Evaluating a practice for acquisition
I’ve evaluated DOZENS of practices for acquisition. I tell my friends I was not gifted in real estate, or the stock market. I like to “stay in my lane” with my investment. Dentistry – when done correctly – can have a GREAT ROI. Acquisitions can be done for a number of reasons:
- Associate looking to have their own practice
- Dental student wanting a practice RIGHT out of school
- Group / Large practice looking for expansion
- Corporate model like Heartland
There are SO many variables to look at when doing a practice acquisition. The first and only thing I care about is if the practice is under-performing (i.e. I’ve got upside) or over-performing (i.e. might be at a plateau). After I get the P&L’s, I request they send me a screenshot from the PMS (practice management software) of the ACTIVE patients. It’s imperative that you get a 12 month count of actives. Don’t get a 18 – 24 month number – obviously this skews the number incorrectly to the seller’s favor.
It’s REAL simple. Take the TOTAL COLLECTIONS for last calendar year and DIVIDE that by the TOTAL # of active patients. This will give you an Average Annual Collections Per Patient (AACPP).
This will give you a number —-?—- (anywhere from $200 to $2000).
Think about what insurance typically gives a patient. Would it be fair to state around $1500 per year?
Ok, now take your AACPP number. If that number is way below $1500, maybe like $400, you can rest assured there is a lot of dentistry left to be done. You can go in there and apply your systems, marketing, culture, etc and raise that AACPP number!
Now if it’s over $1000 per patient per year – you need to pump the brakes! There might not be any dentistry left to be done in the patients who you’re spending copious $ acquiring.
So ironically, as the owner of a practice, you want to INCREASE your AACPP, doing more with your opportunity. But as the BUYER, you’re looking for upside VALUE and a deal, quite frankly.