<![CDATA[OMNI Practice Group - BLOG]]>Wed, 22 Nov 2017 15:23:21 -0800Weebly<![CDATA[Selling your dental practice? It's not as easy as it looks]]>Thu, 16 Nov 2017 05:35:21 GMThttp://omni-pg.com/blog/selling-your-dental-practice-its-not-as-easy-as-it-looksI’m sure many of you have sold a car, boat, or a house by yourself.  For the most part, cars and boats are pretty simple to sell. Even selling a house only involves a couple of pieces of paper, an escrow agent, and a few other steps.  But selling your practice is another ballgame.  Emotions get involved as you are attached to your patients, staff, and heck, you built this baby!  There is a valuation to do - how do you do that?  Additionally, there is due diligence, lease assignment, document preparation, letter of intent, renegotiating after due diligence, closing process, CPA’s and on and on.  It’s hundreds of hours of doing a lot of different things.
 
ARE YOU READY?
You might be saying, “This practice has been my baby and my life for many years,” Or, “I still want to treat patients a couple of days a week after I sell my practice.” Before you make any decisions, ask yourself some questions:
  1. Am I emotionally and financially ready to step away from the practice where I’ve invested so much of my time and resources?
  2. What do I want to do after I sell? Will I retire from dentistry, work part-time, or volunteer my services?
  3. How do I want to sell my practice? For example, should I sell to an associate and immediately retire, or should I transition to another dentist and gradually step aside?  Should I sell to a corporate?
It’s understandable you want to preserve your practice legacy while ensuring the ongoing care of your patients and staff meets your high standards. That’s why it’s important you find the right buyer to entrust your “baby.” It’s one thing to be financially prepared for retirement. It’s a whole other ballgame to emotionally handle walking away from your practice.
 
READY, SET... GO!
After taking stock of your personal finances, retirement, and practice transition goals, it’s time to call in the experts to help you prepare for the sale. Your team of professionals should include a CPA, wealth management advisor, practice transition specialist, and an attorney.
 
Certified Public Accountant (CPA): A CPA will compile and review all your financials. Be upfront about anything that might be considered outside the normal scope of dental practice business, i.e., expenses above industry averages, any non-cash benefits, or family members on the payroll who don’t work in the office. This allows your CPA to do a thorough analysis and advise any necessary adjustments.
 
Wealth management advisor: The sale of your practice could be the single biggest contribution to your retirement fund. Consult an expert wealth management advisor to help you plan for any related tax consequences and long-term investment strategies.
 
Practice transition specialist: A good practice transition specialist will review market prices in your area, establish a practice sale timeline, conduct a comprehensive practice analysis, and have a pool of financially viable buyers. Get recommendations from colleagues and interview each one to find the best match for your needs.
 
Attorney: Attorneys provide much-needed protection and attention to practice sale transaction details. Due diligence and sound legal advice benefits you, your practice transition specialist, and the buyer. Find an attorney who is well-versed in dental practice transitions. This will save you time and money, and potentially add tens of thousands of dollars to the purchase price of your practice.
 
FINANCIAL PREPAREDNESS
Be sure to have all of your financial statements in order to accurately show the fiscal health of your practice. Make sure you prepare and review monthly and quarterly profit and loss statements with your accountant. If you have not done that, start doing so immediately. Review each line item to manage revenue fluctuations, expenses, and ancillary accounting issues.

The ADA, a member of the Academy of Dental CPAs, or a transition specialist can give you current industry averages for revenues, expenses, new patient flow, fee schedules, and much more.

Buyers will look at your profit and loss statements to compare each line item to industry averages. Make sure your CPA explains any noted differences upfront, otherwise you could lose significant value to your practice. It also puts to question the integrity of your practice financial information.
 
Due diligence: Potential buyers will want to review your production against industry averages. Carefully analyze the following key reports generated by your practice management system:
 
Provider summary report: This report actualizes productivity by provider and type of procedure. When reviewing this report, make sure your hygiene production numbers are within industry averages. Also, if you offer specialties such as orthodontics or sleep apnea, you need to make sure any potential buyer can replicate those procedures. If they can’t, it could negatively impact the purchase price of your practice because that revenue would be deducted from the valuation.

