The practice I am looking at buying:
Practice is in a blue collar town with a population of 25,000. The population make up looks good to me as well as the average income (15% at 2k, 15% at 25k, and 20% at 25-50k). There are 13 dentists in town, 3 of which work in the same building as the seller (more to come about this). The practice has been there for the past 40 years but the building practically looks new.
Practice overview:
2007: 500K with 46% OH
2008: 430k with 45% OH
2009: 530k with 50% OH
Have you verified OH? With seller owning a portion of the R/E, you have to wonder how they've factored in FM rent and other potential R/E pass-throughs that tenants might usually pay.
Asking price: 345K
Real estate: 158K
The practice has 3 ops for the doctor. It is all equipped with digital x ray and cam, NO2 in all ops, TV monitors for patients in all ops.
The seller has 2 ops for hygieine which he shares with one other doctor in the building.
Issue #1:Are you going to be happy with that sharing arrangement? The hours you get them? What if you need more time in the chairs, how is that handled?
The building is 5500 ft and shared by 4 dentists altogether. The building was appraised at 630k and the seller wants 158K for the 1/4 (his part of the building) of the total building.
Issue #2: If you buy the real estate you now have 3 partners. You don't know them and they don't know you. Is there a partnership agreement? If issues regarding the building come up you're the "new kid on the block" with 3 votes against you.
The only thing the seller shares is the waiting room and the laundry room with all doctors.
Issue #3: Again, you're sharing with people you don't even know. Are your decorating tastes the same as theirs? If you want to add things to the waiting room that they don't what happens?
The 2 hygienists and the two hygiene ops but shares with only one other doctor.
So you also share the hygienists? Issue #4 Sharing staff is always difficult, especially when you're the "new" boss.
The seller space comes to be about 1500 ft. All four practices are separate other than what I mentioned above. The seller has two DA’s and one receptionist/manager. The practice is mostly FFS and few PPO insurances. The doctor works 3 days per week. The seller refers out molar endo, implant restorations, perio (SRP), ortho. The RDH only do prophies (2 per hour) but they are booked solid for 2 months.
Ok, 30 minute prophys - is that you're style? What if you want to move to 50 minute prophys, will that be a difficult change for them? Is that going to be different then the other doctor they work for? On the upside it sounds like a busy practice with a nice stable hygiene base. Of the gross revenue, what's the breakdown between doctor and hygiene production?
I like the practice a lot in that I think there is a lot of potential. I plan on doing the perio and not referring them out. What worries me is the fact that I would share the two hygiene rooms and the two hygienists. What would happen down the road if I want to get rid of one etc?
It's good to "worry" about that now.
I would love to get your opinion on this. What would be the fair price for this practice? When do I start negotiating?
No way to even guess at a figure without so much more info and without doing the due diligence. I'm assuming the doctors also covered for one another while they vacationed and since they're in the same space ever consider what a patient might do if they don't want to see you? Maybe see the other doctors in the space? That's another issue you need to consider.
It’s a very complicated set of facts that you'll have to weigh for this practice. Good luck.
Thanks Tim appreciate your input. I know this is a unique and different kind of opportunity. I am still not 100% sold on it and that’s why I am here. I will find out about what kind of agreements there are between the 4 owners regarding real estate. I have brought up some issues to the seller you pointed out and I was assured that I will be the boss in my practice and whatever I choose to do is what will happen. The way they utilize the two hygienists is that for every 3 minutes of prophy the doctor pays $23 to the hygienist and I am told this $23 includes the prophy supplies and the hygienist wages. If I choose to do one hour prophies then I will have to allocate $46 to go towards hygiene wage and supplies. What I find very weird is that all 4 doctors refer SRP. There is no way in hell I would do that. I plan on utilizing the hygiene to do 2 quads of SRP per hour which means it would cost me $46.
As for the hygiene total production the two hygienists produced $80k which comes to be 15% of the total production.
Well that appears to be a problem. They’re booked out 2 months because they're being shared by another doctor so how much can you grow in patient count? Is there chair time to add hygiene hours? $80k in hygiene with 30 minute appointments seems very low and 15% of total production doesn't indicate a healthy practice profile either.
Just seems like too many downsides with not much in upside....
This first appeared on Dentaltown.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
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