Dos and Don'ts of Purchasing a Dental Practice
Purchasing a dental practice is a significant milestone in any dentist's career. However, this process can be complex and fraught with potential pitfalls if not approached with careful planning and thorough due diligence. To help you navigate this journey successfully, here’s a guide to the essential dos and don’ts of purchasing a dental practice.
Do: Conduct Thorough Due Diligence
One of the most crucial steps in purchasing a dental practice is performing comprehensive due diligence. This involves a detailed examination of the practice’s financial health, patient base, and operational structure. By thoroughly reviewing these elements, you can ensure that the practice is a good investment and that there are no hidden issues that could affect your financial stability down the line.
Don’t: Rely Solely on the Appraised Value
Many buyers make the mistake of accepting the appraised value of a practice without question. Often, appraisals are inflated by including potential future improvements in production and cost reductions—improvements that have yet to be implemented. Remember, you should only pay for the practice as it exists today, not based on what it might become. Overpaying for speculative future gains can lead to financial difficulties and regret.
Do: Analyze Key Performance Metrics
When evaluating a dental practice, it’s essential to dig into the numbers. Look at:
- Average Billing: Compare the practice’s billing for dental services and hygiene against industry benchmarks to assess its current performance.
- Patient Visits and Active Patient Count: Examine patient visit data over the past 12 months and compare it to the number of active patients. This will give you insight into patient retention and the overall health of the practice.
- New Patient Growth: Assess the number of new patients the practice has attracted and how this correlates with production growth over the years. This can indicate whether the practice is on a growth trajectory.
- Lease Terms and Accounts Receivable (AR): Review the lease terms and AR to understand any potential liabilities or cash flow challenges.
Don’t: Underestimate the Value of In-Depth Financial Analysis
A brief overview of a practice’s financials isn’t enough when making such a significant investment. Our approach at ADC CPA is akin to an audit, designed to mitigate the risk of post-sale surprises and to uncover opportunities for growth. This ensures that you have a clear understanding of the practice’s cash flow potential and are well-prepared to manage the practice successfully from day one.
Do: Insist on Comprehensive Financial Due Diligence
Many buyers assume that financial due diligence is simply about creating a forecast based on past performance. However, when you’re investing in a practice worth millions, a deeper analysis is necessary. At ADC CPA, we conduct a thorough review of the past three years of patient management software reports, bank statements, tax returns, and payroll data. This allows us to create multiple forecasts, taking into account both best- and worst-case scenarios, to better prepare you for future challenges and opportunities.
The Conclusion
Purchasing a dental practice is a major financial decision that requires expert guidance. By partnering with ADC CPA, you’ll benefit from our deep industry knowledge and our commitment to providing an in-depth review of every aspect of the practice you’re considering. Our goal is to help you avoid overpaying, mitigate risks, and secure a practice that will provide you with positive cash flow and long-term success.
Meet Sana Arshad
FOUNDER & CEO BEHIND ADC CPA
Sana Arshad has in-depth knowledge of dental and cost control from her experience at a start-up DSO. She completed her Master of Accountancy with specialization in Performance Management, and later achieved her Chartered Professional Accounting designation. Her passion is growing businesses through the balance of increasing sales and decreasing costs but also being a empathic leader that values and rewards team members to achieve these results.
Need 1:1 Help or Financial Assistance?
Thank you for reading! For more insights and personalized advice on optimizing your practice’s KPIs, reach out to ADC CPA. We’re committed to helping you achieve operational excellence and financial success.