Accounts receivable report: Buyers pay close attention to the percentage of receivables based on the delinquency bucket. Be forewarned: most buyers will not pay for balances over 90 days. Large account receivable balances are a red flag for any potential buyer. It usually signifies a lack of controls for effective practice collections and cash flow management. Carefully analyze each account and make necessary adjustments to non-collectables.

Fee schedules: Review your current fee schedule and adjust fees to the minimum 80th percentile for your area. 
 
FINAL INSIGHTS
  • Carefully vet all potential buyers. If they don’t have a clear understanding of the market and how it relates to the value of your practice, move on.
  • Establish relationships with industry professionals. Their expertise and support will be an invaluable resource.
  • Determine a specific date of sale with a realistic timeline. Communicate clearly when you want to stop practicing dentistry.
  • Plan early and anticipate delays. Your location, mix of procedures, and practice revenue trends can impact the pace of your practice sale.
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<![CDATA[Patient Insurance - Use It or Lose It]]>Fri, 10 Nov 2017 05:51:00 GMThttp://omni-pg.com/blog/patient-insurance-use-it-or-lose-itAs we approach the end of the year, you should contact your patients and let them know that they should look at their insurance to see if they have available funds to complete procedures, or fit another cleaning in before the end of the year.  There are standard patient letters that many consultants use to send out to patients.  Or, you can use one of the internet based patient notification systems to let your patients know to use their insurance.  We also have a letter template for insurance notification.  Send us an email ​and we’ll send you a copy of the letter. ​]]><![CDATA[Why Now is the Time to Buy a Practice]]>Fri, 10 Nov 2017 05:49:35 GMThttp://omni-pg.com/blog/why-now-is-the-time-to-buy-a-practiceI remember when I bought my first house.  I wasn’t sure if the timing was right, whether the house the real estate agent recommended I buy was the right house or if I could afford the house payments.  At the ripe age of 26, I took the plunge and bought the house.  It turned out that years later, those trepidations I had were irrelevant.  This wasn’t the perfect house, but I remodeled it and made it near perfect to me at that time.  The value grew and I built equity.  I made adjustments to afford the payments and the timing really didn’t matter. 

The same goes for buying a practice.  The practice you buy does not have to be perfect and the last practice you buy.   You buy a practice that fits your needs at your current time in your life.  You put sweat equity and hard work into the practice to make it profitable.  You do a bit of remodeling to make it fit your personality and style.  You work in the practice building equity and you hone your skills as a practice owner and a business manager.  In the end, timing is not as important as you think.  I know many doctors who bought their first practice when interest rates were 15%.  Also, keep in mind that practice owners earn 20% more than associates who are employees.  (Read Rich Dad, Poor Dad if you want to understand why you should own and not be an employee).

The moral of the story is if you feel you might be ready but are not quite sure, you’re ready.  Interest rates continue to be low.  The economy is doing well.  There are great resources that can help you own and run a practice.  If you would like to discuss whether or not you are ready to own, feel free to reach out to any of us at Omni to discuss your individual situation. Send us an email or give us a call at 877-866-6053 today!]]>
<![CDATA[WHEN IS IT TIME TO SELL?]]>Thu, 19 Oct 2017 07:00:00 GMThttp://omni-pg.com/blog/when-is-it-time-to-sellThere are a number of reasons that doctors sell their practices.  Some are good reasons, like when you have reached a point where you have enough money to live comfortably the rest of your life while you are still healthy.  Other situations may not be good.  Those can include failed health, a practice that is quickly losing production, or the worst-case scenario -- you suddenly pass away.

If you are still in good health but are not sure if you are in a good financial position to be able to live comfortably the rest of your life without working, we recommend you speak with your financial planner.  They can analyze your situation and see how much more you may need to work.  Or, if you can sell your practice, put the money into a retirement account and work at a practice and continue to make an income while harvesting the equity you have in your practice.  This is one of our favorite transition strategies.  It’s like selling your house, but you get to continue to live in it.  Just because you sell your practice does not mean you need to stop working or retire.   You can still work clinically if you still enjoy dentistry but don’t enjoy the management or dealing with insurance companies continuing to lower reimbursements.

