17 Jun Suggestions for a successful practice acquisition
Purchasing a practice will probably be the single largest event in your professional life. It is very easy to allow your emotions to enter into the process. It is very easy to get focused on little things that really don’t matter in the big picture! A practice acquisition is a logical process. The key is to define YOUR transition plan and then stay focused on the implementation of that plan!
PARAGON consultants have been assisting young dentists in acquiring practices since 1988. We have closed thousands of practice transition transactions. We know how to keep everyone focused on the things that matter and avoid the problems that often occur.
It is very important that you keep the following thoughts and suggestions in mind as you proceed through the practice acquisition process.
PRACTICE LOCATION: Make a decision that is economically sound for your long-term future. This normally means that you should only consider a practice in an area where you want to live and raise a family. However, many young buyers have acquired practices with substantial growth potential in areas in which they did not intend to call their final home. These practices were acquired with the intention of increasing the practice value and then selling the practice a few years later for a substantial profit. We have clients that have followed this path numerous times and each time being able to pocket substantial profits. Over time, these doctors have vastly increased their net worth while progressing to their dream practice and desired final location. We call these opportunistic dentists “entrepreneurial dentists.” So, when we say practice location, this really means that you need to decide what type buyer you are. The correct practice location for the entrepreneurial dentist may or may not be the correct location for you.
AGE OF THE DENTAL EQUIPMENT: Focusing on the age of dental equipment is probably the biggest mistake we encounter from young dentists. You are purchasing a practice, not dental equipment. Dental supply salesman have most likely been telling you how much you need the latest and greatest equipment with all the latest “bells and whistles.” There is nothing wrong with wanting ultra-prime dental equipment but it should not be your primary focus when considering a practice opportunity. A dental practice is an ongoing business and should be considered on the financial opportunity, not the equipment. You are purchasing a proven cash flow that is made possible due to a quality patient base. If the
practice has a quality patient base and a historical track record of producing income year after year, the practice will be profitable regardless of the equipment. You will soon be making more than enough money to buy all the new equipment that you could ever want.
QUESTIONABLE DENTAL POLICIES AND PROCEDURES: A seller who has not been providing his or her patients with the latest “sophisticated” procedures is a major positive, not a negative! If you are more aggressive in your diagnosis and treatment planning than the previous doctor, that alone will create more production. Often the best practice opportunities are those in which the seller has been operating a maintenance-only practice (indefinitely putting off work that needs to be done until the next patient visit). These “Diamond in the Rough” practices often double or triple production the very first year of new ownership!
KEEP YOUR EYES OPEN: A “good deal” is a transaction that is fair to both parties. Beware of any deal that seems heavily weighted in your favor or is obviously valued too low. This often means there is something seriously wrong with the practice. Listen to your PARAGON consultant. He or she has the expertise and objectiveness to properly evaluate the situation.
DON’T NEGOTIATE WITH THE SELLER: Talk to your PARAGON consultant, not the seller, if you sense a problem with a practice opportunity. Never try to negotiate directly with the seller! Doctors are very sensitive about the operation and value of their practice. PARAGON is in a much better position to discuss your concerns with the seller. If you try to “negotiate” a deal, the seller will resent you, and even if you conclude the transaction, the seller may try to get even later on and you will eventually lose.
KEEP EVERYTHING IN PERSPECTIVE: Purchasing a practice is not a $300,000, $400,000 or
$500,000 decision. It is a multi-million dollar decision. If a practice is grossing $400,000 and you expect to practice another 35 years, then (without adjusting for inflation) it’s a
$14,000,000 decision. Don’t forfeit millions by getting hung up on nickels and dimes. Negotiating the little things will only end up upsetting the seller and jeopardize the success of the transition. Think logically!
BE RESPECTFUL: This should really not have to be discussed but you would be surprised how often this is a problem. Show respect for the seller and the practice. Yes, the seller may not utilize the latest treatment methods and may not have kept up with the times… but, don’t be judgmental. Think about how you may be viewed by a potential purchaser 25 or 30 years from now. A purchaser who shows that he or she is eager to learn and appreciative of what the seller has accomplished will be afforded much more support and respect than the purchaser who comes across as an arrogant “know-it-all.” We have had a number of sellers elect not to sell to a doctor who rubs the seller the wrong way! Also, never be late to an appointment with a seller. The seller’s time is just as important as your time.
The practice acquisition process is a long road and can be full of potholes. However, you can improve the path with a little logic and common sense.