BUYING MY FIRST PRACTICE: A retrospective blog

[Cold Front]

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Can I afford this practice?



At this stage, you probably want to go out and shop for banks, hopefully even get a pre-qualification if you're really serious. This will likely make you a more attractive buyer, and should get the ball rolling on your loan process. Obviously, you need to ask around, shop rates, terms and all that good stuff, just as you would financing a car, house, ...


Banks will generally ask for:


From the Business (in the case of an existing practice acquisition):

• Cash flow analysis
• Profit and loss statements (gross, net, overhead, write-offs, ...)
• Last 3 years business tax returns
• Recent practice appraisal
• Copy of rental lease (if applicable)

From you (personal):

• Credit report (credit score, credit worthiness)
• Last 2 years proof of income/tax returns
• Last 2 years worth of production reports (important to know how much dentistry you can produce)
• Assets, liabilities, investments
• How much cash and/or savings you have to your name (shows financial responsibility, restraint).

.

I would say 95% of the above applies to start-up required documentations as well, with the exception of the appraisal paperwork.

I would also say, about 10% of people who replied to your dentaltown topic know what they are talking about. Only you can build your own vision, set of systems and select a great group of people to support you in reaching your goals. The rest will take care of itself.

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[NileBDS]

I would say 95% of the above applies to start-up required documentations as well, with the exception of the appraisal paperwork.

I would also say, about 10% of people who replied to your dentaltown topic know what they are talking about. Only you can build your own vision, set of systems and select a great group of people to support you in reaching your goals. The rest will take care of itself.

Wow, that is such a powerful statement, and it makes so much sense. I will have to remind myself of this everyday.

Thanks for the encouragement.

 

[NileBDS]

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Negotiating a final price




I was surprised by how similar the process from here on turns into a real estate deal. If you've ever bought a house/condo, this process should be pretty familiar (or gut wrenching, depending on your experience with your home purchase). The practice becomes similar to any another property listed on the market. The seller has an asking price, the buyer thinks it is too high, submits an offer, the seller rejects it and perhaps submits a counter offer and so the dance goes.


The particular practice I was interested has been pretty consistent over the last 3 year period. It looks good on paper. I had it vetted and appraised by a dental CPA, and after consulting with a dental transition attorney, I was ready to place an offer.


At an asking price of 72% of gross, and just shy of twice the average net, I was almost sure the buyer's asking price was inflated. Not really having that much experience, I was ready to submit a substantially lower offer, and perhaps loose the whole deal. To my surprise, the CPA appraised it at a price higher than the initial listed price. Huh. I guess that shows just about how much I have to learn.


Long story short, I still submit a lower offer, but higher than I was initially thinking. That initial offer was rejected and the seller submit a counter offer, which I accepted. I just changed the terms of the asset allocation, and he agreed to that as well, so we are headed in the right direction.


So now, finally! I have an accepted offer, and am ready to move forward. My attorney drafted a letter of intent to purchase, both myself an the seller had that signed, and we agreed to forward with the deals on those new set terms.


From this point on, you start really worrying (or at least I did) about:

-Financing
-Giving your current job your leave notice
-Hiring a consultant to audit the practice charts, listed equipment and final details
-Insurance credentialing - signing up with all/most of the insurance plan the current owner has in place (so you get paid once you're ready to take over)


Busy, busy, busy. Feeling like a business owner already, and I haven't even gotten my my foot through the door!

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[NileBDS]

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Transition



What I had in mind was to keep the current owner on as an associate, just for a couple of months after closing. During that first month, he would maintain his hours (he works 24 hours a week), full schedule as if nothing happened, and would be mainly marketing me. Introducing me to his patients, sending out the letter, returning patients calls and all that good stuff.


I would essentially take that whole first month OFF! Yes, take the whole month off, do some traveling (local), go to Scott Leune's breakaway course, take a nice trip to the beach with my wife (who's been incredibly patient and supportive of me), and unwind 8 years worth of dental school, residency & associateships stress!


