Practice Merger Economics

Practice Merger Economics

The continued growth and success of a solo dental practice is becoming more difficult every year. With increased competition, the influx of capitation programs, commercial dental clinics, heavily advertised retail dental centers and an unpredictable economy, a dentist must be prepared to consider ways of expanding his/her traditional patient base.

Many dentists make the mistake of joining DHMO’s to add more patients to their practice, but they soon discover that these fee conscious patients will leave the practice as soon as someone else offers them a lower fee nearby. A capitation practice can cause more harm than good for most general dental practices.

A practice merger (buying a practice and moving it into your office or vice-versa) is the best way to expand your current active patient base. Retention of the seller’s patients averages 95% or better if the transaction is handled properly. This additional business adds considerable financial stability to your dental practice and can assure you of a strong position in the future marketplace.

A practice merger will provide economy of scale and increased profitability by now having two practices operating out of one office. As the purchaser, you will not incur any additional fixed expenses such as rent, utilities, and telephone; you will get more work out of your existing staff and hire one or two additional staff members to help handle the additional patients. All other expenses of the merged practices will be directly related to practice production such as lab fees, supplies and the associate dentist compensation who may or may not be hired by you to handle the additional volume of business).

A practice merger represents an opportunity to derive passive income from your dental practice (income generated by another doctor working in your practice) and eliminates “Solo Economic Dependency” (being dependent on your own two hands to make a living). Also, the purchaser has reduced competition by preventing another, a possibly more aggressive competitor from purchasing the seller’s practice and establishing a foothold in your marketplace.

Following is a projection based on the selling dentist or associate producing 100% of the additional production resulting from the practice merger.

$800,000 Gross Practice
$600,000 Selling Price

  1. Additional Staff $ 160,000
  2. Lab Fees (6%) $ 48,000
  3. Supplies (6%) $ 48,000
  4. Associate Commission $ 168,000

Total Expenses $ 424,000
Gross Income $ 800,000
Less Expenses $ 424,000
GROSS PROFIT $ 376,000 (47% passive income)
Less Loan Payments $ 88,000 (8%, 120 months, rounded up)

CASH FLOW $ 288,000
NOTE: If the purchaser elected to produce all of the acquired production, then the Gross Profit will be approximately $588,000 (and cash flow of $500,000 after debt service). You have already made a considerable investment in your existing office facility, and now it is time to maximize its productivity through a practice merger. Call AFTCO today at 480-634-4803 or visit our website at www.aftco.net. It’s time to call AFTCO!