Author: omniadmin

​All practices are not created equal.  We list several practices each year that for one reason or another, do not sell.  It’s a frustrating experience not only for the seller, but for us as a broker.  Here are some reasons that your practice may be difficult, if not impossible, to sell, and how to avoid not selling your practice.

1. Your overhead is too high.   Practice buyers and their supporting cast of CPAs, bankers, etc. want the practice to not only support the debt it’s going to incur, but also pay the buyer a minimum salary.  The ratio the bankers look at is called the debt coverage ratio.  Most of the time, they want to see the debt coverage ratio of 1.2 times to 1.  That means for every $1.00 in debt payment, they want to see $1.20 of net income to cover the amount borrowed.

   How can you improve this, so you have a good debt coverage ratio?  Make sure your overhead is under control.  The national average overhead is 65%.  You should be at, or below, the overhead level of 65%.  The preference is to be below the 65% overhead mark.  Go through your expenses with your accountant or consultant and figure out how to improve your overhead and cash flow.

2. Your collections are going down.  Bankers don’t like to see annual collections going down every year.  That tells them patients are leaving the practice and seeking treatment elsewhere.  It also may trigger a question on the reputation of the practice.  Another question may be, “Is all the dentistry done, and there’s nothing left to do?”

   You can fix this by keeping your numbers up year after year.  At least be relatively flat, but it’s best to grow your practice at least slightly every year.

3. Staff overhead/problems.  One thing we see often in older practices is that the staff overhead is above the target of 20% to 25% of total gross collections, including taxes and benefits.  If you’re way above that, you need to look at both sides of the equation.  If an assistant is making $45/hour, or front desk making $60/hr. and your staff overhead is at 40% of total collections, you have a problem that a buyer does not want to inherit.

   It’s a tough position to be in, but if you’re a couple of years away from selling your practice and your staff overhead is at 40%, you should either increase your collections considerably by cranking up production, or ask the staff to take a pay cut.  If they don’t want to take a pay cut, you may consider letting a staff member go – the buyer will be doing it anyway so you might as well get it over with.

4. Lease issues.  We have seen practices not sell because there are problems with the lease.  Reasons include: the lease being too high, the landlord wants to tear the building down and not extend the lease, the landlord wants the seller to stay responsible for the lease for the entire ownership term of the buyer, or the landlord being unreasonable with proposed new terms.

   Negotiate with your landlord when your lease is up for renewal.  Add an “Assignment Clause” to your lease.  This states that you can assign your lease to a buyer when you sell your practice.  At that time, you will be removed from any responsibility from the lease.  Also, work with a commercial broker to make sure you are getting current market rates on the lease and not way above market.

5. Low Production.  Low producing practices, below $400,000 per year, are hard to sell.  They are viewed by buyers as a startup practice, especially if there is a downward spiral in the practice.  Buyers and bankers want a practice with solid cash flow that they can instantly make a living and not have to work another job as an associate.

   Sell your practice when the collections are high.  This is the smartest thing you can do in a practice transition.  I have seen doctors sell now for $300,000 when they could have sold 3 years ago for $600,000.  They lost $300,000 in the purchase price by waiting too long.  Remember, just because you sell your practice does not mean you need to stop working.  You can always work as an associate.

These are a few things that keep a practice from selling.  Be sure and prepare your practice and yourself to sell about 5 years before selling.  Call us and we’ll meet with you to give you guidance on what you need to do to your practice to sell 5 years from now.  We are happy to help at no cost to you.
 
info@omni-pg.com
877-866-6053

With so few practices on the market, I often get the question “Should I just start a new veterinary practice?”  Since I am a commercial real estate broker specializing in helping veterinarians find new locations, as well as being a Veterinary 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:

1. Do the demographics support another veterinarian in the area?  (1,500 people per 1 veterinarian)
2. Do you have the patience to do a startup?  (It may take up to 24 to 36 months to break even.)
3. Do you have another income, or 12 months cash reserves, to support yourself while you get your new practice going?
4. Are you good at project management – managing contractors, designers, vendors, etc. – to get things going?
5. Have you hired staff before?
6. 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.
7. Have you set up insurances, bank accounts, patient financing, etc., before?
8. Do you have good credit and some cash reserves in the bank to obtain a loan?
9. Do you have enough experience (minimum of 2 years) to jump in and get things going?
10. 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 many Veterinary practices get started in their new practices, from finding locations to consulting on the entire set up. 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.

By Rod Johnston, MBA, CMA & Jim Vander Mey, CPA, ABI
​
Everything has a cost.  If I hit the snooze button on the alarm one time, my cost could be that I potentially get to work late.  If I get up early and don’t hit the snooze button, the cost is not being able to sleep an additional 10 or 15 minutes. I’ve been around the block long enough to know timing is everything.  If I would have bought $10,000 worth of Microsoft stock in 1985, I would have stock worth $3,000,000 today.  On the flip side, how many near-death experiences can I account for where if I would have stepped off the curb a split second earlier, I would have ended up in the hospital?