Anyway, month two I would jump in, and be at the office full time but only see patients part time, in addition to his part time schedule, meet and greet patients (his, mine & hygiene) and get to know the systems a bit better from the inside.

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[NileBDS]

I am meeting with the seller in a couple of hours to discuss the transition details. Again, he has agreed to stay on for a couple of months past closing, probably June, and past that date on an as-needed basis. Great guy.


So as it stands, we should be closing sometime late April. My plan is to be at the office full time in May, but only see patients part time. I don't want to rush into this, get overwhelmed and burnt out and what not right away, so I'm taking this slow. Maybe 2 days with patients and 3 days administrative (or 5 half days with patients and the other half day administrative). I may not need all that administrative time, so I will be adjusting accordingly. My hope is to learn this practice inside out, and really just analyze it the first couple of months prior to making any altering decisions. Once I've done that, I might even bring on a consultant to make some changes.


Some may disagree, but I am personally opposed to keeping things the same as the previous owner for too long a period. I need to infuse my character and put my mark on my investment, and really give the patients a good reason to stay on with the new guy, VS leaving for a different place. It's a risk, but I believe a calculated risk, which is part of everyday business. I do not believe it would be that difficult either, but would need to be done in a thoughtful way. The only way to accomplish that is to really study this office from the inside out, and really observe the patients, staff and front desk more than anything.


I'm nothing if not ambitious. Knowing myself, I'll probably push myself hard at first. I'm hoping to capitalize on that new owner giddy-ness and keep that momentum going before it wears off, and hope to bring this practice up with it. My goals are to maintain the practice revenues for the first year or 2, and by the 3rd year achieve at least 20% growth. By the 5th year, I should have at least doubled the 2011 revenues. Again, goals, not anything concrete. With the little knowledge I have, I can see it happening as clear as day, with some very basic improvements and more consistent management. You can follow all the progress here, and I will definitely try and post updates as I go.


I can smell the ocean breeze!

 

[NileBDS]

Here is a copy of the transition letter, which was to be sent out to patients. I ultimately chose to not send any patient letter at all.



----

April 5th, 2012



Dear patients and friends of Family Dentistry;



At Family Dentistry, our primary focus has always been to provide our patients & hard-working staff with nothing but excellent dental care in a warm, professional environment.


In our continuous strive to provide you with quality dental care, and following 30+ years of great success in private practice, it is with most excitement that I make the following announcement; following an extensive search, I am thrilled to introduce to you Dr. ___ of Town name, State as the latest addition to our practice. Dr. ___ will have the privilege of providing uninterrupted quality care to all of my patients and families at Family Dentistry, while I gradually cut back my hours, in preparation for retirement.


Dr. __ comes to us from a busy high-end group practice in ___, and before that, a bustling multi-practice Dental group in ___. Needless to say, he is more than qualified, but most importantly, I trust ___. Myself and Dr. ___ share many practice principles & philosophies, and in such, I have no doubt that Dr. ___ will continue to provide quality dental care for all of my patients.


I will personally oversee the transition myself, and will make sure that you continue to see all of the familiar faces you have long been accustomed to over the years. All of the staff members at Family Dentistry will remain on board, and are very excited to work alongside Dr. ___ as he transitions into our practice. I will also be available for the next few months, to answer your questions, and help make sure Dr. ___'s transition into our practice is a smooth one and as seamless as possible.


Please join me in welcoming Dr. ___ to our family.
​

------




To be very honest, I am not a big fan of these letters. I feel they may needlessly scare some of the patients away, sending them looking for a new dentist, not even allowing the new doctor the benefit of the doubt.

