DENTAL PRACTICE ARTICLES
How to Prepare Your Practice When it’s Time to Sell
After investing many years in building and growing your practice, you have decided that it’s time to sell. It’s not easy letting go, but when you are ready, here are some tips on how to prepare for the sale. Here are ten points that would be attractive to a purchaser from my perspective.
1. Practice Efficiency
An efficiently run practice should be using benchmarks and have an operating budget in place. Apply strategies for continuous improvement so the purchaser knows that the practice has not become stagnant and the staff have not become complacent. Look at how treatment planning is being done and the percentage of cases presented compared to those that are booked. Is the practice insurance driven or patient centered?
The repairs and maintenance should be 1% or less. If they are higher it could indicate aging equipment or inappropriate care of the existing equipment.
Dental sundry supplies should run at 5% of production or less. If the metric exceeds that, it could be the result of over-ordering, inefficient inventory control or improper allocation of expenses. Sundries must be limited to consumable items that are used up in the course of treatment in your office. Equipment or items that have longer-term value for the practice may have a depreciation value.
2. Human Resources Management
Is the staff under contracts? If not, they should be. This reduces the liability of the new owner in the event that he/she has to terminate a staff member. Without contracts the new owner will assume the length of service that the employees have worked with the previous owner. Contracts will limit the liability of the new owner to the minimum standards in accordance with the Employment Standards Act.
A lawyer who specializes in employment law should prepare contracts. The office should also have an employee policies manual that outlines the terms of employment at the office as well as job descriptions and a system of regular performance reviews.
3. Staff Costs
The staff costs should be 22 – 25% or lower. Inefficiencies in appointment scheduling will cause the staff costs to be high. Look at the number of no shows and short notice cancellations. If this is occurring on a regular basis, there are likely inefficiencies in how appointments are being scheduled. Are patients being allowed to cancel at short notice? If you would like a sample appointment scheduling protocol, please send an email to firstname.lastname@example.org with the subject line “appointment scheduling protocol.”
4. Continuing Care System
How many patients are on active recall? Do you have periodontal program in place and are patients keeping their appointments? The patients must know that this is an active disease that requires active therapy. Many offices schedule perio patients according to their insurance benefits plan instead of their clinical needs. You must treat the patient and not the insurance plan. Also, look at how the hygienists are billing for their treatment time. The scaling unit is total treatment time, not just scaler to tooth time.
5. Accounts Receivable –A/R
What is the quality of the accounts receivable? Many assignment practices usually have a poor quality of A/R. Most insurance companies are paying the patient (or subscriber), not the dental office, making the money more difficult to collect.
If there are outstanding accounts over 90-day accounts that indicates patients are allowed to leave without paying. If the patients haven’t paid for the services that they received 3 months ago, they have no intention of paying at all. It is the quality of you’re A/R, not quantity that is important, especially to the bank manager.
6. Computer Software
Does the software need to be replaced? If so, the buyer would have to look at performing a chart purge and then incurring the costs of upgrading the computers, purchasing the software, converting the records and training the staff. This would result in reduced production and higher expenses. The selling dentist should invest in upgrading and conditioning the records for the new owner to make the conversion to a new system easier.
Don’t spend a lot on renovations, but it wouldn’t hurt to freshen things up with coat of paint and having a more up to date look. The new owner will likely have his/her own ideas about the decor. Just like when you sell a house, reduce the clutter, have everything clean and organized and fresh in appearance.
8. Flow of New Patients
You should have a good flow of new patients, even if you are slowing down. Look at how new patients can find your practice. The staff that stays with the new owner must have excellent communication skills to make the transition go well. Patients need to be reassured that everything is going to be o.k.
9. Transitioning the Patients
Be willing to stay on for a limited period of time and begin transitioning the patients to the new owner. You should make the introduction of the new owner to the existing patients and reassure the patients that they are in good hands.
10. Quality of the Patient Base
Goodwill is one of the highest costs to the purchaser, so part of their due diligence will be examining the quality of the patient base. How many active patients are truly active? Is the patient base aging? Are there more seniors than young families? If the buyer is looking to perform implants, then an older patient base would be perfect, but if the buyer is looking to treat young families or upcoming professionals then an older patient base may not be ideal.
It may not be easy letting go, but if you prepare your practice in advance of the sale, there is a greater chance that you will receive full value for your practice and make the transition to retirement as seamless as possible. Enjoy your retirement with the peace of mind knowing that your practice and your patients are in good hands.