<![CDATA[OMNI Practice Group - BLOG]]>Thu, 21 Sep 2017 11:39:06 -0700Weebly<![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.]]>
<![CDATA[Patients]]>Thu, 04 May 2017 20:42:00 GMThttp://omni-pg.com/blog/patientsUnderstanding how many patients, or what type of patients, are in a practice is an important part of evaluating a potential practice to purchase.  What is one man's trash is another man's treasure.  
When you are evaluating a practice, you may be told that there are a certain number of "active" patients in the practice.  That term "active" is one of my least favorite terms when trying to evaluate or sell a practice.   One person may define "active" as having been in the office once within the past 24 months.  Another person may define it as the patient having been in the practice once in the last 12 months.  And yet a third may say the patient is "active" because they came into the office at one point or another while the doctor was practicing.  It doesn't even matter to them how long ago it was, or if the patient is even alive.  If I were in your shoes, I would throw out what anyone says and count the charts myself.  If the practice is digital, I would look at the number of hygiene appointments seen in the past 12 months and divide by two to get the number of active patients seen that year.  You can gross it up by 50% to account for walk-ins and other types of procedures, but that should give you a ballpark of the number of active patients.  Another quick rule of thumb is to divide the annual collections by $1,000.   A practice producing $500,000 per year, should have in the neighborhood of 500 patients ($500,000 divided by $1,000 per patient)
 
Patient demographics is another thing to be aware of.  Buyers often blow off a practice that has an aged patient demographic.  Little do they know that a lot of elderly patients pay cash for their treatment and they still want their treatment.  They also have more required work than patients that are in their 20's, 30's and 40's.   These patients are very profitable patients.
 
Hopefully looking at these two areas of patient demographics will help you make the right decision when evaluating a practice.]]>
<![CDATA[Why Buying and Merging Another Practice into an Existing Practice Makes Sense]]>Tue, 18 Apr 2017 23:26:08 GMThttp://omni-pg.com/blog/why-buying-and-merging-another-practice-into-an-existing-practice-makes-senseOwning and growing a dental practice can be one of the most challenging things in dentistry.  Advertising for new patients can be hit and miss and expensive.  That’s why one of our favorite strategies is to purchase another practice and merge it into your existing practice.

The reason you would consider doing a merger is because you get all of the revenue and current patients from the new practice, but you don’t get all of the expenses.   You don’t bring over the fixed expenses like rent, telephone, electricity, etc.,  You already have those in your practice and don’t need to incur them again when you bring over the practice you just acquired.

