Buying a dental office? What should you look for? What pitfalls should you avoid, and how should you go about this process? Mark and Howie explain.

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Podcast Highlights:

  • What does the local market look like?
  • What is your doctor:patient ratio?
  • Is there a reason the practice is being sold?
  • Criteria for moving
  • Where to get demographic data
  • Finding the top dental markets nearby
  • The “near me” mistake
  • What are you REALLY paying for?
  • Goodwill and patient base
  • What’s REALLY an active patient?
  • What was the previous doctor doing for the last 5-8 years
  • What does the team look like?
  • Avoiding the “hostage situation”

Podcast Transcription:

Hello, and welcome once again to the Dental Marketing Mastery series. This podcast is brought to you by DentalWebContent.com and New Patients Incorporated. I’m Howie Horrocks, the Founder of New Patients Incorporated, along with me once again, as my friend and partner and the President of New Patients Incorporated, Mark Dilatush.

Howie: Well, hello, everybody. Welcome once again to our podcast. And we’ve got a very sad, Mark Dilatush on the other end of the phone.

Mark: Oh, stop.

Howie: You knew I had to say something.

Mark: I know. I know. If it was the other way around, I would have said something.

Howie: Exactly.

Mark: Eagles lost to the Seahawks. That’s why he’s gloating.

Howie: Yeah, on Sunday night in front of a national audience. I just thought I’d throw that in there.

Mark: Yeah, yeah, whatever.

Howie: Actually, I’m surprised my team won, your team has been hotter than a pistol. Well, enough about that stuff. We’re gonna we’re going to introduce a new topic today, right, Mark?

Mark: Yes, we are. And it’s a topic that it comes to us in all kinds of permutations. And normally, it comes to us after several mistakes are made. So, whenever something like that happens, we create a little category for our podcasts and for our articles, or books, or whatever we write. Try and help people from avoiding some of these pitfalls kind of make sense? Right? So, the title of this podcast is “I’m planning for buying a dental office. But before I do…”

Howie: Hm, Yeah.

Mark: This may actually have multiple parts to it. Because we really, we flushed this out in a conversation, and I we both agree, this could take 2, 3, 4, 5, 10 podcasts if we really want to get detailed. So, it’s…

Howie: It’s a big topic it is.

Mark: It’s a big topic. So um, let’s just jump right in I, what Mistake number one that we see is a dentist who says, I’m a dentist and I’ve got my maybe I did my residency. And maybe I spent a year or two out there as an associate, and I an looking forward to buying a dental office. And I’m going to practice in an area that’s right next to where I live, or an area that I think just from visual cues looks like people who have money, or maybe just the area of town that has to that has available practices for sale, or the or whatever, some criteria other than the one it should be. So

Howie: Right.. What should it be?

Mark: Right. What should it be so here’s your buying a business, you need to make sure that the local market can support that business moving forward. OK, so the very first top of the pyramid should be the doctor patient ratio of any given market, before you give that potential seller more than 20 minutes of your time.

Howie: Right.

Mark: What good does it do with a seller selling a practice in a one to 800 market that that they can’t penetrate?

Howie: Exactly. It might be the reason they’re selling.

Mark: Exactly. Trust me, it could very well be the reason.

Howie: And you don’t want to you don’t want to be the recipient of that.

Howie: Right. Yes. So, the doctor patient ratio should be the leading indicator of where you spend your search time. So, then the next thing is, you say, Well, how do I find out the best markets in my area? Well, this actually goes all the way back to your personal life. Can you move?  Because it doesn’t make any sense to just look within 30-minute commute of where you live right now, if it’s possible for you to move. Because if it’s possible for you to move the world – is your oyster man, you could move. You could be a Pedodontist in southeastern Indiana and have a 1 to 45; it’s a 1 to 45,000 market, you have a $2 million pedo practice in a year, you want to move? See, that’s how powerful the doctor patient ratio is, it could actually determine some life choices that you make.

