You can look at seven numbers to get a sense of whether a practice you’re considering buying is worth your time. I’ll outline exactly what to look for in a practice you’re considering purchasing.
Key Number #1 – Collections – The foundation of whether to purchase any practice must be collections. There simply must be enough money coming into the practice to justify the time, stress, and incredible expense you’re going to take on as the owner of a practice.
I recommend clients look at practices that have a minimum collections level of $800,000 a year. Over $1 Million is even better. I’ve found, while not an iron-clad rule, practices collecting above that level tend to have good systems, solid staff, good locations, and all the foundational pieces you want as a business owner.
On top of being well run, the projected cash flow numbers in practices that size tend to provide enough income to cover the practice loans, student loans and the desired lifestyle of newer dentists.
Could you find a turnaround practice that has been mismanaged for years, buy it at a cheap price and turn it around? Possibly, but unlikely.
More likely, the cheap practice you’re looking at is struggling for a reason, and the reason isn’t that the owner isn’t as smart as you.
In 2015 I worked with two clients who were eerily similar. However, one understood the impact of the most important career decision a dentist makes, and the other did not.
You see, one bought a practice collecting $1.2 Million per year, and the other bought a smaller practice collecting only $675 thousand per year. It was fascinating to see what kind of impact that decision had made a few years down the road. And what impact it was likely to make in their life overall.
Other than the practice they bought, they were so similar it was scary sometimes!
Both clients went to the University of Michigan’s Dental School and graduated within a year of each other and happened to be the same age. Both were married, and very personable. I liked talking with both and could tell that they would both have an easy rapport with patients and staff.
Interestingly, both were producing about $80k/month in their respective jobs so they both had comparable hand speed and clinical skills.
Eerie? Yeah, a little. More than once I accidentally called one client the other’s name and vice versa.
However, I was surprised when I checked in with these clients a few months back and asked about their practices and overall financial picture. It was fascinating to me how different the client’s financial picture looked three years later.