**Case Study: Assessing Financials**
Over the years we have seen many versions of dental financial statements through our consulting business. We’d like to think we have encountered most scenarios. However, every now and again we do get sent financials that surprise us. As a dentist looking to purchase a dental practice who has very little exposure to financial statements attempting to decipher them can be overwhelming.
Recently we got sent financials and a valuation done by an accounting firm. On the face of it, all looked well with a good profit figure. However, on closer inspection the clinician expenses had been lowered in order to increase the valuation. The profit and loss statements showed clinician expenses at 46% but the valuation was based on clinician expenses at 38% (which considerably increased the asking price). There was one sentence in the valuation amongst complicating accounting jargon, almost like it was hidden on purpose, that more or less stated the clinician income should be 38%. The potential buyer was not purchasing into that hypothetical situation but rather purchasing into what actually happened. It would only make sense if all the clinicians would agree to take a pay cut post sale but in reality there is no way that was going to happen.
The major issue with this scenario was that it was not easy to decipher the clinician expenses from the profit and loss. Often with service and facility agreements the clinician expenses do not come into the profit and loss and thus one must calculate it in conjunction with the total billings (usually taken from BAS’s/practice management software). For example, if the clinicians take is 40% then 60% will come into the profit loss. One will need to work backwards to calculate it. What also further complicated this situation was that there were hygienists paid as employees but on high effective commissions. The valuation lowered the hygienists effective commission to 40%.
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Our next practice ownership seminar is coming up in Brisbane on the 18th and 19th August 2023. We still have limited spots available but will close registration shortly – please register asap. We discuss and teach how to interpret dental financials in depth at these seminars.
We also offer expert guidance in various areas of practice ownership including interpreting dental financials. Please see the below link for more information.
We’re holding our 3rd Dental Practice Owners Conference (DPOC2023) in October this year. This is the premier event for practice owners and not to be missed. We have an amazing line up of speakers as well as spectacular events planned. There will also be a trade show with exhibitors from the major dental companies present providing conference only specials. The learning and networking opportunities will be immense. Please see the link below for more information.