My good friend and fellow townie (that’s what we call members of dentaltown.com, the forums board) Dr. Tom Bonsack posted a great thread on dentaltown with that question, “What’s most important to YOU when looking to purchase a practice?” It got a lot of great feedback from people with different perspectives so I thought I’d blog about it. Keep in mind, I won’t be telling what SHOULD be important to you, just giving you some food for thought as you contemplate purchasing a practice.
Since I am a CPA/CVA that represents buyers across our great nation I thought I’d start with some of the financial aspects that you, the buyer, may find important.This is part one in a series of five.
SO what’s the first thing you think a buyer considers when it comes to a practice they may want to purchase? Price, right? What’s the price? While this is very important, I will tell you that many times it’s NOT the most important financial piece you should be looking at. In fact, I gave a presentation at the 2014 townie meeting in Vegas on this very issue and you can actually still view that presentation here.
So what could be more important than price when it comes to the financial aspects of buying a practice? What about cash flow? Sometimes both buyers and sellers get so focused on price that they overlook cash flow, after all, that’s what’s going to service the debt to pay the purchase price isn’t it? What makes up cash flow? Collections and expenses. So to understand the cash flow that YOU will have, you have to dig a little deeper and drill down into the collections and expenses.
For collections, you need to understand how they’re generated…collections can only be generated from the production of the providers. For this blog I’m going to focus on a GP practice. You have to look at the production by providers, the doctor and the hygienists and analyze who’s doing what and understand their relationship to each other. As the doctor buying the practice you need to ascertain what procedures the seller is doing, what procedures you do, are they the same? Does the seller perform procedures that you don’t & vice versa? Can you increase production by adding procedure the seller doesn't offer? Is the hygiene department performing the same procedures that you want them to? What about the frequency of those procedures? What about their recall system? All of these impact the collections.
What about the payors? Is it a fee-for-service (FFS) practice? Is it a PPO practice? Maybe a 60/40 mix of PPO & FFS? Do they accept Medicaid patients? Which PPOs do they participate with? Are you familiar with the delta premier issue? Again, all these things impact collections.
What about their fee schedule? How do the procedure fees stack up to the other practices in the area? When was the last time they raised fees? Even if their fees seem to be where you’d want them for the area, what about the fees for procedures they rarely or never offer and you do, where to they stand?
These are all the issues a buyer needs to consider when evaluating the revenue aspect of a practice and decide what’s most important to him/her with regard to these revenue issues. Part II will talk about the overhead aspect of the cash flow-financial aspects of the practice you’re looking to purchase.
Tim Lott, CPA, CVA has decades of experiences working with dentists at all stages of their careers. He is a regular speaker at study clubs, societies, and dental schools. Tim is a partner at Naden/Lean, of which the Dental CPAs is a division. You can reach Tim attlott@dentalcpas.com or (800) 772-1065.