7.18.14 Issue #645 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Buying a Practice? Do This First
By Sally McKenzie, CEO

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When I sat down with “Dr. Michael” he was distraught. He shook his head and wondered how he had so severely misjudged things. It had seemed so perfect in the beginning. After years of working as an associate, he had finally purchased a practice back home where he and his wife grew up. With young children of their own, they were eager to get back to their roots and have family nearby.
The practice he bought seemed like a great deal at the time. It was in a neighborhood that he remembered was brimming with young families years ago. The practice numbers seemed okay and the staff seemed fine. Bottom line, he was eager to make a decision. He just knew this was the right place ... until he discovered that it wasn’t.

Dr. Michael had purchased an illusion - one largely of his own making. And the reality threatened to turn his and his wife’s dream into a nightmare. The neighborhood that was once filled with families and school-age children was in transition. While it may have been on the cusp of revitalization, the majority of people were older. Many were approaching retirement age, and many more were well beyond that.

While he thought that the active patient base was healthy at around 1200, he took the number at face value and didn’t ask any questions that might have revealed more information. Shortly after taking over the practice he realized that the roughly 1200 records included hundreds of patients who had not been in for hygiene appointments in nearly two years. Worse yet, the selling doctor worked three days a week but employed two hygienists, two assistants, and three business staff who all had too much time on their hands. The drain on overhead was huge.

Dr. Michael agonized over the possibility that he would have to lay off half the staff. What would be the repercussions with those that he retained? The employees knew the patients. They had established relationships. He did not. He was the outsider in his newly-purchased practice. Yet there were just too many, and he was the one responsible for paying that hefty payroll.

Compounding the problem, many of the patients who actually were active were accustomed to the former doctor’s philosophy of care, which was very different from Dr. Michael’s. He dreamed of recommending and providing what he considered to be “ideal” dentistry. He had pursued extensive continuing education in implants, veneers, and endo. His predecessor was extremely conservative in his treatment recommendations, and he referred out numerous cases that Dr. Michael would have considered routine.

Dr. Michael’s situation is not uncommon. He purchased the practice he thought he wanted. He did a little research, but he wanted to see what he wanted to see - a practice with potential in a quaint neighborhood with an experienced staff. With help, Dr. Michael was able to turn the situation around. But it required thousands of dollars, several months, and enormous personal sacrifice for him and his family. It also required a host of difficult decisions and unforeseen challenges that Dr. Michael could have avoided.

If he could do it all again, Dr. Michael readily acknowledges that he would be smarter. He would make a small investment in a practice evaluation up front. Practice evaluations are different from practice valuations. Valuations are the dollar value of a practice, and typically they are compiled by practice brokers who represent the sellers. Whereas an evaluation is a due diligence review of the entire practice that is up for sale, including the 20 business operational systems, the profit and loss statement, the computer reports, the tax returns, the demographics, the fees, and the staff.

Beyond the equipment and the production, it can be challenging for buyers to evaluate the future worth of a practice that they intend to purchase. Having a full understanding of the actual and projected earnings as well as the strengths, weaknesses, and revenue earning opportunities is critical to making a buying decision.  

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

Next week - why evaluations make it easier to pull the trigger.

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
Interested in having McKenzie Management Seminars speak to your dental society or study club? Click here.
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