As an example, say you own a practice that collects $600,000 per year. You 
have overhead of $390,000 with 30% of the overhead in fixed expenses – rent, utilities, insurance, etc., Another practice comes on the market that collecting $500,000 with overhead of $325,000 with fixed expenses again at 30% or $150,000. You purchase the practice for $350,000 giving you a debt service payment of $3,500 per month.  You work closely with the broker to ensure 100% of the patients transfer to your practice. Your practice now goes from $600,000 up to $1.1 million in revenue.  You incur the variable expenses of the second practice, but you do not incur the 30% fixed expenses of $150,000 because you already have rent, utilities, insurance etc., at your current office. In essence, you just gave yourself a $150,000 raise, less $42,000 in debt service and dropped your overhead to the neighborhood of 55%. It would take you much longer to do this if you just did marketing and advertising. By consolidating practices, you get instant growth and income. If you have a practice for sale near you, you should consider merging it into your practice in order to achieve quick growth.]]>
<![CDATA[Steps to Buying a Practice - or - How Not to Lose your Shirt While Buying a Practice]]>Thu, 02 Mar 2017 00:47:38 GMThttp://omni-pg.com/blog/steps-to-buying-a-practice-or-how-not-to-lose-your-shirt-while-buying-a-practice​​Buying a dental practice can be and is a daunting task. It’s much more involved than purchasing a car or even a house.  You have to wear many hats including shopper, negotiator, accountant, finance, lawyer, practice management expert, equipment specialist and even human resources manager. One wrong step and you could set yourself back financially, legally and even personally if something goes wrong.  You have to know what to look for every step along the process. But, what is the process?  Here is an abbreviated version of what those steps are:
  1. Find a practice.  Finding a practice isn’t hard. Finding a good one is. Get in touch with all of the brokers and get on their e-mail lists.
  2. Begin speaking with banks that specialize in dental practices.
  3. Review the documents the broker sent you. You should get a prospectus that gives a decent summary of the practice along with demographics. You should get at least 3 years tax returns, profit and loss statements, production by procedure report, production by provider report and an accounts receivable aging balance. And, that’s just the start.
  4. Review financials with your accountant. Or, if you minored in accounting or understand numbers, you can review them yourself. 
  5. Make your offer and negotiate. Don’t low-ball the offer unless you know they may accept any offer. A good practice will go quick, so wasting anytime will result in missing out on the practice. Add your contingencies in the letter of intent.  Review with an attorney.
  6. Do your due diligence – review charts, x-rays, staff pay and benefits, equipment, UCC filings, the reputation of the doctor and practice, state licensing review on the seller, etc., Get in as deep as you can.
  7. Review the lease. Make sure it’s not too high, no tear down clauses, lease expiring, etc.,
  8. Begin legal review of agreements. Get your attorney involved.  Choose a good dental attorney.
  9. Complete the Omni 70 point checklist for closing the sale of a practice.
  10. Hold staff meeting to be introduced as the buyer
  11. Work through escrow in closing the sale.
  12. Begin your new life as a practice owner.
As you can see from this abbreviated  list, there’s a lot to do.  You can go it alone and swim with the sharks, or, you can have our Buyer’s Transition Consultant help you through the process. ]]>
<![CDATA[Dental Practice Transitions and Taxes]]>Fri, 03 Jun 2016 18:40:17 GMThttp://omni-pg.com/blog/dental-practice-transitions-and-taxes
​ Taxes are a fact of life, and an extremely important consideration when considering a dental practice transition or sale. Let’s explore some potential tax mitigation strategies to consider.

Stock Sale. If you are incorporated, sale of the stock in your corporation to the dental practice buyer can potentially yield you the greatest tax savings, because the sale of stock is almost exclusively taxed at the lower fixed capital gains rate as compared to the higher, tiered ordinary income rates. However, and this is a BIG however, stock is a non-depreciable asset to the buyer. As such, the dental practice buyer is not able to write off the sales price and essentially ends up buying your practice with after-tax dollars. Consequently, a buyer is likely only to agree to buy your stock if you are willing to reduce your purchase price by 30 percent or more. For this reason (and many associated legal and liability complications), almost all dental practices are sold as “asset sales.” In other words, the seller retains his/her corporation and all of its stock and instead sells all of the tangible and intangible assets of the corporation (i.e., the dental practice). The buyer is then able to depreciate and amortize (write off) the entire purchase price.

Price Allocation. The IRS requires the total price of a dental practice for sale to be allocated to the various types of assets being sold and that the allocation be made according to the fair market value of the assets. As a general rule, the tangible assets are taxed as ordinary income above basis, and the intangible assets are taxed as capital gains. (Above basis means the difference between what you are selling the tangible assets for and your book value or depreciated value.) Any consideration for a covenant not to compete will also be taxed as ordinary income. Since fair market value is somewhat subjective, there is some room for negotiating the overall allocation of the purchase price. As a dental practice seller, you will save taxes if you can negotiate with a buyer for a lower allocation to tangible assets (equipment, furniture, fixtures, supplies, etc.) and a higher allocation to intangible assets (goodwill and patient records). (Unfortunately, it will benefit the dental practice buyer to have just the opposite allocation, so consideration must be given to making the allocation fair to both parties.)

Carry back a note. Sellers frequently ask us, “Won’t I save on taxes if I self-finance part or all of the sales price (i.e., carry back a promissory note from the buyer)?” The answer is, “No, but maybe . . .” As mentioned above, the portion of the price in an asset sale that will be taxed as ordinary income will be due in the year of the sale. That recapture will be taxed regardless of the receipt of any actual cash at closing, which means you owe the ordinary income tax associated with the recapture even if you do not receive a cent at closing. Consequently, if you do not want to have to pay to sell your practice, it would be prudent to ask for enough of a cash down payment to cover the tax liability you will incur from the recapture. Since most of the remainder of the sales price will be taxed as capital gains and since the capital gain tax rate is a fixed rate, the same tax will be applied and the same tax amount owed whether you receive that portion of the price now or paid to you over time; unless . . . there is a change in the capital gains tax rate before the note you are carrying is paid off. If the rates go up, you would be taxed at that higher rate on that income as it comes in. Otherwise, self-financing a portion of the price serves only to defer capital gains tax, but it will not lower the total tax. (Also note that the interest portion of any promissory note payments will be taxed as ordinary income to the holder, while the principal portion subject to capital gains will be taxed at the capital gains rate.)

