Buying a Dental Practice: There’s More to it Than Price-Part II- Buyins/Buyouts/Mergers & Special Situations

So my 2014 townie presentation covered the buying process of the typical general dentistry practice, however, what if it’s NOT the typical general dentistry practice? What about the practice that someone started 3-5 years ago that never quite blossomed (the recent start-up)? What about the practice that that’s 30+ years old that someone purchased and updated (the refurbished practice)? What about the practice that’s been around 30+ years that’s in decline (the fixer-upper)? What about the empty space that used to be a dental office that’s been vacant for months (the vacated space)? How is the due diligence different in these situations?

First of all, two points to keep in mind, A. you CANNOT use the typical rules of thumb that some use to place a price on these practices and B. getting a loan might be a challenge in these situations.

Secondly, in these situations, less of your attention should be focused on the existing patient base or goodwill. You should be focused on the area, the demographics, the lease, the office size, layout, and most importantly what the practice potential WILL be…..not what it has been doing. Having some knowledge of knowing how to approach a start-up will be very helpful.

Here are ten questions you should be asking (and there are many more) to know more about WHY these practices are for sale. Some of these questions pertain to all four situations, some are situation specific:

  1. Why is the seller selling? Life situation? Divorce? Medical? Marriage? Maybe they have another practice nearby and couldn’t give it the attention it needed. Perhaps they were poor business people. WHY?
  2. For the refurbished, what’s been updated? Just the furniture and equipment? Just the space, inside and/or outside? All of it?
  3. Does the location and the area fit what you’re seeking?
  4. If it’s a second or third location of the seller, where’s their primary practice? Is it close-by? Will that impact your ability to attract and retain patients?
  5. What’s the patient mix going to look like? FFS or PPO, a combination of both?
  6. For the refurbished, did the seller boost he production JUST to sell it at a higher price?
  7. For the fixer-upper, how much MORE will you need to invest in the practice and space?
  8. For the fixer-upper, will it be a part-time practice? If so, for how long? If so, will you be spreading yourself too thin to make it work and grow?
  9. What’s the lease going to look like? Will you have to assume it or can you renegotiate it?
  10. For the vacated space, WHY was it vacated? Where’s the previous doctor now?

As you can see, your due diligence is less about the current cash flow of these practices and more about what the cash flow potential is, WHY these practices are for sale and the anticipated risks from the sellers. You need to establish whether or not some of these practices have solid foundations that can be improved upon. Make sure you’re NOT buying a practice with a weak foundation that someone just “dressed up” to sell.

Next up I’ll talk about two actual case studies on some of these situations.