QUESTION: START A NEW PRACTICE OR BUY AN EXISTING ONE? (Part 2 of 2)
Last week’s focus was on starting a new office. This week we explore buying an established practice.
Purchasing an existing office:
The good points of purchasing an existing practice:
- You have a practice history to look at. You know what the past was and what the current demographic and economic trends are today. Like a new office, you have done due diligence as far as location and the area you would like to live.
- There is an existing staff in place and part of your success will be in keeping most of them to create a seamless transition.
- There is an upside: I have started new practices and bought existing practices. When you purchase an existing practice, you should always look at the upsides. Many will see these areas as faults in the current practice strategy, but a second look will reveal that in each of these is the foundation of a huge return on your investment. Examples might be that the doctor only works 8-5 Monday through Thursday (you can work Fridays and Saturdays), doctor will not see kids (you can), the doctor refers out clinical services like Endo, complex Crown and Bridge, Dentures, Ortho, etc. (you can educate yourself to add these services), and the doctor is not in network for any insurance plan (odds are that there are a few if not many that you could easily work with to increase your patient base). I have been able to double practices in 6-12 months because of these areas.
- Existing functional hygiene. 67% of all the work that you will ever do will come out of recall hygiene and not new patients. Hygiene should be bringing in at least 33% of the total office production. This pushes a strong hygiene department as a must have when you look at potential purchases.
- There are already systems in place. Sure, you will want to improve them but also consider that the previous doctor was making what they made with these same protocols.
- The practice is already making a profit. You wouldn’t have bought it if it had not been.
- You will have income from day one.
The challenging truth:
- There are a lot of things that need fixing and attention and they all cost money and take time and skill you don’t have. Due diligence is the key. You will need to prioritize these needs and plan on taking a year or so to correct any deficiencies.
- You failed to look at the salaries of the staff you would need to keep and find that you now have an employee that makes twice the going rate for that position.
- The assigned or new lease that you will have to deal with in the near future exposes you to an increase in overhead. The landlord knows that about 50% of what you paid for was leasehold improvements. He now has you at a disadvantage.
- The previous doctor’s dentistry was worse than you could have imagined. You are faced with the dilemma of redoing or recharging for dentistry that should not have failed. How you handle this will affect your ability to keep patients.
- You did not run a civil and criminal background check on the selling doctor. There was something there. Also do the same with the State Board. You are paying 80% of the purchase price for goodwill and reputation. Make sure you know what you are getting.
- Some of the day-to-day systems border on either malpractice or criminal negligence forcing you to make changes quickly with a staff that thinks what they are currently doing is proper.
- Patients will show up that have had special arrangements made by the previous doctor that you can’t live with.
- For the first time you have to wear many hats: Owner, leader, and teammate. Leaders have followers so make sure that you invest the time to improve that skill set.
Not so short and sweet, but each bullet point to either buying an existing practice or starting a new one should give you pause. I have found that situational awareness and knowing your own limitations are key to ownership and a career of growth and profitability.
Michael Abernathy, DDS
PS. We are now prepared to start accepting registrations for our fall seminar: MYTH BUSTERS. Early bird pricing will be available from now until Oct. 15. The seminar dates again are Friday, October 26 and Saturday, October 27. To register and find other info and details, just follow this link: https://summitmythbusters.eventbrite.com/