20 Jun The Fact Gathering Process
Once a seller has decided that it is probably time for a practice transition, the next step is the time consuming fact gathering process. If we could provide a seller with practical and realistic transition options without knowing all the facts, we would be happy to do so, however, that would really be like you trying to diagnose a patient’s problem over the telephone without ever seeing the patient. We must have the pertinent the facts for our analysis and custom transition plan to have any true meaning.
PARAGON prides itself on providing the most in-depth and comprehensive financial analysis and practice valuation report in the industry. Our professional analysis is a critical ingredient in the process of providing our sellers the fair market value that they deserve. We do not negotiate a single dime of the seller’s hard-earned practice value away and the first step in accomplishing this goal is providing accurate and complete practice information to each of our purchaser candidates.
How critical is it that I complete the “Dental Practice Profile?”
Completing the Dental Practice Profile (DPP) is extremely critical. In fact, other than talking about a few basic concepts, we really can’t do anything specific for you without this profile completed! PARAGON’s primary goal is to get you the highest fair market value possible for your practice. Simply said, we have the well-earned reputation of selling your practice at the highest price possible. Every seller deserves to reap the maximum benefit from a lifetime of professional achievement. The information you provide to us in the DPP process is critical in achieving this goal.
The DPP is rather long, asks for a lot of information and appears to require a lot of effort on your part. However, virtually all of our clients agree that once they finally began the process (takes some a long time to get started), it really does not take too much time to complete the DPP and provide the other data we require.
Many of our clients ask their staff to assist in this fact gathering process. You may think this is difficult because you don’t want your staff to know that you are considering a practice transition, but it is quite appropriate to simply tell your staff that you need this information gathered for financial and/or estate planning purposes. In a sense, that is a true statement.
Why do you need my personal tax returns?
Actually, if you operate your practice as a corporation (PA, PC, Inc., etc.) or a limited liability company (PLLC, LLC, etc.) we don’t need your personal tax returns at all. And, even if you are not incorporated, we really don’t need the personal portion of your tax returns… we only need the practice related sections (Schedule C and the expense backup schedules). The reason we use tax returns is simply because of the sense of validity tax returns provide the purchaser, the purchaser’s advisors and the lender that provides the purchaser with the funding to acquire your practice. The reason we require at least 3 years of tax returns is to be able to analyze any trends (positive or negative) in your practice productivity. Don’t worry; PARAGON is not an extension of the IRS! We really don’t care how creative your tax filings may be. We just need to know everything we can possibly find out about your practice to be able to get you the highest possible fair market value. We also will never share your tax returns with anyone outside of PARAGON without first obtaining your permission.
Why do you need a financial statement?
While purchasers, their advisors and bankers place a lot of importance on tax returns, most of the time the financial information supplied on your tax return is outdated. In fact, even if the tax return is filed on time (no extensions), the financial data is already about 3½ months outdated at the time of return filing. Depending on the time of the year, a tax return could also be painting a practice picture with financial data that is more than 15 months old. A current Profit & Loss Statement (report of your practice collections and expenses) allows us to see what your practice has been achieving over the most recent 12-month period. This is crucial in assigning an accurate fair market value to your practice.
Why do you need a breakdown of my staff salaries?
Having evaluated thousands of dental practices over the years, we use this information to run our own comparisons against our vast database to determine if your staff members are over or under paid based on regional and national averages. This is not to make salary and wage recommendations but rather to offer valuable insight for a prospective purchaser as to how he or she will move forward. It is important for a practice owner to know what may be expected in terms of present and future employee related overhead. This salary information is especially important should your purchaser end up being an existing practice owner (a merger purchaser). An existing practice owner obviously already has a staff and thus will be blending an effective team from both practice staffs to accommodate the larger merged practice. With such a blend of staff members it is important to know if any significant pay scale discrepancies exist.
Why do you need to know how many active patients I have?
An accurate count of your active patients as well as a breakdown of the type patients (fee for service, high paying insurance plans, low paying insurance plans, capitation programs, etc.) is one of the most important ingredients in our practice valuation process. Many of the statistical reports we produce are based on your active patient count. In fact, we really can’t produce a meaningful practice analysis for a prospective purchaser without an accurate patient count. The ability of your practice to produce ongoing income is what gives your practice market value. This ability to produce continuous income is directly associated with your active patient base. Do you have enough patients to sustain future production that is comparable to the production you have achieved in the past years? Do you attract enough new patients to offset natural patient attrition? Is your patient base aging? Is the income level of your patient base changing as your primary market area changes? These are just a few of the many questions that prospective purchasers ask and we simply want to be able to quickly provide a meaningful answer.
Why do you need a copy of my fee schedule?
Again, we have had the privilege of evaluating thousands of dental practice over the years and consequently have developed an extremely informative database of dental fees for various regions of the country. We would like to add your fee schedule to our database. We also extract a sampling of your fees to include in the financial analysis report so the purchaser will know how your fees stack up against other practices in your area of the country.
Why do you need a “Production by Procedure” report?
The production mix of your practice is very important in making accurate estimates of the purchaser’s anticipated net cash flow. The “Production by Procedure” report allows us to verify the operative, restorative and hygiene production numbers for the period. This information is necessary to provide the purchaser with a meaningful proforma of projected practice production.
Should I be concerned about the confidential nature of the information I provide PARAGON?
No, not at all! PARAGON will not share your financial records or personal information with anyone outside of our company until you are ready for such delicate and confidential information to be shared with a purchaser and his or her advisors and lenders. We don’t even reveal your name or address to anyone until you have been told whom we would like to give more detailed data to and only after you have approved of revealing such confidential information with that specific indicidual. All of the reports we present to prospective purchasers are printed with codes rather than the seller’s name and address. Quite frankly, your name and address is not important in the initial stages of our dealings with prospective purchasers. Our time-tested, proven system for transitioning practices makes it possible for you, the seller, to receive full value with no negotiation. This is accomplished as a direct result of keeping your personal information (even your name, address and phone number) a secret until the exact opportune time to reveal such data. In other words, we would not reveal any identifying data about you or your practice early in the process even if we had your permission to do so! (Ask your consultant for PARAGON Article #4261: “Maintaining Confidentiality”)
Your PARAGON transition consultant will be happy to assist you in any way he or she can in gathering the information we require. Please do not hesitate to ask!