Another time to consider selling is when your practice is continuing to go down in collections or net income.  We have numerous examples of when a doctor could have sold two or three years prior and made another $200,000, $300,000, or even $400,000 more if they would have sold at the height of their practice production.  Instead, they watch the production numbers and patients go down year after year after year.  Even though the owners knew they were getting tired, referring more work out, or simply seeing fewer patients, they continued to hold onto their practice thinking they can sell it based on what the numbers were at the height of production. 

The worst time to sell is when you have to sell, say when you or a family member have failed health, or you suddenly pass away.  In this scenario, you or your family are left trying to quickly get the practice sold before all of the patients leave and there’s a skeleton of a practice left to sell.  That can be a devastating situation, especially when the funds from the sale of the practice were counted on as a source of future retirement income.  At a minimum, you should keep an emergency contact list for your family in your office that includes your attorney, accountant, practice broker, supply company, etc., that can alleviate some of the burdens on your family.

Whether you are 20 years from retirement or 2 years from retirement, you should be always be prepared and have an exit plan.  We are always available at no charge for either a phone call or a meeting over a cup of coffee to help you put together that plan.]]>
<![CDATA[Not All Valuations Are Created Equal]]>Fri, 06 Oct 2017 07:00:00 GMThttp://omni-pg.com/blog/not-all-valuations-are-created-equalPractice valuations and those that value practices can come in all shapes and sizes.  Did you know that there are probably 20 different methods you can use to value a practice?  Did you know there are 5 to 10 different certifications or accreditations one can work towards obtaining?

Rule of thumb valuations are ones that are typically quoted and overly abused.  The typical rule of thumb in a dental practice is a value based on a percentage of the practices gross collections.  For metropolitan areas, the rule of thumb can be from 85% of collections up to 100% of collections.  For a rural area, the value is typically 65% up to 85% of collections.  Sounds simple and straightforward, but why can this be inaccurate? 

The first reason is the practice may have a good gross production number, say $800,000, but it also may be mismanaged with overhead of $750,000 leaving $50,000 leftover for debt service and salary for the doctor.  Do you want to work for nothing?  Using a rule of thumb approach, this practice, if in downtown Seattle or Portland, would sell for between $700,000 and $800,000.  Secondly, you don’t know what is being run through the gross revenue production number.  Is the practice on capitation plans, DSHS, or another low reimbursement program?  Low reimbursement means low money to the practice, narrowing the margins.  If you get a high volume of the low reimbursement programs, you can bump up your gross and leave little to pay off debt and doctors salary. 

Another valuation method that can be dangerous is called the cash flow method.  This method calculates an adjusted cash flow to the practice.  The valuator will then normalize a doctors’ salary and calculate a value based on how much debt the practice can afford to pay.  In some practices, the valuator will use a forecasted number to get the value even higher.  This helps the seller when selling a practice, but is bad for the buyer as he or she is stuck paying a high debt payment each month.

Omni follows standards set by the Institute of Business Appraisers and the Society of Certified Public Accountants Certified Valuation Analyst program.  We have on staff an Accredited Business Appraiser as well as two Certified Valuation Analysts.  We use three different valuation methods to determine the value of a practice - the Production Acquisition Method, the Capitalization Rate Method and the Book Value method.  Each of these methods focuses on a different aspect of the practice.  After we calculate all 3 methods, we blend them to determine the total value of the practice.  Blending these methods gives us a value that looks at the assets, cash flow and overall collections of the practice – a full picture of the entire practice and not just a glimpse of one aspect of the practice.

If you are interested in hearing more about Omni’s Practice Valuations, send us an email or give us a call at 877-866-6053 today!]]>
<![CDATA[Practice Ownership is Declining]]>Mon, 18 Sep 2017 18:09:42 GMThttp://omni-pg.com/blog/practice-ownership-is-decliningIn the September 2017 subscription of JADA, there is an article titled “Practice Ownership is Declining” by Marko Vujicic, Ph.D.  As the title reveals, the article is about the decline in practice ownership by dentists.  If you have not read the article, I highly recommend it.  The statistics in the article support what we are seeing in the market for dental practice and some of the articles I’ve written recently.  If you do not subscribe to JADA, here are a few of the highlights.