I would honestly prefer the hygienist to talk up the new doc, and have him/her just pop in during hygiene checks, introducing himself/herself as Dr. owner's fill-in while he cuts back on hours - if they like him/her, they stay, if they don't, they leave- and if a patient is scheduled for restorative/treatment, the front desk makes a brief and CASUAL mention, while endorsing and personally putting in good word for the new guy. I feel that should be the hygienist/front desks main roll during the transition (to market new doc and introduce him to patients). Any letter, no matter how good, still risks coming across as impersonal. I would assume patients are more likely to trust the long term front desk and hygiene staff than a generic letter.

 

[Bereno]

When you mention that you want to maintain practice revenues, how much are you expecting them to drop (and remain steady from there?) from the previous owners' revenues? I am assuming he was working more than 2 days seeing patients, so thats why I ask.

Love this thread BTW

 

[NileBDS]

When you mention that you want to maintain practice revenues, how much are you expecting them to drop (and remain steady from there?) from the previous owners' revenues? I am assuming he was working more than 2 days seeing patients, so thats why I ask.

Love this thread BTW

Hey bud! I'll just make something up, and write it here. There's nothing really scientific to it, but I'll share my thoughts.

I was only scheduling myself 2 days (of clinical dentistry), while the seller was transitioning out. So we had his schedule pretty much unchanged, and I was working 2 days in addition to that.

He's gone now. I really just needed him for that one month, and did not see any merit for keeping him on beyond that. Anyone will tell you, the longer the seller stays on, the longer it takes you to actually transition in. The staff will always view him as the boss, no matter what his/her title is (owner, associate, contractor). The sooner, the better.

The seller doc had been working 3.5 days a week, for the past 3 years. There are also 3 hygienists, working all 5 days (but are all part time), for total hours equivalent of 1.5 full time hygienist.

For now, I'm still scheduling myself for 3.5 days of clinical dentistry (I'm still at the office 5 days a week), and expect my production to drop around 25-35% from his. Hygiene should see a 10-15% increase based on some minor tweaks I have implemented. So overall, I would GUESS that the gross revenues for the office to drop by 20-25%. Again, just winging that number.

That makes it tough. I'm grossing 20 or 25% less, yet paying the same bills the seller had to pay, same rent, same payroll (same over head), BUT on top of that, have a sweet $7k practice loan payment to make. <---------- Probably one of the most important things to consider when buying a practice. You will be making less money than the seller (due to an expected drop in revenues) PLUS you will have to make a practice loan payment which he/she did not have to worry about (commonly referred to as "debt service").


So ... the obvious solutions:

-Work your butt off (5 days, 6 days, evenings, Saturdays ... whatever it takes) ... Ok, that's one possibility. But remember, as a new owner, you need to give yourself "administrative hours" to catch up on the mounds of paper work you will be doing everyday. You can't just be there 9-5 and clock out like everyone else. You need clinical hours to produce, and then you need administrative hours to get all the behind the scenes stuff done too (the Boss stuff). You're not your own boss! That is a myth! You are your own boss, the assistants boss, the hygienists boss, the front desks boss, the labs boss, ...

-Sell more dentistry, and unnecessary services ... yikes! Not me at all.

-Raise your fees - not yet. I have zero relationship with the patients - they don't know me. They haven't met me. The minute they hear that the new dentist is raising the fees, will be the same minute they call you greedy and start looking for someone new.

-Drop some discounted insurance plans (PPO's) - again, they see no value in me yet. They have nothing to compare my services to, and if all else is equal, they will probably leave your practice for someone else "in-network". They will be seeing a new dentist either way, so why stick with you, knowing that they will not be maximizing their insurance benefits at your office?


You should also know, that some of the things I just wrote, I do not believe entirely. This is merely the common wisdom out there, and stuff consultants have repeated, and advocated ... but I'm not totally sold on these concepts. It's just the best information I have at the moment. I'll go with it until proven otherwise. It's a work in progress


I tried to keep it short

 

[TXpredent]

hey this has been a great thread. Congrats on the new practice! I'm only applying to dental school now, but I was wondering how you gained so much business insight. Was it something they taught you in dental school? a lot of this stuff seems way over my head, maybe it's something you picked up in your years after dental school?

