In almost every endeavor, we are faced with a multitude of facts and a need to simplify and analyze this date in order to make a consistently successful decision. In analyzing dental practices, the growth analysis sheet will help you to immediately assess the challenges as well as the upside to any practice. If you are an owner, it allows you to look past the common mistake of not seeing the obvious flaws in your own office, and moving instead to the unvarnished truth of where you struggle and what you need to do to make corrections. For the young doctor or student, the Growth Analysis Spreadsheet will highlight data and numbers, trends, and short comings of any dental office. It can help you analyze a purchase or even help you select the type of office you would want to work for as an associate. If you have not downloaded your copy of this spread sheet, simply click here to do so now.
In a subsequent discussion, we will refer to much of the data it analyzes in looking at offerings for purchase. It will be one of several key tools we will use to analyze purchases to maximize profit. Secondly, if you have not already been following the first 2 or 3 discussions about how to purchase a practice for profit, please go to www.summitpracticesolutions.com/blog and catch up. As I said before, there are no short cuts and missing even one detail can derail your quest for profit and growth in the future.
Part of this journey will include a video presentation that will give you more than just data. You will get a pragmatic look into the layers of expertise that you need to develop in order to replicate this technique of buying practices for a huge profit incentive based on after purchase upside strategies. Before we do this, we need to be familiar with the KPI’s and their influence on profitability and success.
When you look at a listing for a practice for sale, the broker will send a package of data. They will require that you sign a Non-Disclosure Agreement that basically says you agree not to publish or share this with anyone but your advisors. No big deal. Sign it and send it back to them. The package usually includes: the asking price, sometimes an appraisal, normalized Profit and Loss Statement, an estimate of what you might make in the future if you purchase the practice, what the purchase includes, address, assets, etc. The basic stuff. Because the broker is making a 10% commission on the sale of the practice and, if it includes real estate, another 6% for that, the information you receive will be just the starting point and tends to be data that supports the brokers appraisal. They tend to leave out some of the important stuff. In the near future we will go over a brokerage package so that you can educate yourself about how to read it as well as what the various terms mean.
Our spreadsheet will cover much more salient data that spells out the exact value of the practice. During this discussion we will touch on each line item of the spreadsheet and the ideal goal for each category. In the future we will look at the prospective offices Profit & Loss Statement, practice management data from their software, and their schedules.
Open the spread sheet and let’s take a look at page one.
We want to have the name of the doctor or any other doctor’s names in addition to the name of the practice and address. We are going to look at all of the reviews for the practice and at each doctor in the practice. The reputation and subsequent goodwill are reflected in what the public says about the practice. This will affect the value and the price you will pay for the practice. Make sure you take the time to look at every listed social review site on the first page of your search and not just Google reviews. In addition, we will want to look at the State Dental Board web site to check on any problems with the board, as well as when their license was issued. We are looking at everything. Further into the inspection for the practice at the point where you are looking seriously at a possible purchase, we will run a complete background check on the seller(s): Criminal, civil, and personal info which will cost about $50.00 to $100.00. We will leave no stone unturned in our search to really understand what we are potentially buying.
We will go to Google Earth and look at the office location. Keep in mind that location is one of the most important factors you will consider. A free-standing building or strip mall on a very busy street is ideal. Signage can be checked. A monument LED sign is ideal but many landlords and/or city ordinances will not allow this. Access is important as is a clear view of the office from the road. If you find the office is in a multi-level office building, I would probably pass. You will have no natural marketing location advantage. If you do decide to cross this line, keep in mind that your normal marketing budget will be in the 3% to 5% of revenue range, but in an obscure location in an office building, you will need to add another $3,000 to $5,000 per month on top of the percentage to compensate for this poor choice.
We want to make sure to make a search for the domain name of the office as well as their logo. The number one organic search for anything dental is 47% for the word dentist/dental in a location: like www.mckinneydentist.com. Number two at 14.3% is the word braces in a particular location. Number 3 is insurance with Delta being the number one under this search. It isn’t until you get to the last three search topics that you ever see the words implants, cosmetic, or sedation. These represent only 4% of the searches and only 1% of the searchers. Take the time to explore www.alexa.com and be amazed at the data some of these sites capture. The logo is important also. It should be readily identified as “dental or dentist” at a distance in case you are using billboards, outside signage, and print marketing. Forget the stylized letter from your last name or some other graphic monogram that can and usually is misinterpreted for an architect, investment company, or software purveyors office.
If you will notice the top of the page, we ask for the numbers of owners, associates, front desk, assistants, and hygienists. In addition, we want the number of ops used. The ideal benchmark here is $25,000-$30,000 per op per month and $20,000-$25,000 per employee per month. Be sure you have downloaded The Super General Dental Practice at www.supergeneralpractice.com and read chapters 16 and 17 on benchmarks and overhead. We will refer to this area frequently. Falling short in these areas guarantees that there will be little profit in the bottom line. It’s strange that where there is no profit, there is usually stress, staff turnover, poor systems, and a lack of leadership. It’s also interesting that 97% of the owner dentists out there have never even looked at these ratios.
NOTE: While we are using this spreadsheet to evaluate a particular practice for purchase, the ideal numbers are not what we are looking for. In essence, we use the ideal to compare with the office, but we are keeping in mind that what makes this a can’t miss process is that we are looking for things that you could do, that they don’t do. They don’t work Fridays or Saturdays, they don’t see kids, they are not in network for insurance, their fee schedules are low, etc. All of these things could be a “value add” if you purchased it and were able to do the things they couldn’t or wouldn’t do.
The last thing on the first page is the hours. The average dentist works about 32 hours a week or the equivalent of 4, eight-hour days each week. It’s amazing when I see doctors struggling to pay their bills working 25 hours a week. This is 28 hours less every month than the average practice. That is the equivalent of working 336 hours per year (about 2.2 months) less than an average dentist. That’s a minimum of 18.3% less in take home money. Again, we are looking to see if the office is maximizing their schedule to increase value and profit. If not, that is another area you can easily fix.
NOTE: This should stimulate some thought about the fact that if you do “improve” the schedule (more consumer hours: 7AM to 9AM, 3PM to 5PM, Fridays and Saturdays) will the team stay? Make sure you do your homework on each employee: name, age, position, years there, will they stay, pay, benefits, etc. Goodwill in this office hinges on keeping the key employees.
We are going to pause here and take up the last two pages of the Growth Analysis Spreadsheet next time. I want to give you time to reflect on what is here so that you are programing your mind to what is great versus just mediocre. If you are an owner and have already filled in the numbers for your existing practice, you are probably finding areas that you might like to address before duplicating your systems and results in another practice. If you are looking for a job, it is pretty easy to find out everything on page one of the office you are considering working for. Any aberration in the actual and ideal creates a potential challenge in profit and working somewhere with great culture.
Michael Abernathy DDS
972.523.4660 cell
[email protected]