The dream of all dentists is to own their dental practice at some point in their lives. They should aim to make this dream a reality sooner rather than later. However, there are some common but serious mistakes most dentists make when buying a dental practice. It’s better for you, growing dentists, to be armed with the necessary knowledge to avoid these pitfalls.
This was the subject covered under the Thriving Dentist podcast titled ‘Biggest mistakes dentists make when purchasing a practice’, hosted by Naren Arulrajah, CEO of Ekwa Marketing, and Gary Takacs of Life Smiles Dental Care.
Gary believes that the best possible career path for dentists is to own their practice, though it may not be the desired goal for everyone. You may still be in the early stages of your career and considering buying your first practice; you may already own one office and are thinking of purchasing another; or you may be a senior practitioner with several offices in your name and considering a transition. It’s better to be aware of these potholes and speed bumps, so you can avoid them, regardless of the stage in your career.
Weak due diligence
Among the many mistakes dentists make when finalizing a practice acquisition is weak due diligence, which means the buyer made the purchase without researching the buy based solely on outward appearance. You must get a good understanding of what you are buying, with all the necessary information obtained from the selling party, be it a broker or otherwise. Such information should include the number of active buyers, based on the number of active patients who had visited the practice for treatments within the last 18 months (two years during the Covid-19 pandemic); what percentage of active patients are PPO patients; details about any leases, etc. Dentists must do their research, read the fine print, and ask questions before taking the plunge. Sellers may have the disclaimer ‘To the best of our knowledge’. However, buyers should always do their homework. They must figure out whether the price of the practice represents its actual value.
Retaining old staff
Another grave mistake committed by many dentists after buying a dental practice is to retain team members who have zero interest in their vision. Most old employees may view the new doctor with skepticism and may be hostile to anticipated changes that are part and parcel of a transition. The way to do this is to become familiar with the team early on, share your vision with them, and find out whether they follow on. A thriving practice isn’t possible without a high-performance team!
Patients may prefer to see at least some of the old staff, as they would welcome familiarity with the new setup. However, if there are staff members who are not going to accept your vision and perspectives, they are going to drag your practice down. In such a situation, the best course of action you can take is to let them go if discussions with them won’t work. Of course, you need to pay heed to the HR regulations in your particular state, so be ready to learn all about them. You should ideally have staff members who believe in your vision and direction and are willing to look at them positively. Such passionate staff members will take your practice to new heights.
Accounts receivable
Mistake number three is questions about purchasing or not purchasing the accounts receivable. How you proceed here depends, and it could be disastrous either way. Ideally, you should purchase the accounts receivable because then, you will have an ongoing cash flow to the practice. Accounts receivable fall into two categories – insurance accounts receivable, which is any money owed from insurance companies still being processed, and patient accounts receivable, which is any outstanding balance with existing patients. The purchase of the accounts receivable should guarantee you continuity of cash flow.
The value of the accounts receivable, called factoring, can be determined based on the age of the accounts receivable. There’s the category of contracts receivable too. You will have a cash flow problem if you don’t purchase the accounts receivable because if the practice you are buying is insurance-based, it’s going to take a while for your treatments and claims to come in. So, there could be an initial cash flow crunch that you should be prepared to cover through some means.
Selling doctor staying on
The fourth mistake relates to the selling doctor staying on after the sale. That could be a good thing or the biggest mistake you could ever commit, depending on many variables. For example, if a younger doctor, who doesn’t have much experience with complex full-mouth restorative dentistry, is buying the practice from a senior doctor who is highly experienced in the procedure, the buyer can keep the seller to continue the treatment until he gathers the necessary experience. However, this should be for a short period. Because if the seller continues to stay on, patients will prefer to consult him rather than the new doctor as they are more familiar with the former. Having the selling doctor could be a deterrent to patients consulting the new doctor. This could be solved to some extent if you get the senior doctor to stop carrying out certain procedures and refer patients to you instead for those services. If you can get the selling doctor to introduce you to his patients, it will be advantageous to you. This way, no one would feel disadvantaged.
The fifth mistake, added to the list later on, is falling in love with the practice even if data doesn’t identify it as the right choice for you. Don’t settle for anything less than what you feel is the best.
A dentist planning to buy a new dental practice should proceed with eyes open. If these mistakes can be avoided, you will find your practice thriving in no time.
Want to learn more about buying a dental practice and the pitfalls you must avoid when doing so?
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