Sale Timing. As discussed above, the tax associated with recapture over basis on the sale of tangible assets will be determined by your ordinary income tax bracket in the year of the sale. If you are planning to retire after the sale of your practice and, consequently, will have a drop in your ordinary income level, it may behoove you to strategically time the sale of your practice until after the start of the next tax year. Also, if you have owned your dental practice for less than one year, you should, if possible, wait at least one full year before selling it since the sale of goodwill within a year of ownership will result in the higher short-term capital gains rate being applied instead of the long-term capital gains rate.

“C” Corporation Consideration. If you are currently incorporated and being taxed as a regular “C” Corporation, the sale of goodwill by your corporation will likely be subject to double taxation, once as capital gains inside your corporation and then again as ordinary income when paid as a distribution to the shareholder(s). There is some case precedence that allows for the shareholder(s) of “C” Corporations in closely held and professional businesses to sell goodwill individually, outside of the corporation, thus avoiding that double taxation. If this applies to you, consult with your CPA and/or tax attorney regarding the details of such a tax strategy and its application to your particular situation.

1031 Exchanges. If you are selling a dental practice now and are planning to buy another practice within six months, a 1031 or “Like Kind” Exchange may be a tax deferral strategy to consider. It allows you to defer the taxes associated with recapture over basis you would otherwise incur with the sale of your tangible assets. A 1031 Exchange has very specific and rigid requirements. Consult with your CPA and/or tax attorney regarding the details of such a tax strategy.

Charitable Remainder Trusts. Charitable Remainder Trusts are not subject to capital gains tax. As such, a seller may potentially eliminate capital gains tax on the sale of his goodwill by donating it to a qualified charity. The downside, obviously, is that the seller must donate the goodwill proceeds to that charity. This is another strategy where you would want to receive guidance from your CPA and/or tax attorney.
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<![CDATA[´╗┐Merging an Existing Practice]]>Thu, 02 Jun 2016 20:48:00 GMThttp://omni-pg.com/blog/merging-an-existing-practice
​If you already own a practice, have you ever considered buying an existing practice located close to your first practice and merging them together?  If you ask most doctors, they will say the best way to build a practice is through taking care of your patients and bringing in new patients via word of mouth and marketing.  And, they would be correct.  However, acquiring a second practice and merging the two together makes sense in many ways.
 
First off, have you ever calculated the cost of acquiring a patient via old fashioned word of mouth?  It requires a lot of work if you include everything from building your brand, training your staff, maintaining a spotless, high-tech practice, etc., the cost could easily be $1,000 per patient.  The cost of acquiring a patient via marketing is even more.  Acquiring a practice with existing patients can typically run from $800 per active patient to $1,000 per active patient.  Slightly less to maybe equal of acquiring a patient through a normal channel.  However, you get a high volume of patients very quickly.
 
Secondly, you acquire a stream of revenue at a near dollar to dollar relationship.  If the selling practice is producing $500,000 per year, you should be able to repeat the $500,000 in revenue by merging the practices together, or worst case, slightly below the $500,000.  The good news, is you don't bring over all of the expenses of the selling practice.  You typically can save in a number of ways including reducing staff of the selling practice, utilities are not double as the practices merge to one location, there is only one rent payment (more on that in a minute), only one set of books, so only one payroll service and one bookkeeper and accountant and several other services can be eliminated.  So, while getting the majority of the revenue to increase your practice collections, you only get a portion of the expenses.  This increases the income of the practice owner - you!
 
Regarding rent, you may initially have to bite the bullet and take on an additional rent.  A perfect scenario is when the seller is month to month on their lease, or a short period left on the lease.  But, if there is a longer period of time left on the lease, you can evaluate the location to determine if it can be sub-leased.  Another scenario may call to take on the second location for a few years while the lease runs out.  This dilutes the savings, but still allows you to increase your collections.
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