Banks Ready to Finance Practice Transition Buyers
It was a rough year for sellers looking to do a practice transition or sale and also tough on practice sales for practice transition brokers. Practice sales were completely in the tank.
Fast forward to 2012, bank rates are as low as 5.25% and most around 5.75% to 6%. They will finance up to 85% of the dental practices’ last 12 months of production and typically no longer require the seller to take a note back. In addition, they’ll even finance dental real estate purchases if the real estate is available at a great rate. If you’re in the market, or on finance to buy a practice, or think you can’t sell your practice because banks are not financing practice sales, think again.
Banks are back on the field of play and ready to loan you money so get in the game!
Points To Consider When Thinking of A Dental Practice Transition or Sale
With the economy somewhat improving I’ve had an increase in Washington and Oregon from dentists asking about practice transitions or a practice sale. While as a broker, I can easily just suggest they do a practice transition, but as someone who wants to have a long career, it’s in my best interest to give existing and potential practice transition clients the best possible advice and tools to make that decision. So, with that, here are a few points to consider when thinking of a practice transition:
- Consult your financial advisor or CPA – Can you afford to retire or cut back? What does your portfolio look like? What income do you need to live off of for the rest of your life?
- Get a practice Appraisal – If you’re thinking about a transition, you need to know what your practice is worth. A rule of thumb will give you a ballpark estimate, but may not be accurate. Have a professional appraise your practice. We charge $2,495 for practice appraisals with a free update on the appraisal if done within 2 years.
- Consult your Tax Accountant on the ramifications of a sale – Are you an S-Corp or C-corp. If you’re a C-Corp, you may want to figure out how to switch to an S-Corp. Do you have an employment agreement? You may want to terminate the employment agreement. Seek good tax advice and counsel prior to a transition.
- How’s your practice health? Are your numbers looking good? Still getting new patients? Is technology up to date? Is décor up to date, or do you still have the olive appliances in the staff room? Consider a remodel if you’re 5 years or more away from retiring. If it’s closer, consider a cheaper update like paint and carpet.
- What are the capital gains outlook? Currently, the Bush tax cuts expire at the end of 2012. There’s another 2.8% healthcare tax also kicking in. Does that make it worth it to sell sooner rather than later?
- Do all “key” employees have non-compete agreements? If you have an associate, that is essential.
- Clean up your accounts receivable. Are there a lot of credit balances? Are there a lot of accounts greater than 90 days old? Clean it up!
- Start planning with your practice Transition consultant well ahead of time. As a practice transition consultant and broker for Washington and Oregon, I can help get things in place prior to your transition.
- Do you own your building? Get an appraisal if you’re thinking of selling it as well. Or, if not, get a market rate on what the lease should be.
- Interview several attorneys who specialize in dental practice transitions on the west coast.
Planning ahead of time and asking these questions will help you feel more at ease when you do decide to do a practice transition or practice sale and seek retirement.
Happy Planning,
Rod Johnston, MBA, CMA
Would you “LIKE” to see more dental practice advice? ‘LIKE’ Us on Facebook
Love What You Do, But Can’t Wait To Retire?
Howard Farran from Dental Town had a good article on this. He said someone had told them they love what they do, but can’t wait to retire. His response was “Mother Theresa loved what she did” and she couldn’t wait to serve another orphan or something to that effect. His point was that if you absolutely love what you do, why retire?
A better option is to sell your practice and work back for the buyer one or two days per week or month. By associating in a practice, or simply selling or transitioning your practice and working back one day per week, or even per month, you enjoy the fruits of your labor, enjoy life, and still get to enjoy dentistry.
Call us to learn how. 877.866.6053
OMNI Selected as Member of NAPB
We are the exclusive NAPB member for Dental Practice Transition Brokers for Washington and Oregon. NAPB is a national organization of practice brokers that is focused on holding a higher standard for Dental Practice Transition Brokers. The NAPB is involved in educating brokers on the laws, regulations, and trends in Dental Practice Transitions.
Omni was hand-picked by the NAPB. It took over a year to get approved as the NAPB contacted previous OMNI clients, banks, and other vendors that have done dental practice transition deals with Omni in Washington and Oregon. They were very impressed with our level of service and integrity with which we operate.
Be sure and “Like” us on Facebook. By “Liking Us” you’ll join other dental professionals and be the first to know of our new Practice Transition listings, upcoming Practice Transition and Consulting events, practice consulting offers, and practice Transition and Management tips.
Scratch Start or Existing Practice?
With so few practices on the market, I often get the question “Should I just start a new dental practice?” Since I am a commercial real estate broker specializing in helping dentists find new locations as well as being a practice broker, I can give you an educated answer. That answer is “it depends”.
Here are 10 questions to ask yourself to see if you are a candidate to do a scratch start practice:
- Do the demographics support another dentist in the area? (1,500 people per 1 dentist)
- Do you have the patience to do a startup? (ADA says it takes 24 to 36 months to break even)
- Do you have another income, or 12 months of cash reserves, to support yourself while you get your new practice going?
- Are you good at project management – managing contractors, designers, vendors, etc., to get things going?
- Have you hired staff before?
- Are you good at self-promoting and marketing? You may need to go door to door to get recognition and to get patients coming in.
- Have you set up insurances, bank accounts, patient financing, etc., before?
- Do you have good credit and some cash reserves in the bank to obtain a loan?
- Do you have enough experience (minimum of 2 years) to jump in and get things going?
- Do you have the fortitude to succeed? There will be down times when you want to throw in the towel. You need to fight through those down times to achieve success.
I have helped over a dozen practices get started in their new practices in the past few years. From finding locations to consulting on the entire setup. Each practice has achieved break-even in less than 18 months. If you are on the fence on whether to do a startup, give me a call, and I can help with analyzing your situation.