Trauma in the Dental Practice Purchase ER
If you've ever watched one of the popular trauma ER documentaries, you've probably thought, "I'm glad that wasn't me!" After reading these actual dental practice purchase traumas, you may think, "I'm glad it wasn't me."
Future Sale Date
A practice had $300K collections. Nearby, a young dentist agreed to buy the practice to merge it into his much larger, more contemporary office. The seller wanted no transition period and suggested that they close the sale in January for "tax purposes." The contracts for the sale were signed in September. As soon as the ink was dry the seller began working 10-hour days. Every patient of the practice was scheduled for a prophy appointment, as well as "let's take care of this now" dentistry. He packed a year's worth of work into the last few months of practice ownership.
The buyer was stunned when he discovered that the cash flow he counted on to service the purchase debt had been diverted to the seller in the previous few months. Patients did not schedule recall appointments since they "had just been in to see Dr. Seller." It took the buyer over a year to get the patients back onto a typical recall appointment schedule. And he lost a lot of potential revenue.
The ad read "$550K collections, FFS, $225K net, three-day-workweek schedule. Premium equipment, great location, landmark building, very high traffic count in an upscale community. Fairly priced, seller retiring out of state." With an ad like this, who wouldn't want this practice?
Two weeks after completing the purchase, the city began an 18-month road improvement project that caused daylong traffic jams at the building's entrances. Patients waited 15 minutes just to make a turn in or out of the parking lot. Some patients left the practice because of the hassle.
The traffic congestion made it difficult to attract new patients and caused scheduling problems, since patients frequently arrived late. While not life threatening to the new owner, the new atmosphere was not what she planned on for her new practice.
Florida is not in my non-compete
The ad read, "$1M collections, FFS, $445K net, showcase office, 12 weeks vacation per year." The seller was retiring to his winter home in Florida. He was asking a premium price for the practice, but the buyer stepped up and wrote the check.
The buyer made sure he had a good non-compete clause in the purchase agreement. But, it did not extend from Ohio to Florida! As it turned out, many of the seller's patients had winter homes in the same area as the seller, and they began to see him there. Since this was a high-end, comprehensive care practice, each Florida patient represented a significant loss of income to the buyer.
These are unusual examples of perils that can put a buyer in the dental practice purchase ER, things no one may have thought of ahead of time. None of the situations were fatal to the buyer, but they caused a lot of anxiety and extra work — just what a new practice owner doesn't want or need.
More common items — such as staff tenure and training, lease and loan terms, equipment design and office layout, practice demographics and procedure mix, revenue sources and collection ratios, and transition and marketing plans — can also land people in the purchase ER if the situations are not given proper attention.
The best way to give these and all the other purchase details appropriate attention is to use a competent buyer's representative. Nearly all dental practice brokers offer buyer's representation services. These are affordable with attractive payment terms. Often the representative fees can be included in the practice purchase loan.
After more than 15 years as a dental practice broker, I continue to be amazed at how few buyers have a representative working solely for them. Considering the importance of the decision, the amount of money involved, and the availability and affordability of the service, I believe nearly everyone should have a representative.
If you decide to use a buyer's rep, choose wisely. Your accountant may be wonderful at setting up the chart of accounts of your new practice, but does he or she really know all the details that make a practice a good investment? The same is true with your attorney. Writing a great contract does not translate into knowing the suitability of a particular practice for YOU . By adding a dental practice broker to your acquisition team, you greatly increase your chances for a successful purchase.
Steve Jordan has over 30 years' experience in the dental industry, with the last 15 years as a dental broker and managing member of ADS – Professional Management, LLC. He can be reached at 330.335.9042 or SteveJ@ADSTransitions.com. His Web site is PMAgroup.net.
Click here for a PDF version of the article that appeared in the November 2009 issue of Dental Economics.