WHY BUYING AND MERGING ANOTHER PRACTICE INTO AN EXISTING PRACTICE MAKES SENSE

Growing a dental practice can be one of the most challenging things in practice ownership. Advertising for new patients can be hit-and-miss and very expensive. You can spend thousands of dollars on a new website, SEO optimization, postcards, etc., and not get hardly any results. That’s why one of our favorite strategies to grow a practice is to purchase another practice and merge it into your existing practice. By doing this, you get a predictable amount of revenue and patients that will allow you to grow your practice, sometimes significantly, in a very short period of time, if done right.

The reason you would consider doing a merger is that you get all or nearly all of the revenue and current patients from the acquired practice, but you don’t get all of the expenses. You don’t bring over the fixed expenses like rent, telephone, electricity, etc. You already have those in your existing practice and don’t need to incur them again when you bring over the practice you just acquired to your existing location. For the variable expenses, such as dental supplies and lab expenses, you will incur those expenses. You may or may not need to bring all of the staff over from the acquired practice as well. Especially if the practice you acquired is from an elderly doctor whose production has gone down over the years, but they have kept the staffing levels the same.

As an example, say you own a practice that collects $600,000 per year. You have an overhead of $390,000 with 30% of the overhead in fixed expenses – rent, utilities, insurance, etc. Another practice comes on the market that’s less than 3 miles away. You want to have the practice you're acquiring as close to your office as possible and no further than 5 miles. The practice on the market is collecting $500,000 with overhead of $325,000 with fixed expenses again at 30% or $150,000. You purchase the practice for $350,000 giving you a debt service payment of $3,500 per month. You work carefully with your broker or consultant to ensure nearly 100% of the patients transfer to your practice. Your practice now goes from $600,000 up to $1.1 million in revenue. You incur the variable expenses of the second practice, but you do not incur the 30% fixed expenses of $150,000 because you already have rent, utilities, insurance, etc., at your current office. In essence, you just gave yourself a $150,000 raise, less $42,000 in debt service, and dropped your overhead to approximately 55%. It would take you much longer to do this if you just did marketing and advertising. By consolidating practices, you get instant growth and income. If you have a practice for sale near you, you should consider merging it into your practice in order to achieve quick growth.

Mergers can be beneficial to not only the acquiring doctor and his practice but could also help the doctor being acquired. I would estimate that 30% of the doctors who are selling their practice would still like to work back at least part-time, one to two days per week, in their practice. If the practice is large enough to facilitate having an associate dentist on hand, then this is a win-win for both doctors. It also allows the acquiring doctor to have a built-in locum-tenems should the owner want to take a week or two, or three off for a family vacation. The practice can remain open while the associate/previous owner continues to work in the practice.

The key to making a merger work is in the transition. If the selling doctor has a lease in place, you may have to wait out the lease to complete merging the two practices together. However, if the selling doctor has a nice location, you could look into sub-leasing the space while you merge the practices together. You can consult with your local commercial broker to see if this makes sense. In regards to financing the practice you are acquiring, banks typically like the lease term to match the term of the loan. For example, if the loan is going to be a 7-year loan, the banks like to see a 7-year lease. But, if the acquiring doctor has an established practice, some banks will loan the funds without requiring the lease term to match the loan term. We have done this another of times, so check with your local lenders to see if it will work with them. The lender we used was one of the larger, national practice lenders. Keeping the selling doctor on board through a transition period helps keep the patients coming to the practice. If the practices are merged together right away, you can have the seller work in your practice for one or two days per week to make the patients and staff happy. After a period, say six months, you can scale the selling doctor's time back as the patients get used to the new location.

As you can see, acquiring an existing practice and merging it into your practice is a quick way to grow your practice. We have facilitated this on a number of occasions. In order to ensure a successful merger, we highly advise you to reach out to your local broker to walk you through all the steps and the pros and cons. But, if done right, you can grow your practice significantly and reap the rewards in a very short time.