If you are preparing your practice for sale, you need to view your practice objectively through the eyes of the purchaser. The following is a list of the top ten issues that would be attractive to a purchaser from the viewpoint of a Dental Practice Management Consultant.
1. Practice Efficiency
Efficiency goes hand in hand with effectiveness. An efficiently run practice should be using benchmarks and have an operating budget in place. The vendor should apply strategies for continuous improvement so the purchaser knows that the practice has not become stagnant and the staff have not become complacent. For example, the lab costs should be 10% of the monthly production or greater. This is an indicator that higher level services are being diagnosed and treatment is being completed. If the lab costs are too low, it would indicate that the office is performing the ‘bread and butter’ services, but not as much major restorative. 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. In many cases the latter is the case where equipment like handpieces are being allocated to sundry expenses incorrectly. 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 usually have a depreciation value. Improper allocations of expenses may have tax implications.
2. Staff Costs
The staff costs – should be 20 -25% or lower. If the staff costs are higher, look for openings in the schedule which cause this metric to increase. If there are openings in the schedule the staff need to focus on filling them. 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, i.e. if there are holes in the schedule or it could indicate that appointments are not being prescheduled. Are patients being allowed to cancel at short notice?
3. Continuing Care System
How many patients are on active recall? This is a great indicator of how well the hygiene department is running. All patients should be on a regular recall cycle and have prescheduled appointments. This is a good opportunity to look at the perio program to see how many perio patients are scheduled in for their appointments on a regular basis. The patients must know that this is an active disease that requires active therapy. All perio patients should be prescheduled. Many offices schedule perio patients according to their insurance benefits plan instead of their clinical therapeutic needs. Also, look at how the hygienists are billing for their treatment time. If they are seeing a patient for one hour, they should be billing at least 2.5 – 3 time units of scaling and 1/2 unit of polish.
4. Accounts Receivable
What is the quality of the accounts receivable? Is this an assignment or non-assignment practice? The difference is that assignment practices usually have a poorer quality of receivables, which seems counterintuitive if insurance companies are paying the office directly, but the truth is that most insurance companies are paying the patient, not the dental office, thereby making the money more difficult to collect.
If there are a lot of outstanding accounts and a large percentage of over 90 day accounts it indicates that patients are allowed to leave without paying. It also means, if the patients haven’t paid for the services that they have received 3 months ago, they have no intention of paying at all. This represents a challenge to the new owner how will literally have to re-educate the patients on the importance of paying their bills. If the A/R balances consist mostly of unpaid copayments, they are not in good shape. It is quality, not quantity that is important, especially to the bank manager.
5. 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 the computer systems and conditioning the records for the new owner
6. Renovations
I don’t recommend spending 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.
7. Flow of New Patients
The vendor should have a good flow of new patients, even if he/she is slowing down in preparation for selling. Brand imaging the practice is recommended. Have an effective website, logo, and consistency in messaging. The staff who stay on need to have excellent communication skills to make the transition go well. Scripting will help, but it must be genuine. Patients need to be reassured that everything is going to be o.k.
8. Transitioning the Patients
The vendor should be willing to stay on for a limited period of time and begin transitioning the patients to the new owner. He/she should make the introduction of the new owner to the existing patients and reassure the patients that they are in good hands.
9. Human Resources Management
Are the staff under contracts? If not, they should be. This reduces the liability to the new owner and limits the liability to Employment Standards Act. If the doctor purchases the practice and retains the existing staff, they are protected under the common law of Canada and the doctor could be responsible for one month per year of service as well as any possible damages, i.e. age of employee. The office should have an employee policies manual, that outlines the terms of employment at the office
10. Quality of the Patient Base
Goodwill is one of the highest costs to the purchaser, so part of their due diligence should be examining the quality of the patient base. Is there a large number of patients who are on social services for example. Is the patient base aging, in other words, are there more seniors than children? 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.
Location and visibility are important considerations for a buyer. If the practice has storefront visibility and good parking for patients, it will likely do well. Even if the visibility isn’t as high profile, however, look at how they are attracting new patients to the practice. Is the practice actively marketing and is the marketing effective? The buyer will also look at the quality of the patient base
For more information, feel free to contact Sandie Baillargeon at Dental Office Consulting Services 905-336-7624 or visit her website at www.dentalofficeconsulting.com.
