While investigating a dental practice for sale, purchasers express their fears with the broker. Many of the same questions are asked repeatedly. Some are influenced by rumour or a lack of information. Presented in my column this month are the five most common issues I hear.
“The patients will not accept me as their new dentist.”
Patients visit a dental practice for many reasons. The dentist is only one of them. According to my data, after a practice is sold, and if the new owner does not make major changes, 85 to 95 per cent of the pre-existing patients will return to the same dental office as their trusted source of oral health care. They are familiar with the staff, the location, the policies, the equipment and décor among many other aspects. Switching dental offices, purely due to a change in the dentist, is not a common patient behaviour, as it results in a multitude of change. As an alternative, it is easier to accept the change in their dentist only, and return to the same office.
Based on my experience of almost 30 years of dental practice purchases, I predict that a large majority of patients will continue to return to a practice after the previous owner has departed, in the typical transaction.
“The staff will not accept me as the new boss and may quit.”
Staff have two key concerns when a practice sells. The first is that they will continue to be paid the same wage. The second is that they will be able to perform their duties more or less on the same schedule as previously. If these two key factors are maintained, most staff will remain. Much like your patients, most would prefer to remain in a familiar environment rather than moving to an unknown working environment. Because they are a valuable asset to a dental practice, it is wise to make as few personnel changes as possible in the early stages. Many new owners report that, after time, they recognized staff value to the practice and realize they are lucky to have them on their team.
“The number of patient charts should indicate the value of the practice.”
The debate over active patient count will never end, as most of us simply do not agree upon the definition of an “active” patient. One or two years is often considered a reasonable term to decide whether a patient is active or not. Unfortunately, this is unreliable because many patients have varying treatment and behaviour patterns. From an appraiser’s perspective, the number of charts only demonstrates the busyness of the practice, not the business value.
It is common to examine a practice treating 1,000 active patients, as defined by the owner, yet they may generate entirely different revenues. Every dentist has a unique clinical training and philosophy. Thus, most dentists will generate different revenues from the same number of patients. Therefore, using the number of patients to determine value is unreliable.
“Financing is not available.”
Many financial institutions continue to offer 100 per cent financing to purchasers. Institutions have recognized that dentists are a secure, reliable credit risk and they are actively pursuing dental practice financing opportunities. Many dentists expand the practice and offer treatments normally referred out by the previous owner. Others increase working hours and operatory time. Youthful marketing ideas often produce higher new patient flow. Financial institutions know these facts.
“I will not be able to sell the practice for the same price I paid for it.”
I survey buyers within one year of their purchase. This informal research has uncovered a long-standing trend. The buyers regularly admit to higher revenues within the first year of acquisition. In some instances, they are much higher. Young dentists work hard while in debt. While doing so, they are often unaware that they have also increased the value of their practice. Hard work produces results. When you own a practice, you know this fact. Valuations may be trending towards lower sale prices in the future. However, hard work can more than compensate for this trend and you may sell your practice for more than you paid.
I have seen many anxious dental practice purchasers in my experience. But I can tell you that most of their fears are unfounded, with the vast majority moving on to great success.
Ontario Dentist – October 2003