And what is the cost of holding onto your practice for a few more years and not selling?  You get the opportunity to work more and make more money, right?

Right now, practice values are at an all-time high.  Corporate buyers are paying up to 10 times your earnings before interest, taxes, and depreciation (EBITDA).  The historical figure is 1.5 to 2 times EBITDA.  They have been lowering their threshold on annual revenue requirements and have been looking at practices with values as low as $650,000.  But, we have recently seen a small shift in their tone.  The corporate buyers have been scrutinizing practices a bit more.  Their offers on practices have been a bit less than they have in the past.  Few groups are looking at smaller practices.  It seems their buying frenzy has slowed just a little bit. What does this matter to you if you’re holding onto your practice?  Well, if you currently have an EBITDA of $300,000, your offer today may be 8x EBITDA, or $2.4 million.  If the trend continues and corporates lower their offers, your offer may go down to 5X EBITDA, or $1.5 million.  You just cost yourself $900,000 by waiting a few more years.  Sure, you made $400,000 in income over those few years, but you could have still made an income had you sold the practice and continued to work for the corporate acquirer.Granted, we don’t have a crystal ball.  We don’t know how quickly the corporates are going to reduce their offers and by how much.  However, we do have economic history, a bit of analysis, and common sense.  Corporates want the bigger practices making over $1 million.  Approximately 33% of practices collect over $1 million per year.  The corporates and small groups already own a large portion of the practices that are high-producing practices.  They make the highest margins on these types of practices.  As they use up capital and run out of large practices to buy, their focus will then be on making their practices as profitable as possible, thus, lowering their offers on practices as this happens.

So, just like choosing to hit your snooze button versus continuing to sleep in, there is a cost in holding onto your practice.  The smart thing to do would be to sit down with your trusted advisor.  Whether it be your accountant, financial planner, or your friendly neighborhood broker, someone can help you analyze how much it may cost you to hold onto your practice.  We can always be reached, at no charge at info@omnipg-vet.com.

Whether your practice is collecting $100,000 per year or $10 million per year, you can always use a little more money.  Whether putting it away for your retirement or paying for your kids’ college education, some extra dough always comes in handy.  The best way to get more money in your practice is to grow your practice.  But how do you do that?  Here are a few suggestions:

1. PPOs – Unless you’re a fee-for-service practice collecting $5 million per year without any PPOs, or you’re the only dentist within 30 miles of your office, you should consider taking PPOs.  I know everyone wants to be a fee-for-service practice, but in this day in age, it’s quite difficult.  Many large employers provide some form of dental insurance.  Being a Preferred Provider for those insurance companies whom the employers subscribe to will give you another source of new patients.
2. Additional Services – Do you refer out endo, ortho or oral surgery? If you add those services, you can get approximately a 5% increase in practice production.  There are many courses available where you can learn and hone those skills.  There have also been advances in endo equipment which makes it much easier to perform endo procedures.  Placing implants is another procedure you can add to your repertoire.  Go back and look at how many endo, ortho, oral surgery, and implant cases you referred out.  Those procedures and the corresponding money from those procedures can be yours.
3. Marketing – Having more new patients coming to your practice is a great way to increase your production.  If you’re doing very little marketing, or not doing any, you should consider getting in the game.  The type of marketing depends on the type of practice you have, where you’re located and what kind of patients you want in your practice.  You can consult with a dental marketing expert to get a good idea on which type of marketing is best for you.
4. Where’s the Hygiene? Your hygiene production as a percentage of overall production should be approximately 30%.  That can vary by the type of practice. Emergency clinics or cosmetic practices, for example, will not have much hygiene.  Most general practices should target 30% of total production as hygiene.  You can increase your number by making appointments chairside, incenting your staff to fill the hygiene column and educating yourself with all the information on the internet on how to improve your hygiene numbers.
5. Turn “No” to “Yes” – We’re talking case acceptance.  Your case acceptance should be a fairly high number – 70% to 100% is a good range.  If you’re below that, your treatment diagnosed is walking out the door.  Build rapport with your patients so they trust you.  Work with your team, assistants, hygienists and front desk, to improve case acceptance.  Use the common phrase, “If you were one of my family members, I would suggest you get this procedure done.”  There are several good sources out there on improving case acceptance – books, YouTube videos, consultants, etc.

There are even more ways to improve your bottom line to make your practice more profitable, but if you implement just one of the above 5 items, you can increase your production by 10% or more within a month.  Best of luck in your practice.  As always, we are here to provide free advice or consultation.  Call us anytime – 877-866-6053.