 

[Bereno]

Well an expected drop of around 25% seems reasonable. It also seems as though you are really on top of your business, so I have no doubt that you will be able to get the numbers where you want them.

Also, a 7K practice loan?! Thats a huge pill to swallow

 

[yappy]

What's the standard % you pay of production to buy a dental practice? What is the standard term for the loan?

Thanks.

 

[charlestweed]

The seller doc had been working 3.5 days a week, for the past 3 years. There are also 3 hygienists, working all 5 days (but are all part time), for total hours equivalent of 1.5 full time hygienist.

For now, I'm still scheduling myself for 3.5 days of clinical dentistry (I'm still at the office 5 days a week), and expect my production to drop around 25-35% from his. Hygiene should see a 10-15% increase based on some minor tweaks I have implemented. So overall, I would GUESS that the gross revenues for the office to drop by 20-25%. Again, just winging that number.
-Work your butt off (5 days, 6 days, evenings, Saturdays ... whatever it takes) ... Ok, that's one possibility. But remember, as a new owner, you need to give yourself "administrative hours" to catch up on the mounds of paper work you will be doing everyday. You can't just be there 9-5 and clock out like everyone else. You need clinical hours to produce, and then you need administrative hours to get all the behind the scenes stuff done too (the Boss stuff). You're not your own boss! That is a myth! You are your own boss, the assistants boss, the hygienists boss, the front desks boss, the labs boss, ...

Yes, you should work 6-7 days/week. Many of my friends who started their own practices (either buying an existing one or starting from scratch) wished that they could work as many days as possible but they couldn't do so because there were not enough patients. Why do you only see patients 3.5 days? What if there are emergency patients who need to be seen right away? Why not use the other 1.5 days to do the SC/RP yourself and let the hygienist go? By working 6-7days/wk, you will have more time to do both administrative work + clinical work.

When I work for someone else (ie for a dental chain), I get mad every time they make me work hard (ie staying late to start a new case). But when I work for myself, I don't mind staying late and working hard....it's actually stressful for me to sit around doing nothing and still have to pay for all the operating expenses.

You have to reduce the overhead. $7k/month in loan payment is a lot of money and a 25% drop in production is not a good thing either. Do you think the previous owner over-pays his employees? If yes, can you replace some of them or let some of them go? Since you're younger and faster than the previous owner, you should be able to do more with fewer assistants.

Nile, congrats on your newly purchased practice. You do the right thing by starting your own practice. Hard work and the courage to take risk are the 2 key ingredients for the wealth creation and job creation in this country.

 

[KAIN DDS]

Hey bud! I'll just make something up, and write it here. There's nothing really scientific to it, but I'll share my thoughts.

I was only scheduling myself 2 days (of clinical dentistry), while the seller was transitioning out. So we had his schedule pretty much unchanged, and I was working 2 days in addition to that.

He's gone now. I really just needed him for that one month, and did not see any merit for keeping him on beyond that. Anyone will tell you, the longer the seller stays on, the longer it takes you to actually transition in. The staff will always view him as the boss, no matter what his/her title is (owner, associate, contractor). The sooner, the better.

The seller doc had been working 3.5 days a week, for the past 3 years. There are also 3 hygienists, working all 5 days (but are all part time), for total hours equivalent of 1.5 full time hygienist.

For now, I'm still scheduling myself for 3.5 days of clinical dentistry (I'm still at the office 5 days a week), and expect my production to drop around 25-35% from his. Hygiene should see a 10-15% increase based on some minor tweaks I have implemented. So overall, I would GUESS that the gross revenues for the office to drop by 20-25%. Again, just winging that number.

That makes it tough. I'm grossing 20 or 25% less, yet paying the same bills the seller had to pay, same rent, same payroll (same over head), BUT on top of that, have a sweet $7k practice loan payment to make. <---------- Probably one of the most important things to consider when buying a practice. You will be making less money than the seller (due to an expected drop in revenues) PLUS you will have to make a practice loan payment which he/she did not have to worry about (commonly referred to as "debt service").