So, what’s more important for you? Living where you are right now, with your circle of influence where you are right now? Or is it possible for you to potentially move to a new market? So maybe you like mountain biking? And you might want to move to Colorado? Or, you know, maybe you like I don’t know, thunderstorms and you went want to move to Houston? Right? Whatever you like, um, you know, that has to come into it too. And whether or not you are either cemented where you are. Being cemented where you are simply limits your options. Being able to move opens up a world to you. Okay, so that’s the first determination. Can I move?

Let’s assume the answer’s no. Let’s assume that, all right, I can’t move. I’m married, I have kids or my family, whatever my friends, my hobbies, other business interests are all here. And I want to stay here, I want to raise my family here, wherever here is. What you really need now is to determine how far am I willing to commute to go to and from work? And in many cases, the doctors will make that a really short amount of time, five minutes, eight minutes. Well, it’s a really short amount of time, again, you’re limiting yourself, there could be a tremendous dental market eight miles out, and you’ve limited yourself to a five-minute commute. Okay, so don’t do that. Spread your circle out as far as you’re willing to go and then go another 10% or 20%, just to see what’s out there.

So, you have your home, you have your amount of time you’re willing to commute to and from your office each day, that basically creates a circle. And you take that circle to the various, there’s reporting companies out there demographic of reporting companies, for dentists who can do Wide Area searches and report back to you on the top five or six markets within your driving radius. Well, you know what, that’s where I would start. It’s kind of like Walmart, you know, are you think of yourself like or over here in the northeast, WaWa or out there in the West 7-11 or, you know, convenience store, you’re not going to put a convenience store right next to a another, you’re not gonna put a 7-11 right next to another 711. Right?

So, you create a map, you map out all the existing 7-11s. And you open, you look for the open spot? Well, that’s kind of what you’re doing with this, right? You’re just you’re saying, okay, I live here, I’m willing to travel this, this amount of time, in all directions. And I really like to find the top four or five dental markets within that sphere, within that circle. And once you do that, now you have a list of zip codes that you can take to a practice broker, or maybe pay attention online, or maybe I don’t know, some online forums that you might be a member of, or maybe inquire of some dentist within those zip codes if they were thinking about or contemplating selling their practice anytime soon. That’s how you do it.

Howie: Yeah, I mean, that’s also a much more economical way of obtaining a practice. Just pick one up that’s already existing and rolling, and instead of building a start-up from the ground up, that’s mega risky right there. But

Mark: Yeah, I mean, I have like we have these conversations all time with Dr. O’Collins. Say hi, I’m really excited. I just bought my practice in, I don’t know Bellevue, Washington.

Howie: Oh, boy.

Mark: And I say “Why? Why did you buy that practice? It’s a 1 to, you know, 600? “ And, you know, you’re completely unprepared for what’s about to hit you. Why did you buy it? And well, because it’s near me. And that’s the answer, because it’s near me. I was like wow, you know, there’s a, an incredibly expensive mistake could have been avoided way up front, if you just kind of look at this from a, you know, just from 1000 foot elevation from a pure business play standpoint, um each one of these exercises, will give you a much greater chance at being successful.

You know, once you do own a practice, so Okay, so you draw your circle, you get your data, you look only in the best markets, don’t even look in the in the other ones look only in the best markets look for your potential retiring dentists, maybe… maybe you’ll be lucky, maybe there will already be a practice that’s already up for sale in one of these great markets. That’s certainly possible, okay. And you just keep doing it.

Keep doing it, keep doing it, keep doing it. And you know what, sooner or later, you’re going to find your practice. And it you won’t make a decision based on a practices availability of being for sale, you’re going to make a decision based on a practice being in a great dental market, because of that is going to squeeze the value out of whatever your paying for this practice faster than anything, it being in a great market will absolutely help you get a quicker return on whatever you’re investing in the practice.

