple of crowns, a practice evaluation provides purchasing doctors a wealth of objective information about the health of the practice they are considering purchasing. Think of a practice evaluation like you would a home inspection. If you are purchasing a home, you make a small investment in a home inspection. The inspector comes in and examines key functions in the home. Upon reviewing their report you have a better sense if there are minor issues that could become major concerns or seemingly major issues that are truly insignificant.

Similarly, practice buyers who can access objective information about key systems in the practice they want to purchase are empowered to more accurately assess the total health of the practice and the potential return on investment. For example, they may learn of weaknesses in the current business operations, which if addressed will open the door for additional revenues in the future. They can gather critical information about the experience and professional capacity of the team that they are inheriting.

How robust is treatment acceptance? Does the selling doctor have several openings in the schedule or does s/he have very few openings - and what does either scenario mean to the purchasing doctor? What is the active patient base? Many brokers consider the active patient base to be those patients who have been in the practice within the past two years. However, we find that a 12-month window is far more accurate. If a patient hasn’t been into the practice for two consecutive recalls, they can’t be counted as an active patient. Buyers need to know how many patients are past-due in the previous 12 months and how many are scheduled in the upcoming 12 months.

Moreover, purchasing doctors need to understand the demographics of the surrounding community. The neighborhood may have been teaming with young families 10 years ago, but now is host to an older population. That older population may be better educated and have more disposable income, but they might not be the demographic the purchasing doctor had hoped to cultivate.

Oftentimes doctors purchasing a practice have little ability to assess the seller’s marketing. The practice may have a website, but is that website effective? Additionally, buyers need information about insurance plans the practice accepts and what percentage of the practice income is from those plans.

In most cases, the practice evaluation bridges the gap between a possible sale that for whatever reason can’t seem to get traction and the successful sale that both buyer and seller feel confident about. Typically once the prospective buyers have the complete picture and their questions are answered fully, they are eager to proceed.

Before you commit to the biggest investment of your life, consider a Dental Practice Acquisition Evaluation by McKenzie Management.

For more information on this topic and more, visit my blog: The Lighter Side

Interested in speaking to me about your practice concerns? Email sallymck@mckenziemgmt.com
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