So You Want to Buy a Practice?
Purchasing your first, or next, practice is one of the most important things you will do in your life, so the process of finding the “right” practice must include proper care and diligence. Considering many only go through the purchase process once, here’s a list of ten things to think about as you dive in.
Location, Location, Location
Yes, the old adage. Then again, we are talking about something different – specifically the question “Where do you want to live?”. This may be the most important question to answer, particularly in Florida, since no area of Florida is just like any other area. North, west, east, south, central, coastal, inland, country, city, each metropolitan and rural area is a different look, feel and atmosphere. What is important to you (and your family) in where you live? Schools? Arts/Entertainment? Water access? Dining options? Land / space / population density? Access to travel? Other family? Also, if you’re not opposed to some commuting, your ideal practice may be located in another town that is within a reasonable driving distance from where you want to live. Every area is different so if there are several “possible” locations on your list, spend time in each and come up with a ranking of each.
Practice Type
Practice makeup is possibly the next most important factor. What kind of dentistry do you like to do? Do you like restorative dentistry or would you prefer to specialize (presuming you’re not already a specialist). How much dentistry can you do? Do you want to only focus on crown and bridge, restorative dentistry or do you like to specialize? Do you want a cash/UCR practice or are you ok with PPOs and/or HMOs? Some of this may be mute when you select where it is that you ultimately do want to live, but it is important to go in thinking about the answers to these questions so you can better analyze the opportunities that come available.
Comparables
This is something that may work in real estate but simply does not work well in practices. Simply put, every practice is different and even two nearly identical practices in the same town could sell for vastly different prices. With this, attempting to collect data on a wide area (even an entire region) and then comparing practice to practice simply does not paint a true picture of specific value and what is being purchased.
Financing
While it is good for you to reach out to lending institutions, it is rarely the case that you will be “pre-approved” for financing (like what happens when purchasing a house). Instead, you will be “pre-qualified” meaning that the bank has completed an initial review of your financial status and sees no immediate red-flags. The bank will still need a practice to match you with in order to complete an actual approval since their ability to lend you money hinges on your ability to pay them back (so finding a practice that will provide enough for you to pay the overhead, pay yourself to cover your lifestyle and liabilities, and pay back the bank – it must be all three). (See our lender round table article).
Confidentiality
You will sign a confidentiality agreement. This agreement should state that you will keep all information about practice opportunities (including names, locations, financial and any other information shared) to yourself and advisors only. It should require no more of you. (See our articles on Confidentiality Agreements: Before You Sign… The Facts About NDAs | Confidentially Speaking)
Test Driving a Practice
There are very few cases where a Seller will allow you to “observe” the practice before putting in an offer or signing a binding agreement (if even then). The visit is disruptive to the office, patients and staff. (See our article on Test Driving a Practice).
Patience
.. but also urgency and timeliness. We have seen too many instances where a purchaser purchased a practice that they should not have because they were not patient enough to wait for the right opportunity. On the other side of the coin good practices in the most desirable areas do not sit on the market for long. Practices in specific areas do not list every day and you are purchasing the future opportunity, so getting hung up on the wrong things will hinder you, but jumping in without proper diligence could be costly.
Diligence
Which brings us to this. Take time to request and review documentation on a practice. You should receive, in some form, financial information on a practice for the current year (if it is later in the year) and two to three years prior. You should have two and a half to three years’ worth of financial data to review. You should also receive a proforma showing you reasonable adjustments to the most current information to remove owner’s compensation and balance out incorrect results (due to annualizing early year figures or one-time purchases, etc). A five or ten year projection to show you the amount of profit that you will earn over the course of that time is intentionally misleading. Look at the most current year and the year after ownership to get a feel for the practice opportunity and workings. In addition to this, you should receive documentation that gives an overview of the practice opportunity. If you’re not receiving historical data, simply a look at the first year after ownership and a practice overview, you probably do not have enough to make an informed initial decision.
Due Diligence
Within the purchase process, you will have the opportunity to spend time in the office looking at the schedule, charts and equipment closely. You will also have time to review financial information including the actual tax returns.
Advisors
No transition specialist / broker should restrict your ability to choose to use any and all advisors, including attorneys, accountants, consultants or other practice valuations experts. That said, you are the client of your advisors so while they’re providing their expert feedback (what you hired them for), ultimately, you direct their efforts. (See our article about Advisors).
We cover the entire state and are listing new practices all the time. Keep an eye out at http://www.ADSflorida.com or setup a profile at http://myADStransition.com so you’ll be notified if a new practice opportunity comes available. Our transitions are fair and win-win, we simply won’t list a practice that won’t work for a purchaser so you can rest assured that you’re in good hands. If you would like us to represent or advise you in the purchase of a practice from another transitions firm, or one that is just offered by an individual doctor, our full array of services are available. If that is of interest or you have any questions about the services we provide, please browse our website and/or contact your local representative directly. We look forward to working with you.
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