So ... the obvious solutions:

-Work your butt off (5 days, 6 days, evenings, Saturdays ... whatever it takes) ... Ok, that's one possibility. But remember, as a new owner, you need to give yourself "administrative hours" to catch up on the mounds of paper work you will be doing everyday. You can't just be there 9-5 and clock out like everyone else. You need clinical hours to produce, and then you need administrative hours to get all the behind the scenes stuff done too (the Boss stuff). You're not your own boss! That is a myth! You are your own boss, the assistants boss, the hygienists boss, the front desks boss, the labs boss, ...

-Sell more dentistry, and unnecessary services ... yikes! Not me at all.

-Raise your fees - not yet. I have zero relationship with the patients - they don't know me. They haven't met me. The minute they hear that the new dentist is raising the fees, will be the same minute they call you greedy and start looking for someone new.

-Drop some discounted insurance plans (PPO's) - again, they see no value in me yet. They have nothing to compare my services to, and if all else is equal, they will probably leave your practice for someone else "in-network". They will be seeing a new dentist either way, so why stick with you, knowing that they will not be maximizing their insurance benefits at your office?


You should also know, that some of the things I just wrote, I do not believe entirely. This is merely the common wisdom out there, and stuff consultants have repeated, and advocated ... but I'm not totally sold on these concepts. It's just the best information I have at the moment. I'll go with it until proven otherwise. It's a work in progress


I tried to keep it short

Great info

 

[youknowthedrill]

What are the general terms for a loan to purchase a practice (i.e. how many years, current interest rate range, any down payment required)? Also, is the loan amount just for the practice price, or can you also borrow a few months of capital while you transition?

 

[NileBDS]

What are the general terms for a loan to purchase a practice (i.e. how many years, current interest rate range, any down payment required)? Also, is the loan amount just for the practice price, or can you also borrow a few months of capital while you transition?

Lots of variables here (personal credit, the amount of the loan, cash flow of the practice, which bank finances the deal,...)


In general terms, the loan repayment can be anywhere from 5 to 20 years. Current interest rates are anywhere from 5% to as much as 15%. If you are purchasing an existing practice, with a positive cash flow (ie, low risk to the Bank), and maintain excellent personal credit, you may have a down payment as low as zero (otherwise as high as 50%).


An existing practice purchase loan typically allows you working capital of 10-15% of the purchase price, in addition to the loan to purchase the practice. Example, if purchase price is $100k, the bank will approve you for a loan as high as $115k, and so forth.

 

[NileBDS]

I will try and post and update here soon. It's been pretty crazy at work.

 

[Cold Front]

I will try and post and update here soon. It's been pretty crazy at work.

Did everything you inherited from the previous owner (i.e. staff, equipment, patients, etc) meet or exceeded your expectations? Did you upgrade anything?

I hear a lot of retiring doctors have old equipment, staff and other things in general that may not be suitable for a young dentist that just started his/her career.

 

[Inshaa]

Hi NIleBDS,

How are you? No feed back since long time? We are waiting for your updates on your practice.

Hope everything is fine.

Did everything you inherited from the previous owner (i.e. staff, equipment, patients, etc) meet or exceeded your expectations? Did you upgrade anything?

I hear a lot of retiring doctors have old equipment, staff and other things in general that may not be suitable for a young dentist that just started his/her career.

 

[zsy_lzy]

Nile BDS, how is your practise??

 

[tbiv21]

Go to his dental town link because that is updated.

 

[SxyDentalDiva]

What's the link??

 

[tbiv21]

Its on his first post

Sent from my HTCEVOV4G using SDN Mobile

 

[NileBDS]

Hey guys! Sorry, I have not been that regular in posting updates (you know, life and business kind of get in the way)!


So ... !!! Here I am, 18 months into my practice transition (4 years total into private practice, following GPR).


