The Practical Guide to Starting Your Dental Practice PDF

The Practical Guide to STARTING YOUR DENTAL PRACTICE Dr. Claudina E. Lagman Ways to Acquire a Dental Clinic Lease (Long-term) Rent Buy a dental clinic (cash basis, terms or credit) Buying into a practice where the owner is selling a share of the business to the buyer, who will become a partner or sh...

The Practical Guide to STARTING YOUR DENTAL PRACTICE Dr. Claudina E. Lagman Ways to Acquire a Dental Clinic Lease (Long-term) Rent Buy a dental clinic (cash basis, terms or credit) Buying into a practice where the owner is selling a share of the business to the buyer, who will become a partner or shareholder. Heritage Construct your own (refer to topics on areas of dental practice support & planning the dental office) 1. Renting or Leasing a dental office Individual/solo practice Partnership practice Group practice expense -sharing solo relationship Multi-located practice Heritage practice Part-time practice Employer-employee relationship *Orange - trending now BECOMING AN ASSOCIATE DENTIST The associateship relationship has developed to assist new practitioners in establishing themselves. For associate dentist, becoming part of an established practice means: 1. No initial financial investment and, in some cases, the potential for a possible ownership arrangement in the future 2. The arrangement offers an opportunity to learn from an experienced clinician in a setting with more regular hours than those of a solo practice. 3. Historically, the majority of dentists preferred to be their own boss. If the idea of associating with an established practice is appealing, the following questions will help you make your decision: Are you looking for a period of transition from the academic environment to the responsibilities of managing a private practice? Do you want to practice without committing yourself to a particular setting or locale while you review and refine your career goals Do you want further technical and practice management experience in a clinical rather than educational setting? Is it important that you quickly establish a good professional reputation? (You can capitalize on the goodwill effects of associating with a well-regarded practitioner) If your answers to these questions are positive, an associate position may work well for you. Will being an associate benefit your career? Are you open enough to seriously consider the senior dentist’s suggestions? (Or do you tend to automatically negate advice in asserting your independence?) Emotionally, can you defer ultimate authority over practice management decisions to the hiring dentist? (The associate is responsible for operating in a manner compatible with the practice philosophy) Will you be willing to consult with the hiring dentist on complicated procedures until your experience or postgraduate or postgraduate training justify additional responsibility? Would you be willing to provide the support and make the compromises necessary for a successful working relationship, in other words, truly become a member of the team? Would you be satisfied with your financial compensation and responsibilities? (remember to consider the overhead costs involved in running the practice) If you answered NO to more than one item, you may be uncomfortable in an associate position and may wish to consider other options. Shareholder Individual/solo practice Partnership practice Group practice expense -sharing solo relationship Multi-located practice Heritage practice Part-time practice Employer-employee relationship Also referred as stockholder Any person, company or institution that owns at least one share of a company’s stock (equity) Because shareholders are a company’s owners, they reap the benefits of the company’s success in the form of increased stock valuation of profits distributed as dividends. If the company does poorly and the price of its stock declines, shareholders can lose money Constitutes a legal contract providing for the temporary use; need to seek the advice of a lawyer before signing the contract. Be sure that the rent/lease accurately reflects the space to be rented/leased and that the amount of the rent/lease increases and method of payment are stated clearly. The space should be in good condition; if it is not, note any exceptions in the rent/lease and be sure provisions for repairs are included The rent/lease should state who will be responsible for repairs and maintenance who will pay for improvements to comply with building and fire codes. It should also outline who pays the utility, bills, insurance, and any increase in taxes. Don’t forget about other business issues, such as parking, signage, environmental and zoning concerns, and use restrictions Who is responsible for the expenses of installing office equipment and whether you must restore the building to its original condition when you leave are negotiable items PURCHASING A PRACTICE 1. Buying a Practice Practices sold maybe due to these factors: Dentist-owner recently deceased Dentist-owner who wishes to retire Dentist-owner becomes disabled Dentist-owner who will transfer or migrate to another country Big financial problems It takes 5 years to establish from being a fresh grad Advantages: Obtaining dental and office equipment at a reduced price Bypassing the frustration with starting a practice from the scratch Providing instant patient and income Existing practice has a record indication the probability of a successful practice Cheaper to purchase an existing practice Three major groups of information that must merit evaluation when purchasing an existing practice: 1. Actual value of the facility 2. Goodwill 3. Internal management factors Actual Value of the Facility ( Evaluating the Price) 1. Inventory stock of equipment, furnishings and supplies 2. Leasehold improvements a. Age of the improvements b. Depreciation records on owner’s books c. Replacement costs GOODWILL As a desire of seller for buyer’s well being. Its is also referred as the intangible assets relevant to the practice. “Goodwill” is an accounting term that refers to all the intangible assets that go into the purchase price of a business Intangible assets - asset that is not physical in nature (client’s loyalty, brand reputation) It is difficult to measure and even more difficult to establish its price for any particular dental