Howie: Yeah, and that also can be somewhat mitigating factor on the over a bad doctor patient ratio is the area just exploding with growth. Because eventually, that’s going to work in your favor, and everybody else’s favors as well. But then you’re also going to be subject to attracting other dentists just like you to the one growing area. So it’s, it’s kind of tricky.

Mark: Right. Right. Which is why you just take your time and you sit down and your kind of just, you know, just map it out. And you do it logically, and you do it over time, you don’t make emotional decisions. You know, you make them based on as much logic and fact as you possibly can get your hands on. So okay, so let’s keep going, let’s say our, we have our circle. And we have our four or five zip codes, and we’ve gone and spoke to all the older docs out there. And, um, you know what, there’s one that you know, might be willing to have somebody buy in and then ultimately buy out. Well, there you go. Now, once your um or let’s say it’s a straight purchase, there is no real buy in it’s just buy it.

That’s the buy in. It’s one day, it’s like a house transaction. So, before you go do that, remember the whole title of this as I’m planning to buying a dental office, but before I do…, we’re going to share with you some of the and we’re probably going to get ourselves in trouble with some of these evaluation specials but, oh, well, um let’s just realize that if there is no real estate that’s going in with the transaction, and let’s assume that the dental equipment is x years old, and has x value left in it, that the real value, what you’re really paying for is basically patient base, and goodwill.

That’s pretty much the goodwill that the previous dentist created along the way over the years.  And one of the gigantic mistakes that we see constantly, and it’s not the dentist’s fault. They’re, they’re paying professionals to give them this bad information. Is the overestimation of what an established or active patient is?

Howie: Oh, yes.

Mark: So, when you

Howie: The very definition,

Mark: Right. Right. So, you’re going to see these valuation reports, especially if there are brokers and bottom not, I’m not, I’m not picking on brokers. And I’m not picking on CPAs that the valuations that I mean, they’re given principles and guidelines to follow they, they’ve probably been following them for years. And that that’s fine. That’s, that’s fine. But you just need to know how far off those valuations are. That’s your job. That’s not their job, it’s your job to know the truth. Okay.

So, when they start creating numbers of established patients, active patients that that’s the funny word, there is active, they start, they start counting active patients to create the value that you’re paying for. Remember your only option for basically patient charts. Because the buildings for rent or lease and the equipment, probably 15 years old. So, what are you really buying, you’re really buying patient charts. And they’re going to come up with these things called numbers of active patients, and their definition of active patient is going to be a patient that the practice has seen in the last 18 months.

That is not an active patient. I know they’re going to tell you it is and they’re going to say well, this is the way we’ve done it for 37 years, Mark and Howie are telling you that those patients are not necessarily active. 10% of them could be active 90% of them could be active. What we’re doing in your mind is drawing a correlation between your money and that definition, because that’s what you’re paying for you’re paying for active patients. So, let’s take a break, and when I come back, we’ll talk about how to determine how many truly active patients they have.

Howie: Don’t go away. We’ll be right back.

Hey, Mark, how would our audience find out about getting more good reviews?Well, first step is to understand it. There’s minefields in the dental business right now. So let me give you the four keys. One, it has to be simple for your staff, they can actually call in sick, and it’ll still work. Two, it has to be ridiculously simple for your patients to leave Google reviews. Three, it has to be able to separate out the not so good reviews from the great reviews and only send the great reviewers over to your Google Facebook or Yelp. And four, and this is probably the most important only send reviews to platforms where your reviews cannot be taken away.

If anybody has any questions about this, it’s called NPI Crusader, you can just send Howie and I an email or actually you can log on to NewPatientsInc.com and you can schedule your very own appointment to see it in an online meeting that usually takes 15 to 20 minutes. So most people do it over a lunchtime.

Howie: Okay, we are back. We were talking about the definition of an active patient, right?

