Should You Buy a Practice?

I wanted to devote this week’s fax to a topic that’s been brought to my attention a few times recently.

            It’s about “buying practices.”

            There’s about a million and one ways to approach this and just so you know (like you couldn’t have guessed!), I’m no expert. There are lots of folks out there who make their living buying and selling practices. However, there’s some uncommon “wisdom” I’d like to bring to the table and make you aware of…

            First and foremost: Can you take/make your existing practice better by investing a small amount of money into it – say ¼ of what you’d spend to buy a new one? (If you’re looking strictly to acquire pts from the purchase.)

            Next: WHY is the seller REALLY selling? And, is all the dentistry “done” that can be on existing patients?

            How much will it REALLY cost you to buy? Let’s say the asking price is $500,000.00. Believe it or not, you’ll spend, unless you pay cash, over $2,000,000.00 for it after you consider taxes, interest and so on. Are you sure you want to do that?

            Bear in mind that 50% or so of a “purchased” practice’s patients will leave within a year. So, would your seller consider taking a payment based on the number of actives you actually GET?

            If a “purchased” practice loses 50% or so of those patients and you wanted to buy it merely to expand your own practice, could you acquire those or a portion of those through aggressive, less costly methods? I’m thinking specifically of ADVERTISING!

            Scary thought: I had a client recently pay over $900,000 for a new practice. That didn’t include real estate – it was merely the build-out and equipment.

            The approach we use (and no, it may not be the best but it sure as heck makes sense for me) is to invest a modest amount, say $70,000, into 3 ops which are completely outfitted and ready, and invest $830,000 in marketing! You can ADD-ON and build a more technically sophisticated office with your profits!

 

            Obviously, that statement is somewhat tongue-in-cheek, but you get the gist of it. Invest what you have to in the minimal infrastructure and invest the rest in staff (they will sell more for you than some whacky piece of equipment ANYWAY!), management training/systems and marketing!

            You can upgrade later, with self-financed activities, That way, you’re more liquid and less cash-strapped and tied in long-term with a lender who holds their heavy hand over you.

            Like I said, this is one way and there are others.

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