practice ○ Factors that must be evaluated in weighing the value of goodwill include: 1. A letter of announcement, advising patients of record that a new dentist is acquiring the practice of a dentist who is retiring 2. Seller’s true attitude toward you as the buyer 3. Age, reputation and competence of the seller EVALUATING THE PRACTICE Major areas of information that MUST merit evaluation when placing a value on an existing practice Is the practice active and healthy? Examine financial records for at least the past 3 years Project realistic revenues and expenses for the next 2 years based on these records Examine the relationship between gross and net practice income Is the fee schedule up-to-date? When was the last fee increased? You may lose patients if you suddenly increase fees upon assuming ownership control What is the number of active patients, not patients of record? Generally, an active patient is one that has been seen within the past 12-14 months How will ownership of records be transferred and patients notified? A personal introduction can facilitate a smooth change of providers for the patients Will the seller introduce you personally or through correspondence to the patients? You also can facilitate a smooth transition by retaining allied dental personnel and the practice’s telephone number. Fair Market Value The price at which property would change hands between a buyer and seller, neither having to buy and sell, both having reasonable knowledge of all necessary facts Dental Clinic Assets: Purchase price includes: Physical assets (fair market value of dental and office equipment, furniture, supplies and leasehold improvements) Goodwill (value of the practice beyond its tangible assets or the likelihood that patients will remain with the practice) I.‘Meet and greet’ with the seller II.Inspect the property DENTAL CLINIC ASSETS: Assets Value: Php 3.5 Million ( based on current market value of purchased instruments & equipment, location Gross Income /Month : Php 60,0000 ( 720,000/yr) Physical Assets: Inventory of the stocks, equipment, furnishings & supplies Ask a supply house to determine market value of equipment Check age condition of all equipment Obsolete materials becomes a liability and out-modeled equipment Equipment Depreciation: An accounting process that recognized the reduction in value of an asset’s worth (equipment of facility) over a specific period of time, usually a month or a year The expense is often referred to as a noncash expense because the amount of depreciation reflected on financial statements is not related to an outlay of the same amount of depreciation expense. Depreciation is way to recognize the amount of an asset that gets used up during the period-of-time in question EQUIPMENT Dental Chair EFFECTIVE LIFE DIMINISHING VALUE (DV) RATE 20% 15 years (DV) RATE Operating Stool 15 years Dental Handpiece Operating Stool 315years years 20% X-ray Unit 3 years 15 years 66.67% Dental Chair Dental Handpiece X-ray Unit 15 years 15 years Ultrasonic Scalers 10 years Ultrasonic Scalers 10 years 20% 13.33% 20% 20% 66.67% 13.33% 20% Curing lights Curing lights 55 years years 40% 40% Autoclave 10 years 10 years 20% 20% Cabinets Autoclave Cabinets Dental units Dental units Air compressor Vacuum System 15 years 15 years 10 years 12 years 10 years 10 years Air compressor 12 years Vacuum System 10 years 20% 20% 20% 16.67% 20% 20% 16.67% 20% When purchasing a practice: The typical buyer expects to be able to meet all practice related expenses, draw some reasonable salary and service the debt to buy the practice from the expected revenue generated by the practice You as the buyer should be able to retired the debt incurred to purchase the practice in a reasonable period of time If a buyer perceives that there is a good probability of accomplishing these things, in light of a specified asking price for the practice, this price could be viewed as FAIR. If, on the other hand, the buyer cannot see that all of these things can be accomplished, he or she would probably conclude that the price is TOO HIGH and is not fair. Internal Management Factors Evaluation of a viable practice should include: 1.Average monthly or annual gross production 2.Average monthly or annual receipts 3.Amount of accounts receivable 4.Fixed overhead 5.Average monthly or annual overhead 6.Monthly, quarterly or annual reports 7.Fee schedule 8.Present personnel 9.Types or genre of services performed 10.Recall system You must consider: The desirability of office location, and if you will be able to retain and renew the office lease in the future The number of active patient and likelihood of their staying with the practice You must also evaluate recent or anticipated trends, positive or negative, in productivity, overhead and overall office profitability The reputation of the practice will also have an impact on the value of the goodwill As you review the practice records, note the rate of the new patient visits and determine the practice’s usual referrals from the same sources and may want to ask the selling dentist to introduce you to referring dentists to maintain good will Significant economic or demographic trends and element of supply and demand of market competition will also enter into your negotiations of goodwill Finally, your introduction to patients by the seller will have tremendous impact on patient retention When considering the purchase of a dental practice that has been idle for some time, such as when the practice is being sold by the estate of a deceased dentist: While it may be the least expensive way to acquire equipment and a file of potential patients with whom you can build a successful practice, patients often seek new dentists immediately when they hear their dentist has died. “Finally, your introduction to patients by the seller will have a tremendous impact on patient retention.” Retention of employees: -usually, the receptionist is the most important to retain. The common observance is that : when a practice changes hands, the employees usually leave Written contract: written agreements on practice transfer needs the legal services of a lawyer Practice transfer: an arrangement that will allow the seller to reduce the patient load while the buyer assumes practice. Increase retention of patients Seller should terminate activities in the office in a brief span of time