Mark: We were because they’re overvalued. Um, and dentists overpay. So, the definition of an active patient is any patient that is currently in the schedule or due to be in the schedule in the next 12 months. You can write that down and a patient who is in the currently in the appointment schedule or due to be in the schedule in the next 12 months. That is anyone in the schedule and anyone in active re-care for the next 12 months basically, it is not patient seen in the last three years.

Howie: That is, that’s looking backwards.

Mark: Right. Exactly.

Howie: Right?

Mark: Exactly.

Howie: To tell you what the future is going to be okay.

Mark: Right. So if somebody’s selling you their practice for half a million dollars, right, based on whatever 5000 active patients, and you only see 1000 of them that are in the schedule right now or do to be in the schedule in the next 12 months. You’re spending about what is that? $500 per patient for truly active patients. Okay? Now, the broker is going to say, Well, no, no, last three years, whatever billion active patients came into this practice, well, that is not a real number. It’s a number that they use. So that’s the second thing that we would say the first thing was, choose your select your location carefully, do not select it just because some dentists to selling your practice there.

The second biggest thing we want you to keep your eyes open for is the true definition of an active patient. And here’s why. We would hope that when you’re going to buying a dental office, you would end up with maybe multiple practices to choose from. That’s not unheard of. Right? You can go to zip code A and zip code C and zip code E. And there might even be three practices for sale and you’re looking to determine which of those opportunities is best for you, gives you the best. The best chance of success.

And the way they choose the way they measure active patients. And the way you measure active patients are going to be very different. But if you measure them properly, they are undeniable. In other words, there’s no funny business, anybody can do with those numbers. You just go to the schedule, print a schedule report for the next 12 months. And print and that’s it. And run a, excuse me, run a recall report for the next 12 months, add those two numbers of patients together. Let’s say there’s 600 people who are already in the schedule.

That’s 600. Let’s say there’s 600 people who are due to be in the schedule in re-care over the next 12 months. That’s 606 hundred to 600. And the practice really has about 1200 active charts. Not 5000. Okay, the other 30 whatever, 800. They are not active. I don’t know where they are. I don’t know where they went. Now.

Howie: Yeah, yeah. They, they have a chance to become active, but they’re not right now.

Mark: Exactly. Now,

Howie: It’s a much more realistic look, because I’ll tell you, Mark, and I run into this a lot with new clients or recently acquired practices. And that’s always the complaint. Well, the seller overestimated the number of active patients and I thought I was getting a lot more than I really got now I’m in trouble and I have to work my butt off.

Mark: Well yeah, now you’re paying for the practice paying for the lease space paying for the equipment. You know, your staff. I mean, that was, didn’t, that’s another whole nine podcasts we can go through with the staff. Right? So, you know, but now, now you’re out of marketing money.

Howie: Yeah.

Mark: Right? And that’s when you know, we’re not complaining. But that’s a lot of times, that’s when you call a dental marketing firm, is when you’re broke, right? Well what we’re trying to help you do is not get there. Okay? Whether you call us or not. We’re trying to help you not be broke. So anyway, so step one, choose your location and your office properly step two measure truly active patients. Now the next step beyond that is should be kind of logical. Like what is what is this doctor doing? What was this doctor doing for the last five to eight years? Because there’s all kinds of transition situations, right? Y’all know this.

I mean, there’s the Doctor who, hey, has a very robust active practice, does a really good solid scope of dentistry doesn’t refer hardly anything out um the patients re-care compliance seems excellent. He has just a tremendous dental practice. And it’s, you know, the number of truly active patients is maybe the highest of the three practices you’re looking for, and he’s just a sweetheart of a guy and he just wants to, I don’t know, go fishing, right for the rest of his retirement life. Well, okay, here’s the problem with that scenario is everybody mouth is probably really clean. And there’s probably hardly any dentistry you’re going to get out of the patient’s mouth.

Howie: Yeah, it’s already been done.

