I recently met up with a client who had ventured into buying her first dental practice. The lady was attending a lecture about buying and selling dental practices. In this lecture we discussed the need for obtaining the last three years accounts and not just Management figures. I explained that the reason behind asking for the last three years figures is to help you identify any trends and to see if anything has suddenly reduced over those financial periods. It gives you great insight into how the business is performing and can highlight any potential issues going forward. Some examples of this are
- Staff wages – have they been increasing by the same amount each year, as you may be contractually tied to increasing the wages by that amount each year too. There are also other wages in there that can be stripped out also.
- Materials and laboratory fees – do theses tally to the current trends in the market.
These are just two areas I look at when reviewing the accounts for a dental practice purchase on behalf of a client.
Indeed, all the points I raised during the lecture had happened to the lady dentist and over the course of the hour her faced drained of colour and she began to look unwell. She approached me at the end of the lecture and told me she wished she had asked the questions I raised, as everything I had mentioned had happened and now she was in financial difficulty.
Over the years many dentists have purchased practices and some have done so after looking at the accounts in a two-dimensional vision only i.e. the turnover is increasing and the net profit too, so all must be well. In general terms that might be okay, but the net profit may not have increased pro-rata and it is important to understand what is happening between these figures within the accounts. This is where sound financial advice is needed and a broker that truly understands the market and is completely independent.
I have over the years advised numerous purchasers to walk away from a practice purchase and yet some have gone ahead and later regretted the decision. As a broker I must be strong and clear with clients and let them know that despite their dreams and aspirations being knocked they are making the right decision. Not every practice you see will fit the bill and unless the price is right and the potential for a healthy income is there, are you making the right move?
I like to spend time with my client discussing and investigating the practice that they are interested in purchasing. If the whole package stacks up and the purchase proceeds, we all end up with the desired outcome and my client will go on to develop and grow the business. However, if I find areas of concern and they walk away, there will always be another surgery coming up on the market.
Remember! There is no need to rush into the first practice you see! Take your time and most importantly, take the advice of someone who understands the market and the important processes of buying a dental practice.
About the Author
Bill Carr is a Medifinance Consultant
Bill has over 28 years of experience in the banking Sector and has a solid knowledge of requirements for Business planning, Management Accounts, Applications for finance, Project Management, Covenant testing and Contract negotiations across all healthcare sectors including Dentists, Pharmacists, Opticians, Doctors and Veterinary Surgeons..