How to Get Started with a Plan for Retirement
How does the sale of your dental practice fit into your retirement plan? Kevin Brady, Certified Broker at OMNI, explains how to get started to best maximize the value of your practice.
Read MoreBuying a Dental Practice During COVID
Our owner and founder, Rod Johnston, gives his thoughts about buying a practice today during the COVID pandemic. Rod has helped hundreds of dentists purchase practices for over 15 years.
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Exit Planning in the COVID Era
By Are you ready to transition?
Is your practice ready to transition?
What is the market like?
These are all key questions to ask yourself. When is a good time to start thinking about all of this? The real answer is as soon as you buy or start your practice, but the more practical answer is dependent on you. If there any chance you will want to transition in the next five years, you should start working on your transition today.
Personal readiness and practice readiness are both more important than current market conditions; however, considering the COVID crisis, I am going to focus on market timing.
If any of the following sounds even slightly familiar, raise your hand:
I was ready personally, and my practice was ready in August 2019. I choose to wait because (pick one or more):
- I have a kid with one year left in college
- I have one year until I can draw Medicare
- There is one more room in the house I would like to finish
- My spouse retires in a year
- I pay off my house in a year
- I turn (insert round number like 60 or 70) next year and I would like to wait until then
- Etc. …
Now, for those of you that raised your hand, consider the reality of August 2020. How does that August 2019 decision to wait look? Questionable at best.
My intent is not to beat up on those of you that this struck a chord. Rather, I want to emphasize the need for starting early and getting help.
Transitioning is a difficult process. Do not go it alone. Contact an experienced, qualified transition specialist and get the ball rolling. We are here to help.
Do you have more questions? Attend our Practice Transition webinar on Thursday, 10/1 at 6pm ET/ 3pm PT, presented by Corey Young, DDS, MBA, and Katie Collins, CFP. Reserve your spot today at omni-pg.com/register.
Read MoreThe Cost of a “Perfect” Practice in the COVID Era
Should you buy now in this COVID environment? Everything seems kind of scary. It might be better to stay with that nice, safe, secure job and wait for the perfect opportunity to come along? That said, there are a lot of practices coming on the market. Maybe now is the perfect time to buy? Let us look at two hypothetical practices and see where you would be in ten years with each.
PRACTICE A: The practice is located a little further out than you would like. The equipment, while exceptionally well maintained, is twenty years old. The doctor, who is booked out for weeks, does zero marketing and restricts new patients to about ten a month. Additionally, the doctor wants to be able to fully retire as soon as possible.
- Overhead: 50%
- Gross: $700,000/year
- Net: $350,000/year
- Acquisition price today, due to COVID environment: $350,000
- Current interest rate: 4%
- Loan of $385,000 (acquisition price plus one month of working capital) over ten years: $3,898 monthly payment/$46,775 annually/$467,753 over life of loan
HOW IT PLAYS OUT: Despite the doctor leaving fairly quickly, patient retention is strong. By employing a modest marketing program and updating treatment planning you grow the practice by fifteen percent each of the first two years, leveling out to 5% growth for the next eight years.
Total income over ten years: $4,705,000
In ten years, banks are willing to lend up to 110% of annual gross, having adjusted their arbitrary ceiling a few years earlier. Your practice, still operating at 50% overhead, can be sold for 110% of annual gross. Plus, as a bonus, you just paid your practice off.
Net asset value of practice year ten: $1,433,000
Sum of income and asset value: $6,138,000
PRACTICE B: The practice is in a great spot. There is even a coffee shop next door! The doctor is current and has a robust marketing program bringing in fifty new patients a month. It took you three years to find this “perfect” practice, but your patience paid off.
- Overhead 60%
- Gross $900,000/year
- Net $360,000/year
- Acquisition price in three years, market having recovered $600,000
- Interest rate in three years 6%
- Loan of $660,000 over ten years: $7,327 monthly payment/$87,924 annually/$879,282 over life of loan
HOW IT PLAYS OUT: The transition goes very well. Being the well-oiled machine that it is, annual growth of five percent continues for the next seven years. Though it took you three years to acquire, you did make $200,000 a year while working at your corporate job prior to purchasing.
Total income over ten years: $2,651,841
While your practice is profitable, it is not at the top end of profitability, the bank is willing to lend 95% of gross. Additionally, you still have three years left on your loan with outstanding principle of $240,858.
Net asset value of practice, ten years from now: $904,924
Sum of income and asset value: $3,556,765
The cost of a “perfect” practice (at least in this scenario) versus jumping on the great opportunity? About 2.5 million.
Thinking about buying a dental practice? Attend our webinar on Friday, 10/2, presented by Corey Young, DDS, MBA and Katie Collins, CFP. FREE – space is limited! Earn 1 hour of CE – reserve your spot today: omni-pg.com/register
Read MoreWhat You Need to Know Before Buying a Dental Practice
By Kevin Brady, OMNI Practice Group
Your dental practice will most likely be the most expensive purchase you will ever make. It is a considerable investment, not only financially, but as an investment in your family’s future. Ensuring that you are looking at the right metrics will ensure that you are not setting yourself up for failure before you even step foot in the practice.
Learning about the practice and using experts to help you understand what kind of business you buy and identify any potential red flags that could save you thousands of dollars and a lot of headaches.
Five things to know before buying a dental practice:
- Certified Valuation of the practice has completed. Make sure you review with your buyer broker or CPA to understand the Valuation and the financial methods used to get fair market value. Keys areas are overhead expenses, cash flow, and profitability. Knowing what your projected overhead and profit will allow you to forecast future business and personal expenses.
- Demographic information, understanding the current market demographics and the number of competitors in the area, will help show the practice potential for growth and what marketing expenses will be needed in the future.
- Professional Advisors, having competent and experienced advisors that you can trust and rely on to provide you guidance without any conflicting interest. Do not make one of the most significant business decisions of your career without experts to guide you.
- Transition Plan, developing a detailed checklist, and a strategic plan will help ensure a smoother transition from the selling doctor. Getting your list done before you open the practice will save you a lot of “time, effort, and energy.” We at Omni have developed a “72 point” checklist and are continually adding to it with every transition that is completed.
- Review existing staff benefits, knowing that the typical staff salaries range from around 20 to 25 percent of the annual collections and how this compares to the current staffing expenses. Knowing this information will allow you to have a plan for future benefit negotiations with the existing staff and especially the “highly paid and compensated” staff. Developing an employee handbook and reviewing this with all the staff will help with the transition. If you are going to make any transitions in staff, make sure to first consult your attorney and professional liability carrier for possible recommendations or advice.
Your understanding of these areas and more about the practice will make your decisions to move forward with buying the practice that much easier. Omni Practice group has been helping dentists with selling and buying practices for over 15 years. Omni’s trusted team of experts is here to help you find a successful practice.
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