There is a steady decline of practice ownership, especially amongst male dentists.  Approximately 80% of dentists currently own practices.  Rising student debt, the emergence of corporate dentistry, shifting work-life balance preferences were just a few examples of why there is a decline in ownership.  One of the big questions brought up is whether the trend is a big deal.  It was pointed out that practice ownership is highly coveted and one of the reasons that dentists got into dentistry in the first place.  All else being equal, owner dentists earn more than non-owner dentists.  The question is, is practice ownership no longer as coveted as it used to be by younger, early career doctors?

The decline in practice ownership will continue for years to come.  A comparison to the decline in ownership by physicians, which is now below 50%, was used as a comparison.  Hospitals and groups have taken over the ownership of physician practices.  The study states that physicians’ net hourly income is significantly higher than for dentists; Although, I would say that the annual income is higher for dentists, all things being equal.   The author also claims that physicians are happier as a result of not being an owner of a practice.  With reimbursements continuing to decline, dentists will be asked to do more with less.  An emerging emphasis on quality and value will spur changes in dentistry. 

If you have not read the article, I recommend you take a look.  Email me at rod@omni-pg.com and I will send you a copy. You can also go to jada.ada.org and search for “Practice Ownership Is Declining."]]>
<![CDATA[Building Your Team]]>Sat, 02 Sep 2017 00:02:08 GMThttp://omni-pg.com/blog/building-your-team​Just like any successful sports franchise, in order to have a successful transition, acquisition or startup, you need to have the best players on your team.  There’s no “I” in team (I hate that phrase) and there’s no “I” in a transition.  You can’t do it all yourself and do it well.
The first team member you need to bring on board is someone who can help evaluate a practice.  That can be an accountant, consultant, or broker that specializes in dental practices.  Those last four words of that sentence are critical.   Specializes in dental practices.  They have to know what they are doing and how to analyze and value a dental practice.  I once was representing a seller who had a practice collecting $800,000 with a net income of $300,000.  The buyer’s consultant put together an offer of $280,000 when we had it valued at $550,000.  The consultant ruined the deal.  The seller was so upset with the buyers low-ball offer that the seller refused to even work with that buyer even with a higher offer. 
The second team member is the attorney.  Again, use an attorney specializing in dental practice transitions.  It’s critically important.  Do not use your cousin, friend, neighbor etc., who are divorce, bankruptcy or personal injury attorneys who took a contract class in law school.  I’ve seen “friends” charge the dentist $25,000 for a review of a contract where a dental attorney would charge around $5,000. 
You also need a dental CPA to help you with the numbers.  They can help with the valuation, analyze the payroll and tax returns, help with the purchase price allocation and set up your legal entity.
Fourth is your banker.  There are a number of banks that finance practice acquisitions and startups, and they all have their pros and cons.  It’s important you work with someone you trust who will give you a fair deal.  Sure, banker B may have a slightly better rate, or a cool toaster give away for new accounts, but go with someone you like and can build a relationship with.  They’ll be there in the good times and the bad times to help you out.     
If you need some names of good team members, let us know.  We work with a lot of CPA, attorneys, consultants, bankers and brokers.  We have a good feel for who will be looking out for your best interest and will do a good job for you.  Give us a call and we’ll help you build your team for your practice acquisition or startup.
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<![CDATA[Are Solo Practice Owners Going the Way of the Golden Toad?]]>Tue, 08 Aug 2017 23:41:10 GMThttp://omni-pg.com/blog/are-solo-practice-owners-going-the-way-of-the-golden-toadWe occasionally hear that the future of solo dental practices is bleak.  They will eventually be extinct like the Golden Toad (look it up).  Corporate dentistry is growing and going to drive out the solo practitioners.  My personal opinion is that I don’t think this is true.  I believe there will always be a need and a demand for the solo/non-corporate practice.
When I talk about corporate practices, I’m primarily speaking of the non-dentist owned corporate practice.  There are dentist owned practices where a licensed dentist owns 3, 5 or more practices.  He or she has full and legal ownership of their practices.   I call these small group practices.  Corporate practices tip-toe down the legal sidelines of practice ownership by having a dentist own the clinical aspect of the practice, called Dental Services Organization (DSO) and the non-licensed dentist corporation owns the non-dental management aspects, called a Management Services Organization (MSO).  Note that this structure can also occur in small groups, but in the small group, a licensed dentist owns both the MSO and DSO.  The large corporates include Aspen, Gentle Dental, Pacific Dental Services and others.  Both solo practices and corporate practices have their pros and cons from both a patient perspective and from a dentist perspective. 