Ask me anything!

 

[Ferneezy]

staff mix (associates, hygiene, assitants, front desk, etc.)?

how much of the above has been retained from the previous owner?

any unforeseen problems you've run into the last year and a half?

 

[Seahawk]

Any regrets about jumping straight in?

 

[NileBDS]

staff mix (associates, hygiene, assitants, front desk, etc.)?

how much of the above has been retained from the previous owner?

...

Previous staff:
Office manager, front desk secretary, 3 part time hygienists, 1 assistant, no associates.


Current staff:
Office manager, front desk secretary, 3 part time hygienists, 2 assistants, no associates.

One hygienist and front desk secretary from the previous staff were let go, and replacements were hired in addition to a part time dental assistant.

...

any unforeseen problems you've run into the last year and a half?

Of course. Lots of them! I think it is fair to say that you have no idea what you're doing for the first few months, and challenges (problems, whatever you want to call them) will develop as a result. You will not be able to foresee most of them, but that is OK. You are in essence learning on the job.


You need to develop a vision of where you want to be in a year, 2, maybe 5 years, and react to all these problems accordingly. You must view these challenges as learning opportunities, and not failures. Just accept the fact that you have a lot to learn from this experience, as any other, and do not beat up on yourself every time you run into a problem which challenges your godly image of yourself as an owner dentist, because there will be many of them (very humbling). It is a process, full of failure, corrections of course, learning and growth, hopefully resulting in success, which should make it all worthwhile.

 

[NileBDS]

Any regrets about jumping straight in?

Do you mind elaborating on your question? I'm not sure what you are referring to when you say "jumping straight in".

 

[Seahawk]

Do you mind elaborating on your question? I'm not sure what you are referring to when you say "jumping straight in".

If I am understanding right you had been out of school for about a year or two before buying this practice. Are you feeling you should have waited longer? done it sooner? just right?

 

[NileBDS]

If I am understanding right you had been out of school for about a year or two before buying this practice. Are you feeling you should have waited longer? done it sooner? just right?

Hi Sea.


I had been out of school for 4 years total at the time I took over the practice. 1 year GPR, 3 years associateship.


I feel that was an adequate preparation time for ownership. Of course, you are never really ready, but dentistry and hand skills aside, you really want to learn the front office as much as possible before becoming your own boss. It is imperative that you know what it is that you are asking your office staff to do, and not completely rely on their (often flawed) expertise. You need to know how to do their jobs in addition to your own.

 

[Shunwei]

Hi Sea.


I had been out of school for 4 years total at the time I took over the practice. 1 year GPR, 3 years associateship.


I feel that was an adequate preparation time for ownership. Of course, you are never really ready, but dentistry and hand skills aside, you really want to learn the front office as much as possible before becoming your own boss. It is imperative that you know what it is that you are asking your office staff to do, and not completely rely on their (often flawed) expertise. You need to know how to do their jobs in addition to your own.

Nile:

I have just started looking at practices to buy. What do you say are the 3 most important things to keep in mind as a buyer?

 

[andyO4you]

I agree with everything except the part from rent. There is a saying Location! Location! Location! you cant compare a $1500 rent with a place that pays $5000.0 Most of the $1500 either is way to small or in a bad neighborhood or not a big shopping center. Usually stores at anchored by supermarkets and other big names have higher rents but they have less expenses in ads publicity. Mostly because a big shopping center with a supermarket that is next to you bring thousands of people everyday that potentially can see your business. When I open my first business ( which I still have) I didn't have much money so we went with the lower rent ( not even thinking about what I just mention) If you ask me now I changed my mind. I only look to open in huge shopping centers, trust me it will pay off!

I know if you are good at what you do you will have a ton of clients, but what happen when joe the new dentist comes to town open across the street next to the big supermarket? new clients that you could potentially taken easily now are walking towards the new and bigger place. ( not bigger office, but shopping center)

well, I know its common sense...