Purchasing a Diamond in the Rough Dental Practice and Converting it a Million Dollar office in 12 months-Part 1of 3
Kyle Roth, D.D.S., has been a practicing dentist since 1999 and is an author and speaker. He has owned and operated 36 dental offices since graduating from the University of North Carolina at Chapel Hill, where later on, he was an adjunct professor.
First-time dental practice buyers frequently state that their ideal practice purchase will be an aesthetically pleasing facility with a strong focus on crown and bridgework. They want to focus on “their patient type.” They want to buy a turn-key practice that doesn’t require any additional investment to grow. While I see the appeal of such a workplace, I can tell you from personal experience that some of these workplaces are the most difficult to expand. The office frequently spends a lot of money on marketing. They’ve joined a lot of PPOs, only refer out a few specialist operations, and they’re in a crowded dental market where dental offices are as prevalent as nail salons.
While we’ve owned more than ten or fifteen of these offices in the past, I will tell you about my favorite type of office to purchase, and it is THE most overlooked type of office ever!
In a growing area, my favorite office to buy is a fee-for-service-only practice. The ideal office will be able to collect $500k to $600k while maintaining paper charts and a dark room. There is no website, and there is no advertising at all. When you enter the office, you’ll feel as if you’ve been transported back in time, thanks to the seller’s renovations in the 1990s. Two hygienists are overworked, and the earliest opening in their schedule is three months away. Most specialty procedures are referred out, and only fillings, crown and bridge, and cleanings are performed in the office. The doctor’s schedule, however, has holes all over it. He is not busy. It looks like a dying practice to new grads and many banks, and the first reaction is to sprint away from the office.
Wait just a minute. I know this might go against modern logic, but let me tell you what works well in our hands. My partner, Dr. Chris Powell, and I have purchased at least a dozen offices owned by doctors in their late sixties through early eighties. They all shared one common trait. The doctors were exhausted. They still enjoyed seeing patients but did not have a strong passion for dental procedures any longer. As a result, the doctor’s schedule was not full whatsoever. They have become “watch-o-dontists.” They would rather ignore ditched, stained, and fractured amalgams at every recall appointment rather than prep a tooth for a new crown.
The above scenario is not the kind of office you would want to purchase in an old-school business park in a city with little or no growth and no significant new employers locating in that area. If you see an office in those areas with similar criteria, run for your life. Of the 36 dental offices we have owned, there was only one with a significant loss, and I mean substantial. It was in a wealthy Charlotte, NC, suburb. However, there was no real growth in that suburb and very few transient residents. For the most part, everyone had a dentist already, and to top it off, we were located in the back row on the third floor of a hidden business park. The only way people even knew we existed was through a constant and expensive marketing campaign, and even that was not sufficient. Every month at payroll time, we had a cash call for all owners. Ugh!
But alas. Fear not. Find an office with at least five or six operatories (even if you have to get rid of the dentist’s private office and make an office out of it) in a high-growth area, and lots of drive-by traffic, and things might be very different. The key once again is a jam-packed hygiene program. You’ll need to overlook the stained carpet, the photos of untreated, periodontal disease in the hygiene operatories, the brass lamps in the waiting room with faded paintings, and a front desk with windows that slide shut. You can bet there will be signs everywhere that say “no checks,” “no phones in the treatment area,” “no this,” and “no that.” Well….you get the picture.
You’ll need to visualize how the office will appear when it’s entirely decluttered. The cost of new computers, x-ray sensors, and a secondhand digital pan are low. Paint, vinyl plank flooring, and LED lighting are all now affordable, as are digital scanners. When Nomad hand-held units are added, X-ray heads do not need to be updated. A technician can quickly replace the coverings on the dental chairs if they are ripped.
Let’s say it’s an office that’s collecting $600k. If you can purchase that office for, let’s say, 75% or less of one year’s collections, that’s great. Another way to look at it is in the cost per active patient. If you can purchase the practice for less than $300/active patient, you’re getting a good deal. Remember that you can usually make a low-ball offer for these offices because you rarely have significant competition. Be prepared, however. You should either be pre-qualified by a bank or have some cash access because the banks often don’t love these practices.
If you can acquire one of these offices, you will have much work, but it will be super rewarding. Future articles will cover many phases of marketing, renovation, specialty retention, and everything necessary to turn this $600k office into one collecting more than $1m in 12 months! Stay tuned.
Author: Kyle Roth