CATEGORY 116 AUSTRALASIAN DENTIST cannot be treated. The cultural climate should also be assessed to determine levels of happiness, anxiety, fear and in some cases untoward behaviour which can have a detrimental effect on moving forward effectively. Do staff and contractors have adequate agreements in place which clearly denote roles and responsibilities and are they restrained from leaving and working within a close proximity to the practice? Has there been any level of investment in training and development of staff and contractors? Other crucial elements that should be assessed would include the plant and equipment on offer, its age, condition, maintenance records, compliance and replacement cycle. Does the IT system, have adequate protection mechanisms for breachof data security andprivacy. An early audit will bring these issues to the forefront and also reveal whether technology needs to be replaced or whether warranties have expired. Be aware also of the changeovers that will be required to Hicaps and Eftpos machines at settlement. An assessment of consumable and laboratory supplies and their relative costs as a percentage of gross revenue will reveal whether additional synergies and efficiencies can be created. Has the practice invested in a marketing programme that assists to generate continual new patient flow? Theproperty lease terms andconditions are fundamental to location security. Be sure to check that the rental to be paid is at least market based and there are adequate terms of additional lease extension periods. Annual rental escalation obligations is also something to be wary of. Legal due diligence is also a base level requirement. Are there any litigious issues attached to the practice? Does the practice own all of its intellectual property, domain names, brands etc? A comprehensive practice acquisition agreement should afford reasonable protection to a purchaser and include comprehensive warranties and guarantees. Getting an experienced lawyer on board can save you not only time but also numerous headaches down the track. There are many reasons why an acquisition may fail but ensuring that you have undertaken detailed due diligence can alleviate many latent risks. If you are looking to buy a dental practice, or if you are just looking for a bit of advice about the process, you can contact Peter Hughes on 1800 032 801 or drop him a line at peter.hughes@raywhite.com There are numerous ways to value a dental practice, but for the sake of this article, let’s use the example of a midsized dental practice who is thinking of selling to one of the many dental groups who are currently trying to acquire practices across Australia. Typically, you could expect to get about five times your EBITDA (Earnings, Before Interest, Taxes, Depreciation and Amortization) or in layman’s terms five times your genuine profit. So, for every extra $100,000 of profit you create you are adding an extra half a million dollars to the value of your business. Let that sink in for a while, as once you truly get your head around this equation it can be highly motivational. And there is more good news. In just about every business there is a ‘tipping point’. This is the point at which your overheads have been covered and your profit can start to climb exponentially. For example, if your rent or mortgage repayment is $5000 per month and you are turning over $1m per annum – then the cost of your premises is 6% of turnover. But if you increase your turnover to $1.5m the cost of your premises does not increase, so the cost of your premises reduces to 4% of turnover, making it easier to produce a higher profit. This principle can be applied to numerous aspects of your practice which when managed correctly means higher turnover can result in higher profit margins. This can have a doubling effect. Using the $1m per annum turnover example, after paying your Dentists (including yourself ) and all your other costs, you might be left with a 10% profit or $100,000 at the end of the year. But increase your turnover to $2m per annum from the same building and not only will the amount of profit you make increase, but also the percentage, so in this scenario you might produce a 20% profit, thus quadrupling your profit in the process. So, if you are following the BUY-GROWEXIT journey, there are plenty of reasons to concentrate on the growth phase as this can make a huge difference to the quality of your life after the EXIT phase. But what does the GROW phase consist of? Very often the starting point is actually working on yourself. Although, knuckling down and doing more dentistry will produce some growth within your practice, there might be a smarter way and one that does not lead to personal burnout. Depending on your age, you might have had enough of study, or it could be a distant memory, either way you know you can do it and you know how smart you are to have become a dentist in the first place. So, you might want to consider doing an MBA to get you working ‘on your business – not just in it’. If that does not appeal, how about reading some of the great business literature available, you will devour ‘The eMyth’ in about the same time it takes to watch a couple of movies. Or, you could join your local branch of EO (Entrepreneurs Organization) and rub shoulder with great business leaders in your area. Investing in yourself will very often make every other aspect of the growth phase significantly easier. Over the years I have dozens of dentists say to me things along the lines of “All this SEO and Social Media stuff is so complicated” to which I usually reply, “You had to study neuroanatomy as part of your dental degree – I think you might be able to master the principals of effective marketing” As with most things in life, once you are in the right head space, then the rest becomes very achievable. If you doubt this, just look at some of your cohort, some have gone on to build large dental groups, become clinical pioneers, BUY – GROW – EXIT By Carl Burroughs Carl Burroughs COLUMNISTS
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