35
Volume2 Issue5
|
Towatchan interview
withDavidChongYen
onpurchasingadental
practice, see:
Practice ownership is amajor life decision for a dentist.There are generally
2 options: buy an existing practice or open one from scratch. Although it
maybemorecostly,manydentistschoose tobuyanexistingpracticebecause
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,herearesome
considerationsthatcouldsaveyouunnecessaryfinancialandmental stress.
1.AverageRevenuePerPatient
It isnot enough to just lookat thegrossbillingsor number of activepatients. Consider
theaveragebillingper patient as abenchmark for evaluatingwhether apractice isover-
or underperforming. InOntario, theaveragebillingper patient per year is approximately
$670. Apracticegeneratinghigher billingsper patientmaynot be sustainableonce
you replace theprincipal dentist. Apracticegenerating lower billingsper patient could
represent untappedpotential—perhaps services that couldbedone in-housearebeing
referredelsewhere. As a startingpoint, use theappraisal’s estimateof activepatients and
the latest set of financial statements todetermine theaverage revenueper patient. After
your chart audit, youcanverify this figureusingdatacollectedfirst hand. Keep inmind
that the typeof servicesprovidedwill alsoaffect theaverage revenueper patient. For
example inOntario, theoptimumhygieneproduction is about $220per patient, per year.
2.Co-paymentCollection
Considerwhether apracticehasdifficulties collecting fees frompatients.Warning signs
includeahighaccounts receivablebalance (i.e., patient feesnot yet collected) anda
highnumber ofwrite-offs/adjustments. If there is smoke, theremayalsobeafireand
adetailed investigationcould result infindingco-payment collection issues. Buyinga
practicewithco-payment issuesmeans youcould losea significant portionof thepatient
baseonceco-payment collection is enforced.
3.NumberofActiveCharts
Theprimarydriver of apractice’s value is theactivenumber of patients, usuallydefined
as regular (i.e., not emergency) patientswhohaveattended thepracticewithin thepast
12months.
Inmost cases, thepracticeappraisalwill state thenumber of activecharts. However,
prospectivebuyers shouldverify thisnumber byperformingachart audit. Since it isnot
DavidChongYen
CPA,CA,CFP
isa charteredprofessional
accountant, tax specialist
and certifiedfinancial
planner.Forover30
years, hehas provided
advice todentists
andotherhealth care
professionals on taxes,
estateandfinancial
planning, valuationsand
accounting.
S
upporting
Y
our
P
ractice
