Q: What is the most important quality to look at when buying a dental practice?
A: The most important quality to look at when buying a practice is one with strong office collections.
Now, you are probably one step ahead already and you want to know what the benchmark is for “strong” office collections.
As a general rule of thumb, I strongly encourage you to ignore any practice that is not collecting at least $750,000, preferably $800,000+.
First off, there has to be enough money coming into the practice to justify the time, energy, emotions and expense of owning a business.
Additionally, most often, practices collecting over this amount have proven efficient and consistent.
Finally, the projected cash flow in practices this size tends to provide enough income to cover your practice loan and student loans.
Too often a client will bring me an office that is collecting around $400,000. The appeal is that they will have a smaller loan so it’s not so much of a financial risk… or so they think.
Clients claim to see so much potential in these “modified start-ups”.
“Potential” is a very risky word. If it had so much potential, why wasn’t the seller taking advantage of some simple opportunities you’ve identified that can “turn it around”?
Unfortunately, I don’t have a crystal ball to be able to tell you “Yeah, this one will work.” All we have to go off of is that dangerous word “maybe.”
Is it possible to take a practice like this and turn it around? Yes, but it’s much more of a gamble. More likely, the cheap practice you’re looking at is struggling for a reason and that reason is usually not that the owner isn’t as smart as you.
There’s stress owning a business — even when it’s well-run. Don’t make it harder on yourself by adding the additional stress of trying to get it up and running. Getting into an established practice will put more money in your pocket on day one than a modified start-up, even after a bigger loan payment.
