Know Your Numbers – Critical Figures for a Practice Buyer

If veterinary or dental practice ownership is on your agenda for 2025, there are certain numbers that you should be prepared to provide along the journey.

Your Current Production

If you do not already, begin the habit of collecting your monthly production/collection reports from your current position. Understanding your production is critical to practice purchasing decisions. First, for financing of your veterinary or dental practice purchase, you will need to show evidence of historical production. Second, it is important for you to build an understanding of the level of production that fits you and your goals. As you collect and review your monthly reports, consider: Was this level of production comfortable to handle? Not enough? Too much? How many days per week did you work? What procedures would you want to do more or less of in your own practice? How would that change your production? As time progresses, you will build a solid understanding of the level of production that is a fit for you.

Your Personal Balance Sheet

In the accounting world, a Balance Sheet refers to a statement that shows what a business owns (cash, equipment, other assets) and owes (credit card balances, loans). The same concept exists for you as an individual. As you prepare to make the financial step to invest in a practice, take an inventory of your own personal balance sheet. Maintain a list of your assets (bank accounts, investment accounts, vehicles, real estate) and your debts (student loans, mortgages, car loans). Most importantly, it is critical for you to remain aware of your cash position. For financing purposes, the most important figure on your personal balance sheet is, generally, your cash position. Many aspiring practice owners make the “mistake” of aggressively paying down loans prior to applying to purchase a veterinary or dental practice. In fact, lenders generally prefer to see a higher cash balance with higher debt than a lower cash balance and lower debt. A cash balance of $100,000 with $400,000 in debt is preferable to a cash balance of $25,000 with a debt balance of $325,000. Be sure to stay current on minimum payments on loans, however, as that is critical to the next point.

Your Credit Score

Start monitoring your credit score early so that you have time to remedy any potential issues prior to applying for a practice loan. As mentioned above, while “cash is king,” remaining current on required debt payments is absolutely necessary to maintain the level of credit required to qualify for a practice loan. As your veterinary or dental practice purchase nears, avoid any activities that will significantly impact your credit report: vehicle purchases, home purchases, opening/closing credit card accounts. If you are planning a large personal purchase, communicate with your lender immediately about the situation so you can work together on any necessary actions. With credit card accounts, note that closing a credit card can cause a substantial reduction in credit score. If you have an inactive credit card account, consider using it for a small monthly subscription to avoid automatic closure of the account.

Your Required Monthly Income

When I work with a client for practice purchase due diligence, one of the first steps is to evaluate cash flow generated by the practice to ensure that cash flow supports the investment. In my evaluation, I follow this analysis with a question to the buyer – is this level of cash flow sufficient to support YOU? Be aware of your monthly expenses and income needs to answer this question. Similar to your personal balance sheet, track your monthly required expenses (debt payments, utilities, rent, food, essentials) and budget. Also consider how these items may change if you purchase the practice, especially if a change in residence is required to be closer to the practice location.

Your Non-Compete Radius

Review associate contracts for any positions you have had over the past 5 years and be aware of the mile radius and locations of any relevant non-compete clauses. As you begin your practice search, avoid locations that may interfere with non-compete agreements.

Conclusion

Educating yourself on the above items will prepare you to address the questions that arise in your practice purchase journey. Further, you gain valuable experience in skills that will apply in your future as a business owner. As you begin the path to practice ownership, it is never too early to reach out to professionals in the industry and to lenders for guidance. Your preparation and early action will streamline your way!

If you need a professional CFO to help you with your veterinary or dental practice purchase, request a consultation with TranscenDental CFO today!