If you’re on the hunt for a great practice to buy, knowing how to look is one thing, but knowing just what you’re looking for? That’s something else entirely.
Here are the top 3 three things I look at when I’m helping a client assess a potential practice to buy:
- Collections
In other words: how much money does this practice bring in?
Collections are NOT the same thing as Production. Production is the worth of all the dental work the practice performs—or put another way, Production is how much, theoretically, the practice should be bringing in.
But between insurance disputes, patients who ghost you, and many other reasons, a practice won’t collect 100% of its productions. Still, it should get as close as possible. The amount that actually comes in and hits the bank account? That’s Collections.
With that definition in mind, My benchmark for a good practice is about $700-800K in annual collections. That amount will bring you the income you need as an owner, and ensure a healthy practice in the long-term.
Are there exceptions to that rule? Yes! I’ve seen decent practices that collect well under that benchmark. But it’s still a good rule of thumb: look for a practice bringing in enough to support itself—and you.
- Profitability
Didn’t we just talk about profitability? Not quite. If Collections is the total amount that the practice is bringing in, then profit is the amount left over for … YOU.
What we’re looking for here is Overhead, which is simply the amount it costs to run a practice. A practice’s expenses, from labs and supplies to staff wages and rent and much more, make up Overhead. So if we know how much a practice takes in, and we know how much it spends, then we know how much is left over for you to take home.
Let’s take a $1M practice as an example. Now let’s say that practice has 70% overhead. That means every year the owner of that practice is taking home $300K. If the same practice had overhead of 63%? Now the owner is taking home $370K. Quite the pay bump.
- Geography
Two questions: Where do you want to live? and Where do you want to work?
When I talk about geography, I’m talking about what state, county, city you want to live in. That’s obviously important, both for you and any spouses, partners, or kids you’re bringing with you.
But drilling down a little more, take a look at the location of the practice itself and ask yourself: is this a practice you can see yourself working at? You’ll be driving here nearly every day, so how’s the commute? Do you like the neighborhood? And so on.
Paying attention to geography is more than just a point on the map! Though that’s important too.
When you think you may have found a good practice, take a look at those three factors. If it looks good, or if you need help interpreting what you’re looking at, then give me a call. Let’s get you from “that’s a great practice” to “I own that great practice!”
