My Journey to Practice Ownership
Ever since the thought of becoming a dentist crossed my mind as a teenager, I envisioned having a practice of my own. The thought of working for someone conflicted with my desires because many people close to me worked for themselves. I can recall my grandparents owning supermarkets, my dad running multiple businesses and even being privy to practice ownership through my high school mentors. Those formative years led me to this moment. A few years post-residency, armed with a variety of experience in the field of dentistry, my dream of opening my own dental practice would soon take shape.
There are many confusing and overwhelming factors involved in opening your own dental (orthodontics) office. When deciding on opening a dental practice, you must first decide whether you want to start your own dental practice from scratch (build out) or if you want to purchase an existing practice (acquisition). My knowledge of acquiring a practice was limited but with the help of a small team of professionals the process was made much easier. In this blog post we will focus attention on acquisition more so than a startup. For information regarding a start up check out our earlier blog post, see this post.
The decision to go the acquisition route was based on my personal needs and priorities. This will look different for everyone. Although I was not opposed to the idea of a practice start up, I wanted to get into a practice with an existing patient base but also one that allowed me to grow into it. Because of this criteria, finding a practice was not easy. It took months of research and once the “ideal” practice was found, several months of negotiations.
Sources from the internet will tell you that it takes on average 9-12 months from the start of your acquisition search to opening your business. It took me about half that time (including down time due to COVID), mainly due to the buyer and seller’s eagerness to come to an agreement fairly quickly.
Here’s a 2-Step Breakdown of My Process:
Once I decided to purchase a practice I began the search with the help of my husband. We did a fair amount of research on practices that were available for sale in the locations we desired. The first practice opportunity we learned of was through word of mouth but after a few months of negotiating that deal fell apart during our “Due Diligence” phase. I thought it would be difficult to find another practice around my desired location but fortunately a better opportunity arose. This practice was not being advertised through a broker but several dental reps were aware the owner was interested in selling. In between doing our due diligence on this practice we continued researching and visiting other practices, none of which were to our liking. Once we decided to go forward with the practice acquisition the first thing we did was:
Step1 - Assemble Our Acquisition Team
Your acquisition team should include:
o Attorney
o Accountant
o Practice Broker
o Insurance Broker
o Lender
Your team is by far your biggest asset in this process. They are representing you in one of the biggest decisions you will make and should have your best interest at heart. It is important they have a full understanding of your desires and needs and also your financial background. My trusted CPA (who my husband and I have used for years) also has a practice brokerage firm and so it was a no brainer to go with this team. They helped us to assemble the rest of our team which included my attorney, lender and insurance broker. Together they worked diligently to ensure that the practice I was acquiring was financially healthy and that I received the best deal possible (value for the purchase price).
Step 2 - Due Diligence Investigation
This is the bulk of the acquisition process and involves looking into the financial, legal and practice management aspects of the practice. My team and I worked relentlessly on this process. You typically do this investigation after a letter of intent (LOI) is signed but before a purchase agreement.
My attorney performed the legal due diligence and drew up all the legal paperwork. Legal due diligence must be done to ensure the practice is in good legal standing with federal and state agencies. This process is about finding out as much as possible about what you are buying so as to minimize legal risks. During this time we evaluated and assessed the equipment, inventory, trademarks and intellectual property, accounts receivable, real property (either leased or owned), lien status - that is no liabilities/expenses including bank loans, employee benefits and bonuses, any licensing fees, and performed searches for any pending lawsuits.
Other areas evaluated during this period:
Patient base- It gives a snapshot into the demographics of the practice. This is important for several reasons. As an Orthodontist, what I factored in was the percentage of adult versus child patients. Some Orthodontists have a preference in the age group they they want to treat.
Current number of active patients - this is done to determine not only the size of the practice but to gauge room for growth.
Patient records to ensure they are complete and up to your standards.
Staff - this is very important as the staff are the bridge between the patients and the doctor. They are an integral part to a smooth transition and ultimately to retention of some patients.
Business and Financial Systems, which included the dental/orthodontic software that are being utilized, scheduling philosophy, payment methods and insurances accepted by the practice.
Location & Marketplace – when choosing a practice, location is one of the major decisions as it can have a direct affect on your marketing strategy and growth potential. You should always do your market research: describe the competition, check the number of doctors in the area (within a 1, 3, 5 mile radius) as this can affect your practice’s growth. You should know the population density of the area, consider access to parking, access to public transportation and signage (for visibility and marketing purposes).
Examination of the Facility - you have to like the space, but beyond just that you need to to predict and plan for future expenses. That means you must assess the design, the age of all equipment, the office layout, esthetics and conditions of each aspect of the office space to determine if there is room for growth (expansion).
Cash Flow – this is a big one! It not only tells you how healthy the practice is but plays a major role in the purchase price of the practice. Things we checked (and that everyone acquiring a practice should) included monthly production and collections reports, collections as a percentage of production, how much is owed to the practice’s accounts receivable, assessment of cash flow vs expenses.
Marketing – depending on the location your marketing may look different. While doing your due diligence be sure to check the practice’s referral sources, how marketing is done and whether it’s internal (word of mouth from existing patients) or external.
Why I Chose Downtown Washington, DC for My Practice
2020 Dental Demographics - Washington, DC
I attended Dental School and Orthodontic Residency in Washington, DC and it is one of my favorite cities because of its culture, diversity and overall progressiveness. Even though I have lived in other cities, DC felt like home and I always had plans to move back when it was time to open my own practice. It helped also that my husband is a DC area native, so the decision to move back was easy.
Downtown Washington, DC has a population of 714, 153 residents according to 2020 demographic data, of which is 45.4% are black, 42.5% are white, 4.1% are Asian and the other 8% a mix of various races. It is also home to a lot of businesses, dental practices included. According to 2020 dental demographic information, there are currently 33 Orthodontics practices in Washington, DC each servicing an average on 4,279 residents each. According to this data, even though there is a high number of Orthodontists the population is there to create less of a competitive atmosphere among us specialists. Of the practicing Orthodontists in the downtown Washington, DC area there aren’t very many female Orthodontists and when you narrow it down to black female Orthodontist there weren’t any, until now. This is where I fill a void.
The practice was located in a medical high rise building of just 4 floors with a balcony and a place for signage(great for marketing) on the front of the building. It encompasses an entire floor of the building and even has parking spots(definitely a premium in DC). Now that we have it, the real work of keeping it and being profitable are at the forefront.
If you are looking to purchase a practice, whether an acquisition or start up/build out, I am willing to share my contacts with you. Just shoot me a quick email here.
