This is a must read for anyone considering purchasing a practice. I posted about this topic several years ago but it has become even more relevant in recent times. We’ll share some examples of hidden dangers to be aware of when buying a practice below. Most of this is from our own experiences analyzing practices for our clients.
- The practice for sale is zoned incorrectly. Not only is it important to make sure a Dental practice can exist in the location but to also check the number of Practioners allowed on site at any given time. This is particularly relevant to residential conversions. These days it is very easy to check the zoning either online or through a phone call to the local council.
- Seller owns multiple practices and misrepresents income from other practices as income from the practice you are buying. In one case I’ve heard of, someone bought a practice supposedly billing $1,000,000+ and was sitting practically empty a month after purchase with no patients.
- Seller takes equipment (hand pieces, forceps, rotary machines etc) post sale so you have to spend money buying lots of things that should have been included in the sale price. Basically, amounts to stealing.
- Employment liabilities exist both with auxiliary staff and sham contracting arrangements with long term Dentists. This can be missed by lawyers who don’t have adequate knowledge of workplace laws and liabilities and unfortunately these liabilities are commonly transferred to the buyer.
- Gross manipulation and fabrication of billings. This is fairly easy to detect if you know what you are looking far. The numbers tell a story and it’s hard to deceive with proper consideration of opening hours and looking at appointment books.
- Healthfund fraud. There are dentists that exist that will check a patients rebates first and then despite the work they do, will bill through codes that maximize refunds. Basically, they have close to 100% acceptance of treatment as they manipulate the healthfunds so there is little gap. This won’t be realistically duplicated by an ethical buyer.
- Treatment that shouldn’t be done. Putting through fissure seals as composites. Buccals everywhere. Crowns when not needed etc etc.
- Hit and run. Beware of practices with a single owner/dentist who has bought a practice that wasn’t billing much and suddenly increased the gross billings rapidly and is looking to exit within a year or two. Chances are they are engaging in one or more of the above things.
- Lease clauses that allow other dentists to come in. A good friend thought he had an exclusion clause but didn’t. Next thing he knows there is a Pacific Smiles in his Centre offering discounts and patient inducements.
- A demolition clause present in the lease. There is a possibility the seller may be aware (rumors, advice from surrounding tenants ) of plans to imminently demolish the tenancy/centre and that’s the true reason for sale.
- Be weary of sellers reluctant to provide further information when requested (to a reasonable extent). We’ve analyzed practices with ‘mock-up’ profit and loss statements for past financial years. Given the size and billings of the practices the profit was over inflated. When queried, the seller simply stopped responding. Avoid these practices!
- Many sellers include their own market wage in the profit of the practice in order to increase profitability and obtain a higher sale price. It is essential buyers can identify this.
- Sellers trying to suggest a particular staff member is an addback (removed from the expenses to increase the profit) but is really performing a role that is needed in the practice. This is typically a spouse that does reception and/or assisting. A buyer will still have this expense when they take over.
There are many other things to look out for to ensure you do not get ripped off when purchasing a practice. Make sure you do proper due diligence on all legal and accounting aspects as well. Engage professionals experienced in commercial deals.
We analyze many practices ourselves and can assist to detect the above. In our ownership seminars we also teach attendees how to analyze practices for sale so they can avoid the above.
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We cover this and much more at our practice ownership seminars. Our next practice ownership seminar is coming up in Sydney on the 11th and 12th of June 2022. This seminar now only has a few spaces available – please register ASAP to avoid missing out.
We also offer expert guidance in various areas of practice ownership. Please see the below link for more information.