Your dental practice’s financial statements are important when it comes to selling your dental practice. And when you’re looking to purchase a dental practice, it’s important to take a closer look at the financial statements of the office you are looking to acquire. Banks need the information presented in the dental practice financial statements to determine the overall value of the business, which will help with the loan approval process. Proper accounting procedures can help you take your management strategies to the next level and will ensure that the buying/selling process goes smoothly.
Want to understand why, let Matt and Joe, the dental practice transition experts with PMA Practice Transitions fill you in. This video will provide you with tips and insight into the importance of dental practice financial statements, their role in management of the business, how they can help make your dream of dental practice ownership a reality and more. This video is ideal for all buyers and sellers.
Matt Scherer: Hello and welcome. My name is Matt Scherer. I’m with PMA Practice Transitions. And I help dental professionals sell and buy practices in Ohio and western PA. My colleague is …
Joe Gordon: I’m Joe Gordon and I do the same for professionals in Indiana and northern Kentucky.
Matt Scherer: Great. What’s our topic today, Joe?
Joe Gordon: One of my absolute favorites.
Matt Scherer: I wonder why that is?
Joe Gordon: I don’t know, because I’ve been a CPA, I think, since the civil war.
Matt Scherer: Cleaning up your financial statements I think is what we’re going to talk about.
Joe Gordon: Cleaning up your financial statements is good. Let’s start with the basics. Let’s have financial statements.
Matt Scherer: There you go.
Joe Gordon: Let’s have them up to date.
Matt Scherer: And we joke about it, but in all seriousness …
Joe Gordon: Oh, we see it all the time.
Matt Scherer: … It’s something that’s very important not only to you, but it’s to the buyer and to the bank. So the banks can’t lend unless they know what’s going on in the practice. So truly, you need to take a hard look at if your CPA is not doing those types of things, it might be time to find a new CPA.
Joe Gordon: Find one that understands dentistry. A dental-specific accountant, I think, is extremely important. I’m a little biased on that, too.
Matt Scherer: And we all know that sellers run arbitrary things, expenses, through their practice, right?
Joe Gordon: Yeah, discretionary.
Matt Scherer: Discretionary, that’s probably a better word. Some more than others from what we’ve seen. So it’s really taking a look at those discretionary type items. And I would say probably banks are going to typically require three years of financials. So if you can go kind of three years out, start cleaning some of that stuff up, because keep in mind when you clean all that stuff up, what it does is it increases your bottom line, which is going to show cashflow and help the banks with lending money.
Joe Gordon: And the other thing is be consistent in how you categorize your expenses. Don’t decide one year that you’re going to put all of your dental supplies under office supplies, for some reason. Or all of your charity under advertising and just skew your financial statements from year to year. We like to see consistency. There are certain rules of thumb on percentages of expenses that we like to see. And if you don’t keep that categorization consistent throughout the years, we’re going to be asking more and more questions.
Now we do understand some of you like to go to continuing education in Maui. And some of you want to drive 15 minutes and get it locally. So there’s going to be disparity in that. There’ll be disparity with vehicles if you have a vehicle in your practice. And it’s cost and maintenance, things like that. Totally understand that. Marketing and advertising. And this is another one that can get somewhat discretionary in terms of what you like to support and what makes sense for your practice.
Matt Scherer: So you definitely want to take a look at your financials. It helps us when we do evaluation. It helps the buyer to see the cashflow of the practice. It helps the banks to see the cashflow of the practice, which ultimately is going to lead in to higher purchase price and a sale. All right. So if your CPA is not doing that for you, certainly you can contact Joe and I. Not that we can help you. Joe’s a semi … Or retired CPA, I suppose, in the dental space. But we know others that can help you that will do a good job for you.
Joe Gordon: Without a doubt. Without a doubt.
Matt Scherer: So thank you for listening to this segment. We appreciate it. If you like us, give us the thumbs up and please share us with your colleagues and friends.