As a patient, I prefer to know who my dentist is going to be when I go into the office.  I want to build a relationship with him or her and want my dentist to know the history of my dental care -- and a little bit about me as well.  In a corporation, you might get the same dentist the next time you go in, but there’s a good chance it will be a different dentist.  Small groups lean more towards a solo practice and you will have a reasonably good chance to get the same dentist in the well run small groups. 
From a dentist perspective, most dentists do not want to be told what treatment to focus on, what supplies to use, etc.,  The majority of dentists surveyed by the ADA still have a dream of owning their own practice, being their own boss, making their own decisions.
Recent court decisions in New Jersey, Allstate vs. Northfield, sided on the side of dentists.  It may begin to set the tone to start scaring away the non-dentist corporate owners.  Washington State has been trying to pass a bill to allow non-dentist owners and so far has been successful.  If you’d like to read an article on the New Jersey case, you can read it here.
So, if you have been holding off on not buying a practice because corporates are going to drive solo practices away, think again.  There will always be a need and demand for a solo practice.  Court cases like Allstate vs. Northfield will help ensure non-dentist owned practices stay away.  Join the practice ownership club today!]]>
<![CDATA[Economy Helping to Ramp Up Practice Sales]]>Sat, 01 Jul 2017 01:22:21 GMThttp://omni-pg.com/blog/economy-helping-to-ramp-up-practice-salesOver the past several months, the economy has been going quite well.  The Dow Jones average is up over 21,000 and setting all-time highs.  Employment levels are up while unemployment levels are down.  Current unemployment levels in King, Snohomish and Pierce counties are at 3.3%.  Amazing numbers for a strong economy.
The strong numbers have played a part in the increase in practice sales.  Practice owners who are over 55, are seeing the strong numbers and returns in their portfolios and deciding now is the time to retire.  Buyers are also watching the economy and realizing it’s a good time to buy a practice.  Interest rates are still good at between 5.25% and 5.5%.  Consumer’s discretionary income is up freeing funds for consumers to do elective and cosmetic dentistry.   (I know you shouldn’t base your dentistry on discretionary income, but many do). 
The result of all of this is that practice listings and sales are up.  We typically carry an inventory of 10 to 15 practices and we’re now up to approximately 25 practices.  We have spoken to other brokers and most are experiencing a similar increase in business.  The interesting thing is that valuations are still staying true to normal formulas and historical numbers.
What this means to you is you can either be a participant in this booming market, or you can be a bystander and watch opportunity pass you by.   If you would like to get any information on any of our practices, let us know.  Consultations and phone calls are always free!
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<![CDATA[Should you Consider a Low Production Practice to Purchase?]]>Tue, 06 Jun 2017 03:21:32 GMThttp://omni-pg.com/blog/should-you-consider-a-low-production-practice-to-purchasePractices come in all shapes and sizes.   Some are collecting over $1 million per year with 50% overhead.  Others are collecting $600,000 per year with 65% overhead.  These both appear to be decent practices.   Yet, there are other practices collecting $300,000 to $400,000 with 70% overhead.  The first two practices are definitely practices to consider buying, but is the third practice one that you should disregard? 
We attempt to coach sellers to sell their practices when they are at their peak productivity and profitability.  However, there are a number of doctors, over half, who decide to hold onto their practices while they slow down.  They start getting tired, they refer out more procedures, stop marketing and refer more work out to specialists.  I have seen practices collecting $350,000 with 600 to 700 active patients and hygiene production at 40% of total production.  Analyzing these types of practices to see if they are worthwhile acquisitions or merger prospects requires looking at their procedures report, their production by provider report and profit and loss statement.   Turning these practices around and making them more productive may be as simple as stop referring out endo and other procedures that you may be able to do, start marketing and start diagnosing treatment.  If the location is good and the numbers look like they can be turned around, you should not disregard these practices for an acquisition or a merger.]]>