Here is a sample of my notes in regard to an office

 ISSUE:

Based on the following facts provided by a dental broker, consider whether the practice presented is worth spending the extra time and resources to make an offer or present a Letter of Intent. Be sure to continue due diligence when considering the purchase of a dental business.

10 KEY FACTS:

  • The seller is about to retire and refers out all OS, Ortho, and Perio.
  • FFS/Cash office and Delta Premier, 2100 square feet, professional building, 6 Ops, 650 Active patients
  • Revenues during the past three years: 670K, 640K, 735K
  • Fees: Prophy, $122; Crown, 1300; Veneers 1600
  • Asking Price is 625K
  • Team: a Hygienist, the doctor’s wife works as manager and DA
  • No marketing nor digital presence; 4 new patients per month
  • The month-to-month lease is $10,000.
  • Payroll: Manager, $17,500; and RDH, $49 per hour
  • The net profit is 33%.

ANALYSIS:

  • It’s Delta Premier only with high fees. A doctor that is not Delta Premier will have major adjustments:
  • Adult Prophy: $122, will be adjusted to $76
  • Crown, Porcelain/Hi Noble: $1300, will be adjusted to around $800
  • I am not sure what the percentage of PPO accounts for. This is usually important as the basement of each office. A healthy mix is approximately 50% PPO / 50% FFS.
  • It looks like the office is majority FFS. These offices are usually volatile after transitions. These are the same as offices that highly depend on marketing.
  • The office manager is his wife and is not properly compensated. They say she gets $17,500. Hiring an office manager will be tough; also, the actual payroll expenses will increase by another $50,000. The current office manager’s payroll is hidden in the seller’s compensation. It’s a much LOWER NET OFFICE.
  • Also, there is no assistant. This will also be added to the payroll. Add another $40,000.
  • It’s good that the hygienist is long term. On the other hand, if she leaves, the practice will be in free fall. (Then again, it is already in free fall). The office has only one hygienist, which is very risky for any office.
  • The office is oversized and the rent is too high considering current revenues. It’s about 17% over budget. This is way more than acceptable (it should be approximately 8-10%). I am sure it’s a beautiful office though.
  • I do not recommend offices that already place implants.
  • The valuation is very biased. Almost 100% of 2017 revenues. 2018 revenues and expenses also look very
  • There are low numbers of active patients.
  • I am not sure what the number of new patients is. However, there is potential through marketing, since there is none now. So far, after a short evaluation, I see it’s highly competitive. It will take you 2 years to be able to compete with current websites and DDSs. There are a few that already spend a large amount of money. I will have to assess the competition, though, to be able to give a definitive answer.

CONCLUSION:

  • After adding another $100,000 for an office manager and a DA;
  • after adding $90,000 for an office loan, (about $7,500 monthly);
  • after considering that you will have MEGA adjustments due to Delta Premier
  • and the insane percentage of rent expense,
I highly advise you NOT TO CONSIDER this practice.