If you are searching for a dental practice to purchase, how do you know when you’ve found a good fit? It is common to initially answer that question by considering the location of the practice, the appearance of the office, and the amount that is produced. But the question of a good fit goes deeper than that, and it requires you to know your “number.”
The “number” is how much money you need to live on, to pay bills and student debt and discretionary expenses. Most people are surprised by how much they spend each month, and it’s common to dismiss past expenses as aberrations; however you need to remember that unexpected car or home expenses will still occur just as you will continue to have similar discretionary costs. Resist the temptation to revise the past and calculate your true monthly budget.
Now you have an effective starting point for evaluating a dental practice opportunity because cash flow is a key factor in finding the right fit. Regardless of the numbers that the practice produces and collects, whether it’s big or small, consider what is left for you after practice expenses are paid. You may discover a high producing practice that you were excited to see also has high overhead, leaving you short of your monthly budget, while a smaller practice you initially dismissed is a cash cow.
Keep in mind that it is much easier to improve the appearance of a practice with strong cash flow than it is to improve the cash flow of a struggling practice with shiny equipment and furnishings. And you will find it’s much easier to sleep at night with money in the bank versus worrying about drawing more from your line of credit to pay bills.
Therefore, when you assess a dental practice, look much deeper than production numbers or appearance. Pay very close attention to cash flow and how it compares to your “number.”