CDA Essentials 2015 • Volume 2 • Issue 5

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35 Volume 2 Issue 5 |
To watch an interview
with David Chong Yen
on purchasing a dental
practice, see:
2015/05/14/pdp/
Davi
Practice ownership is a major life decision for a dentist. There are generally
2 options: buy an existing practice or open one from scratch. Although it
may be more costly, many dentists choose to buy an existing practice because
it is usually less risky and provides immediate access to a patient base and
cash flow that allows the practice to repay its debts and fund the clinic’s
operatingexpenses.Tohelpyoupurchaseandevaluateapractice, hereare some
considerations that could save you unnecessary financial andmental stress.
1. Average Revenue Per Patient
It is not enough to just look at the gross billings or number of active patients. Consider
the average billing per patient as a benchmark for evaluating whether a practice is over-
or underperforming. In Ontario, the average billing per patient per year is approximately
$670. A practice generating higher billings per patient may not be sustainable once
you replace the principal dentist. A practice generating lower billings per patient could
represent untapped potential—perhaps services that could be done in-house are being
referred elsewhere. As a starting point, use the appraisal’s estimate of active patients and
the latest set of financial statements to determine the average revenue per patient. After
your chart audit, you can verify this figure using data collected first hand. Keep in mind
that the type of services provided will also affect the average revenue per patient. For
example in Ontario, the optimum hygiene production is about $220 per patient, per year.
2. Co-payment Collection
Consider whether a practice has difficulties collecting fees from patients. Warning signs
include a high accounts receivable balance (i.e., patient fees not yet collected) and a
high number of write-offs/adjustments. If there is smoke, there may also be a fire and
a detailed investigation could result in finding co-payment collection issues. Buying a
practice with co-payment issues means you could lose a significant portion of the patient
base once co-payment collection is enforced.
3. Number of Active Charts
The primary driver of a practice’s value is the active number of patients, usually defined
as regular (i.e., not emergency) patients who have attended the practice within the past
12 months.
In most cases, the practice appraisal will state the number of active charts. However,
prospective buyers should verify this number by performing a chart audit. Since it is not
David ChongYen
CPA,CA,CFP
is a chartered professional
accountant, tax specialist
and certified financial
planner. For over 30
years, he has provided
advice to dentists
and other health care
professionals on taxes,
estate and financial
planning, valuations and
accounting.
Supporting Your Practice