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Once you’ve made the decision to purchase a dental practice there are several other factors to decide. The first is where your practice will be located, as to whether it will be in a rural or urban area. While urban areas are heavily populated and might seem to offer a better lifestyle choice, and are likely to be closer to friends, family and amenities, rural practices should not be overlooked. The market value of a rural practice is likely to be less than a similar practice in an urban setting. Rent and staff wages are likely to be lower, improving cash flow and dentists in rural practices often enjoy a larger disposable income. Other important factors to take into account include:
Obviously there is no such thing as the perfect practice, but it can be helpful to grade your requirements in order of priority and to keep in mind that certain less desirable attributes may be able to be changed at a later date at a reasonable cost. Once you have identified a suitable practice the next questions to be asked are if you can afford the asking price and whether you can generate the same income currently being produced by the seller. These questions require careful evaluation of the current production and collections of the seller in comparison to your current capacity and skill levels.
A typical solo practice might be 50 – 80% of its annual gross collections. Gross collections are composed of or the production being generated by the practice hygienist and the remainder being generated by the sole dentist. If you take the total annual collections generated by the dentist alone and divide it by the number of days worked per annum then you will have a good idea as to the daily doctor collections. The average patient produces $375 annually, a figure which can be used to divide daily collections, giving the number of patients seen daily.
This figure can be very revealing, as if the seller reports seeing far fewer patients than calculated then they must be generating revenue from more profitable areas of dentistry, for example through crown and bridge work. In such cases it’s worthwhile considering if this business is the best fit for your skills, or if your strengths lie in other areas that are better suited to another practice. If you feel it is a good match then you can move onto the next important decision.
It’s estimated the average dental practice generates expenses of around 55% to 70% of collections. The remaining 45% to 30% must cover the annual payment on the practice acquisition loan as well as covering personal living expenses of the new owner. It’s also a good idea to leave a certain amount of cash flow as a cushion to ensure day to day bills can be promptly paid, keeping the business running smoothly. If you are confident you can afford to operate this business, and think it is the best fit for your skills then you can complete the practice acquisition transaction.