By Hayley Robins, Senior Accountant at Hive Business
There’s a lot of buying and selling of dental practices at the moment and prices are getting higher. As a result more of my time is being spent in this area, with first time buyers in particular. Some are associates who are already clients and read our blog, but others find us when they are looking to buy. Typically I get a call asking ”should I buy this practice?” The only answer I can give that applies to everyone is do things in order. A lot can go wrong and this is how you reduce your risk.
1. Articulate why you want to buy a practice. What needs are you looking to fulfil? It’s not unusual for me to get a call from an associate saying something like, “I’m putting a £10k non-refundable deposit down on this practice next week, please can you check it’s all OK.” That’s too late. Even if I turn it around, they won’t have the time they need to digest the information. They’ve assumed that buying a practice is right for them because it’s the expected next step, like going from renting to buying a home. Even though it’s a symbol of ‘growing up’ it needs to be sense checked. Actually, if you are doing this to have more money you may be disappointed. Other associate jobs might deliver that objective more efficiently. Or perhaps you want to work less clinical hours, or build wealth. Find out what the point is.
2. Only look at practices that fit your needs. Typically I’ll speak to an ambitious dentist who is investing in their clinical skills, perhaps finishing an implant course before they buy so they can generate high fees, but they want me to check out an NHS practice with a fixed income. They got distracted from their mission.
3. Once you’ve found a practice that fits, invest in financial and business modelling before you put a deposit down. It may not be fit for purpose. By this stage you know what your services are going to be so you can look at the potential revenue and the credit you can afford to repay. At Hive we do an interactive business modelling and growth day where we put all the details of your vision into the model — like how many days clinical you’ll work and how many other dentists you’ll hire — and give you targets for revenue and profit over the first three years. Inevitably it’s never very good in years one and two, so only someone who is prepared to work hard for two years to reach year three profit levels should be buying a practice.
If it turns out that the practice you’ve found isn’t right you are not going back to the start, it’s actually good news. You’ve articulated your needs and your vision has been even more refined — now you will be extra careful to avoid other practices that have similar drawbacks. Next time you can run the business modelling again, but you’ll have much of the information you need already. Like the client about to put a down £40k deposit on a practice that couldn’t generate the revenue he needed (he now works as an associate again), you will be protected from wasting years of your life and a lot of money.