Through ADA Practice Transitions, I work with many dentists who are looking to buy a dental practice. While it is tempting to search for the “perfect practice,” I ask dentists to keep an open mind and find a practice with a great foundation – one that you can transform into your very own dental dream home.
Just like with homeownership, you have two basic choices when it comes to dental practice ownership. You can build it new, or you can buy an existing practice. The reality is that it is often financially advantageous to find a practice – a fixer-upper, if you will – that you can adapt to fit your vision. I urge buyers to think about the foundation of their “dental dream home.” What square footage is necessary? Who does it serve? What types of procedures would you like to do? Once you have that vision in mind, you can assess a practice’s “bones” to see if it can become the dental home of your dreams.
Let’s talk about what it takes to take on a fixer-upper and make it your own!
What to overlook when buying a practice
First, there are some things that are relatively easy to update and should NEVER be deal-breakers. The most obvious of these is the office’s aesthetics. Paint and flooring are relatively inexpensive and can work wonders, yet some buyers just won’t look past old wallpaper or faded chairs. You should look at outdated décor as an opportunity to immediately personalize the practice and make it your own.
Next, many buyers are deterred if a practice has a less than “ideal” production or patient numbers. This is particularly true when an owner has spent a few years easing into retirement with reduced office hours. As we discuss below, the determining factors should be the population the practice draws from and the saturation of dentists in the area.
A town’s lack of amenities can also be tough to overlook. However, many of the rural practices I have worked with are within an hour of a much larger town – and these small-town dentists can thrive on a part-time schedule. In this case, practice owners often make a great income and have plenty of time off to travel or pursue other interests. Some even get a pilot’s license and buy their own planes!
So what should you NOT overlook?
Ability to maintain or increase the patient base and production
First and foremost, a practice needs enough patients and production to be successful. If the practice currently lacks the numbers, do some homework to see if the area could support your plans.
Start by looking at the existing patient pool and how far they travel to the practice. You will want to retain as many of those patients as possible to ensure production continues at the current level. For example, if a large percentage of patients drives 30 miles to come to this practice and a new dentist just opened in their town, they may very well try the one closer to home. Obviously, this is an extreme example, but you get the picture. The point is to understand current patients’ habits and see if you will be able to maintain and increase the numbers.
One way to evaluate the number of potential patients is to grab a map and draw circles with a radius of 2 and 5 miles. (If you are looking at a more rural area, expand these circles to 10 and 20 miles.) See how many dentists currently practice in each circle, then determine the population within those same circles. In general, you need about 1,500 to 2,000 people per dentist. However, in an underserved area, you may find that people are willing to travel farther, even up to 40 miles.
Can you continue the same mix of services, or even expand?
As far as production goes, take a close look at the current services offered. Can you continue the same mix – or add new ones? Are there specialists in the area that will compete with you?
Consider your ability to maintain the practice’s existing production. For an extreme example, if the current owner's interest in IV sedation accounts for 35% of the practice’s production, make sure you have the skills to continue offering this service! If you lack the skills or interest, calculate how this might affect the overall production (and whether you can take the hit).
When evaluating a practice, look carefully at each category of services to make sure your skills align with the current offerings. Ask which services are currently referred out. See if there are gaps where you may lose production – or opportunities to increase production by bringing specialty care in house with new offerings.
Enough operatories (or room for enough)
A practice’s current configuration doesn’t need to be a deal-breaker. After all, you CAN increase the size of the practice.
Determine how many operatories you need to serve your anticipated patient volume. If the practice only has two or three operatories but you need four or five, you have several options:
- Expand into existing space. A forward-thinking owner may have designated space for an additional operatory but never actually built it out. It may even be already plumbed and ready to go – just add equipment! This is ideal and can make for an easy (and relatively cheap) expansion.
- Reconfigure the space. Look at the office as a whole. There may be a way to rearrange the space to add the operatories you need. This could involve reclaiming a storeroom or turning two giant operatories into three smaller ones. An architect who is well versed in dental office design can help you think through how to optimize the space. This is more expensive than simply adding equipment to an existing room, but you can customize the space to suit your vision.
- See how the existing space works for you. Spend some time working in the space in its current configuration. You may realize that it works well for you and you do not actually need an additional operatory.
- If you do need more space and the current office is maxed out, it may be time to look for a new location. While this can be expensive, it gives you the opportunity to design the space exactly as you like.
Factor the need for updates into the total cost of the practice and investigate loan options that will help you expand and outfit the space you need. As you plan, the ADA Center for Professional Success offers several resources on designing the office of your dreams.
Is the staff on board with the transition plan? Will they be an asset to the practice?
The impact of staff on the short-term success of the practice cannot be overstated. An unhappy front desk person or assistant can do more damage to your reputation than any other factor. On the other hand, a team member who sings your praises will ensure patients give you a fair chance to win them over.
If you are pursuing an associate-to-owner scenario in which the current owner will stick around for a while, make sure staff are willing to follow the plan to keep you both scheduled with the right mix of procedures. See how you can incorporate staff into your transition plan.
How well is the practice currently managed? When was the fee structure last reviewed? Take a look at the collections policies, the employee manual, OSHA adherence, and other factors, with CPS resources that can get you started. If everything is already well documented and in good shape, your life will be so much easier!
If the practice currently lacks these policies or practices, it does not need to be a deal-breaker. Rather, you will need to invest some time to create and implement the systems that will make everything run smoothly over the long run. This can be a great exercise if you are particularly interested in the business side of dentistry or want a lot of control over how things are managed.
Clinically sound practices
Every dentist has their own approach to dentistry – and this approach can vary tremendously!
However, when evaluating a practice, ask yourself whether the dentistry currently being done is clinically acceptable. If corners are being cut and the result is poor quality, you will need to take a good hard look at whether you can overcome what could be a very tough transition.
For example, consider how you will tell a patient that they really need periodontal treatment for the undiagnosed disease occurring in the mouth. Or think about the patient who was told “everything is fine” six months ago but truly needs extensive restorative work or extractions.
If the standard of care has been sub-par, you might face significant hurdles.
In the best of situations, it takes time to win over existing patients. If you enter a practice where the standard of care has been sub-par, you will face significant hurdles that sorely test your communication skills.
This challenge grows if there are plenty of other dentists in the area.
Only you can decide if you are willing to take on a situation like this. Think about the gap between your standard of care and what the practice is currently delivering. If this gap is particularly wide, the pushback from existing patients may not be worth it.
When considering a practice, look at the timeline to pay back the loan.
Even if a lender will give you a 15-year note, consider the amount of interest that will accrue. Instead, you should plan on paying back a practice loan in 5 to 7 years. That means finding a practice that will allow you to pay all the expenses, provide your income, and service the loan.
If the practice’s list price cannot support that timeline, consider whether adding services or increasing production will make it possible. (And be sure to consider any costs required to expand!)
You may want to consider negotiating the purchase price to meet this payback plan.
Ready to find your dental dream home?
The team at ADA Practice Transitions can help you purchase a practice with the right bones to create the dental home of your dreams! Start your profile today to begin making your dream a reality.