Written by Maryam Beyramian, DDS Wednesday, 10 April 2013 13:20
Maryam Beyramian, DDS
The process of acquiring a new practice can become overwhelming. In this 4-part series, we will look at different practice transitions, including distressed and traditional sales, associate buy-in and buy-outs, and practice mergers. For this first part, we will discuss the basics of all practice transitions, the numbers and our emotional need.
Regardless of the type of purchase—traditional, distressed, or transitional—the basic elements of the evaluation process will remain consistent, evaluation of the numbers: new patient flow, hygiene recall, production and collection, and accounts receivable. The fifth, and possibly the most important factor to consider, is personal and emotional needs. What kind of patient population do I want to treat? Not necessarily, where do I want to practice, but what demographic am I most interested in treating? The physical location of a practice may not necessarily determine the type of dentistry you will be practicing. The demographic of the population, age, income status, and dental IQ will determine your practice’s tone. Each transition type will meet different emotional wants and needs of the dentist and for this reason not all practice transitions are the right type of transition for every dentist.
New Patient Flow
New patient flow is one of the most important indicators for practice’s success.
- Where are the new patients coming from?
- How are the patients finding this office?
- Are all the new patients coming from the insurance companies, is it based on internal referrals, or is it based on external marketing?
- If most of the new patients are coming from external marketing, then how much is each new patient costing the practice based on the expenditures?
In an average practice the attrition rate per month is anywhere between 5 and 15 patients. Knowing this, you have to determine if you are looking for growth in a practice or looking to maintain production.
Number of Patients Actively in Hygiene Recall
Evaluating the number and the frequency of appointments per patient in the last 18 to 24 months provides a good indicator of the active patients in the database and their level of loyalty to the practitioner.
Gross Production/Collection Numbers and Account Receivables
The gross production versus collection numbers determines the baseline of the purchase price. Most practice evaluators base the purchase price between 50 and 75 % of the average collection for the last 3 years.
The production/collection ratio will give insight into the office’s collection policies, as well as the account receivables. The office’s collection policies are important, for it reveals the tone of the practice. Does the practice require payment at the time of procedure or are the patients placed on payment plans and pay as they please?
What Type of Practice is Right for Me?
This leads to the final and most important factor in determining suitability of a particular practice and emotional needs. Determining what type of practice is exactly right for you does not fit into any box or formula. This is a purely emotional and financial decision that can be best made by knowing yourself, your likes/dislikes and your long-term goals. Different transition types will present different opportunities to determine if a particular practice will fit your practice style, hence, it is imperative to research and evaluate as many differing practices and transitions types prior to purchasing a practice.
After looking at all the numbers and the books, then answer these 2 basic questions:
- Am I able to sustain or grow the previous owner’s production based on my knowledge and skills?
- Will I have an opportunity to perform the dentistry I enjoy on this patient population?
Once you are able to honestly answer these questions for yourself, then you know this transition type is right for you.