Author: omniadmin

Dental Seller Preparation Checklist

The best time to start preparing for your practice transition is three to five years from the date you plan on selling your practice.  Since you may not really know that date, the best time to prepare is NOW!  Here is a checklist of things you should do as you get closer to deciding to sell your practice:

___ Meet with your Financial Advisor – Discuss with your financial advisor that you are thinking of selling your practice.  If the intention is to retire, let them know that is your plan.  Ask them how much you may need to retire at the income level you desire.

___ Discuss Taxes with your Accountant – This is especially important in the current environment.  There have been discussions at the government level to increase both capital gains and income tax rates significantly.  Both affect the proceeds you will receive from the sale of your practice.

___ Obtain a Practice Valuation – It’s best to get a full valuation.  You can provide this to your financial planner which will help determine when you will be able to retire if you get the desired amount from the sale of your practice.  If you can’t yet retire now, most practice valuation companies or brokers will update the valuation for a minimal charge.

___ Keep your foot on the gas – Don’t slow down in your production.  In fact, if possible, ramp up production to get the maximum value from your practice sale.  Banks and buyers like practices that are trending up in production instead of going down.

___ Assess the condition of your practice – Do you have 20-year-old flooring that is faded, stained or torn.  Replace it.  Do you have mustard-colored countertops from 1970?  Update the countertops.  Paint will do wonders as well.  Don’t spend a mint, but spend a reasonable amount – $10,000 to $20,000, to make the practice look and feel fresh and updated.

___ Clean up your Accounts Receivable – If you have credit balances on patient accounts, you’re required to send those back to the patient after a certain number of years.  Each state has its own Unclaimed Property, or Escheatment law.  You can find it on the internet.  If you cannot find the patient, you are required to submit the balance to the state.  Note that you can charge a nominal processing fee to the patient.

___ Self-assess your practice numbers – Is your staff payroll and benefits expense above 25% of your total collections?  Is your production down, but you have the same staffing level?  Is your dental supply fee over 7% of collections?  Know what your ratios should be and manage to your numbers.  Contact a consultant if you’re not sure what to do.

___ Know the market – Are practices in your area selling quick?   Are interest rates super high?  If it takes two or three years to sell a practice in your area, then you may want to list it soon rather than later.

___ Do a self-assessment – Think you’re five years away, but your back, neck or hands are telling you – SELL NOW!  Burned out on managing staff and insurance companies?  Just tired of living where you live and are ready for a change?  All these may lead to selling sooner than your retirement date.  Just because you sell your practice does not mean you have to retire.  You can still practice either in yours or someone else’s practice. Or, maybe you’ve always wanted to do something different.  Maybe it’s time to test the waters.   You can always go back to being a dentist.   I know several dentists who semi-retired and work as a dentist two days per week and drive Uber or LYFT two days per week for fun.

___ Contact a broker – Some of the best transitions we have done began several years before the sale occurred.  We built relationships with the seller.  In several cases, we found a buyer asking for a specific area.  We made the call to one of the dentists we had a relationship with and they said “it’s time”.  Brokers can also be advisors over the final two, three, or five years of your practice ownership.  Should you buy the new CBCT?  Should you hire an associate?  We can help answer those questions.

Selling your practice is a major life event right up there with buying your first practice.  Be sure and prepare, have a plan and get the right advisors.  We’re always here for you and phone calls are always free.  Give us a call – 877-866-6053.

Download your own checklist here: Seller Preparation Checklist

Top 5 Fears Dentists Have About Practice Ownership (And How to Overcome Them)

There are many advantages to owning a dental practice over being an associate dentist and not owning a practice.  For one, the average dental practice owner makes approximately 20% more in income than an associate dentist working for someone else.  A dental practice owner also gets to choose what procedures he or she wants to perform, refer out, or delegate to an associate (if there is one).  They can also choose their own hours; pick the days they want to work and how much vacation they want to take.  So, why aren’t dental associates owning practices?  What are they afraid of?  Here are a few fears we have encountered by dental associates and how to overcome those fears:

1. Fear of the unknown – Associates feel they don’t have the experience in owning a practice.  They don’t know what to expect.  They haven’t managed staff.  They haven’t kept financial records.  They don’t know what marketing to put in place.  They don’t know what benefits to give employees, how to hire or fire employees, or even how to balance a checkbook.
   Fear not, you don’t have to know everything at once.  You know how to do dentistry.  That’s the first step in owning a practice.  You have a few years of experience working as an associate in a dental practice.  You’ve observed the owner working with and managing staff.  You may have experience leading a team in school, playing sports, etc.  These are all examples of good experience in leading and handling staff.  You don’t have to know how to keep books right away.   We suggest getting a dental bookkeeper and then getting educated on reading financial statements and eventually doing your own books if you’d like.  This can happen over time.  The bottom line is if you are good at what you do and willing to learn the other parts of practice ownership, you’ll be just fine.
2. Fear of taking on more Debt – Read Robert Kiyosaki’s book, “Rich Dad, Poor Dad”.  Not all debt is created equal.  There is good debt such as student loans and practice debt that helps generate an income and there is bad debt such as credit card debt where you just borrowed money because you wanted something.  Practice debt used to buy a practice that will help you make more money and build equity in an asset (the practice) is a positive thing.  As long as it’s a good practice with good cash flow, you’ll be money ahead in the long run.
3. Fear of the DSO (Dental Service Organization) or Group Practice Giants – Don’t fear the giants.  They have their own niche targeting dental shoppers looking for the lowest price on a cleaning, crown, or teeth whitening.   They also have a high turnover in their staff and doctors.  You will provide excellent service with the same staff and dentist that the clients will see every time they come to your office.  In a corporate environment, they’re not sure which dentist or hygienist they’re going to get next.
4. Fear of not knowing what to look for – This is a valid concern.  You can educate yourself in a number of ways.  There are great resources via Dentaltown, dental podcasts, YouTube, etc., that can help you know what to look for.  Quite simply, you start by looking at your desired location, then look at the cash flow of the practice and after that, you can get into the details.   There are consultants and brokers who can also help you with reviewing practices.  Identify your team that will help you overcome this fear.
5. Fear of a recession – Recessions happen, typically every 8 to 10 years and last 10 to 12 months.  You cannot avoid recessions or downturns in the economy, it’s part of life.  But, during recessions, employees typically get laid off from work.  If you own your own practice, you’re probably not going to fire yourself.  You’ll keep yourself employed and busy.  Owning a practice is a deterrent from getting laid off during a recession.

These are a few of the fears that we’ve seen over the years, and there are others as well.  But the best thing you can do is educate yourself and talk to practice owners, brokers and bankers.  Seek advice and counsel from everyone you can.   This will help you make a wise decision in moving forward with practice ownership.

Ideal Practice Benchmarks

By Jim Vander Mey, CPA, ABI – jim@omnipg-vet.com

People love benchmarks.  They want to know how many glasses of water we should drink each day.  How much we should work out every week.  Or, how many miles per gallon our cars can achieve.

There are also benchmarks to look at when you are buying a practice.  They may not necessarily be deal-breakers, but they help determine what you will need to do to get to your target.  Here are some of the benchmarks you should look at and calculate when buying a practice:

• Staff overhead as a percentage of collections – 20% to 25%.  If it’s higher, the practice is overpaying staff, underperforming collections, or too many staff.
• Facilities Expense – 7% to 9% of collections – Too high and the practice is either paying high rent, space is underutilized or production is too low.
• Supplies – 5% to 7% of collections – If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
• Marketing expense – 3% to 5% depending on the growth stage.  A practice that is looking to grow will have a high percentage.  A static practice may not spend much on marketing at all.
• Collection Rate – Minimum of 98% for a well-run practice.  A low rate means the front desk is not keeping up or managing the accounts receivables very well.
• Total Overhead (all expenses less owner and associate pay) – Ideally should be less than 85%.

These are just a few benchmarks to analyze when looking at a practice.  Remember, if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it’s a bad practice, it simply means you have work to do in those specific areas.

Contact me if you would like more information.

Seller Carrybacks and Veterinary Practice Transitions Today

You’ve heard the term “Seller Carryback,” but what does it mean?

Seller carryback financing is when the seller of a given property, or in this case, a seller of a veterinary practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.

Years ago, it was commonplace for a retiring veterinarian to act as the lender for someone to purchase a veterinary practice.  Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today.  Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.

Much like the rest of the veterinary world, the industry and the financing supporting transitions have evolved.  In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement.  In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price.  Usually, that amount is 10-25% of the total purchase price.  Why would a bank need that, you might ask?  Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.

Every lender has different standards around seller participation, but here are some common features of that path in the current environment:

• Term: Most carrybacks are amortized similar to the buyer’s bank loan.  Payments based on a 10-year repayment are common.
• Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote.  Right now, around 5% is reasonable.
• Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years.  Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.

With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.

For more information, please contact us today.

Seller Carrybacks and Dental Practice Transitions Today

By Jen Bennett, Practice Transition Advisor

You’ve heard the term “Seller Carryback,” but what does it mean?

Seller carryback financing is when the seller of a given property, or in this case, a seller of a dental practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.

Years ago, it was commonplace for a retiring dentist to act as the lender for someone to purchase a dental practice.  Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today.  Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.

Much like the rest of dentistry, the industry and the financing supporting transitions have evolved.  In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement.  In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price.  Usually, that amount is 10-25% of the total purchase price.  Why would a bank need that, you might ask?  Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.

Every lender has different standards around seller participation, but here are some common features of that path in the current environment:

• Term: Most carrybacks are amortized similar to the buyer’s bank loan.  Payments based on a 10-year repayment are common.
• Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote.  Right now, around 5% is reasonable.
• Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years.  Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.

With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.

For more information, please feel free to contact Jen Bennett.