Mark: It’s already been done. Guys, an awesome guy, great clinician, wonderful diagnostician, patients seem to be really happy with him. And he’s very active, does marketing, has market has all this stuff all in line, it looks like the perfect practice until you get in there. And everything looks really clean. On an X-Ray, okay. You have the opposite scenario where you have the dentist who’s kind of lost interest, I guess, look,

Howie: Lost his Mojo.

Mark: What, lost his Mojo. There you go. Thanks Howie, lost his mojo, you know, for dentistry. And it kind of it’s kind of a means to an end, you know, it’s a living on and, you know, the three day practice three day week, practice, maybe three and a half. Couldn’t ever see him doing this for four days a week, oh, my God, it would kill. Right?

And, you know, he’s been kind of just if he, you know, he does is he does his composites, does a crown here and there, sends out all of his endo, all of his ortho, most of his perio, only restores implants, doesn’t do any of that stuff. Invisalign shmis-align, you know, that kind of dentist, right? But maybe his active patient base is pretty low. Right? I mean, you know, is active.

Anyway, there are mitigating factors to everything that we’re saying. You could have great, truly active patient numbers with a great dentist with incredibly compliant patients. So, the active patient number isn’t the only thing you look at. But it’s certainly one of the things that you look at, and you don’t base it on what the value what the CPA tells you is a quote unquote, active patient that’s been seen in the last 18 months, that’s just kind of insanity.

Um, now beyond what kind of a dental office this is, you’re, you’re going to want to take a look at the team. And this is where, you know, it’s kind of funny. We walk through life with hundreds of dentists through our careers. And when it comes to acquiring a dental practice, the acquirer at some point, it’s very infrequent that a dentist will only replace one or two people who were there before.

It’s usually the staff that was there is truly an excellent staff and they keep them all, or, a certain period of time goes by and the new acquiring Dr. nervous to do anything with the staff because the staff knows every patient in the office and that’s what they bought, you know, they basically bought patient charts. Certainly, doesn’t want to upset that apple cart, do anything with those staff, he wants to keep them all in place, keep them all happy goes overboard to the point of almost ridiculousness. And then finds out a year or two or three later that basically this is an enormous hostage situation. And they have to clean house.

Okay, so um, I guess that to end this podcast, I would say that the first three things that you pay attention to when you’re buying a dental office is absolutely the market and location. What market what’s the viability of the market that this practice that you’re going to buy is located in, that is absolutely top of the pyramid.

The second one is, what’s the real number of truly active patients in this practice, because they can be elevated artificially left or right, by just using the typical has visited the office in the last 18 months rule. And the third one is the staff.

Now the third one is we’re usually the hardest one, or the most difficult one to assess if you’re buying a dental practice outright, in other words, if you’re not an associate in the practice, already, you’ve had no time to get used to the team. You’ve had no time to interact with them and good situations and bad situations, confusing situations, upsetting situations. Um, if you if you haven’t had any of that time assessing staff is or can be very difficult.

Chances are the selling dentist loves them all. But equally chances of you loving them are you know, basically 50/50 cause the dentist that owns a practice right now may himself or herself being an equal hostage situation so and they’re just sitting there waiting to sell their practice and they figured they’ll hand that issue over to the new the new guy or gal who owns the practice. So. So these are three, three things that Howie and I wanted you to pay attention to.

Um, know I am planning to buying a dental practice. But before I do dot, dot, dot, I will pay attention to the market I buy into, I absolutely will understand what a true active patient is. And I will as best as I can try to assess the team to see if there’s, there are people that I can work with, or people that I’m going to have to change over. And that’s

Howie: Three golden rules right there.

Mark: Three golden rules.

Howie: All right. Thank you for listening, and we hope you enjoyed the podcast. We hope you tune us in again next time. Bye now.

We hope you’ve enjoyed our podcast today. You can find more podcasts on our YouTube channel, on Stitcher and iTunes, also on our websites, dentalwebcontent.com and newpatientsinc.com.