What Do You Think Your Practice is Worth?
Megan Urban, Practice Transition Advisor at Omni Practice Group, explains why it is a good idea to get an understanding of what your practice is worth 2-3 years before you plan to sell.
New Year’s Resolution for Associate Dentists in 2022
Happy New Year! We would like to wish you a new and improved year over 2020 and 2021. If you’re like most people, you have set some New Year’s resolutions. Perhaps one of them is going to the gym. Another may be eating healthier. A third popular one is spending more time with family and friends. Statistics show that on average, it takes 32 days before people give up on their resolutions. My thought is, why wait? I’m having a hot fudge sundae for lunch and not going to the gym! But how about a resolution to further your career as a dentist?
One way to further your career may be to learn a new procedure or two. As an associate or existing practice owner, you can improve your skills and your income by learning new procedures. A few suggestions would be to advance your endo skills. Maybe you know enough but just haven’t had any advanced training. There are a lot of courses to further advance your endo skills. You can also learn how to place implants. There are probably a lot of patients in your practice who want an implant, but don’t want to go to another office. If you’re a general dentist, you can also learn how to do some form of orthodontics with either Invisalign, ClearCorrect, or another company’s process. Learning a new procedure can make you more marketable as an associate and as a practice owner.
Another way to further your career may be to find a new associate position. If you’re frustrated in your current role because you’re not allowed to do anything more than hygiene checks and fillings, maybe it’s time to look elsewhere. The state associations list openings in their classified ads. If you’re not happy where you are, staying there will make you disgruntled with dentistry and cause you nothing but grief.
A third way of expanding your career in 2022 is by purchasing a practice. Practice owners make 15% to 20% more than associate dentists. They also build equity in their practice typically paying off their entire loans in 10 years. If you purchased a $500,000 practice and simply sustain its production, you now have earned 15% to 20% more per year PLUS you’ve earned $500,000 of equity in your practice. If you grew it 10% per year, you now have over $1 million in equity. I know many associate dentists are afraid of owning a practice. They think Dental Service Organizations (DSOs) are going to take over the world and they get better deals on supplies. First of all, DSOs will not be taking over the world. There will always be room for individual practice owners. In fact, if I had a choice, I would prefer to go to an individual owner before I would go to a DSO or group-owned practice. I think most people would agree. Regarding better deals on supplies, I’ve had several supply reps tell me that they would give the same deal to an individual as they would to a DSO. Supplies as a percentage of gross revenues make up a small number. So, even if they did get better deals, it would not make that big of a difference. Don’t be afraid of owning a practice and competing against the big guys. You can provide a much better and more personalized experience than they can.
These are just a few ideas for your New Year’s resolutions if you haven’t come up with your own. Now, go to the gym, grab a salad and then, go improve your career!
Read MoreIt’s All in the Numbers
As you close out this past year and reflect on the first full year without any shutdowns as 2020 brought us, it makes sense to step back and take a look at your numbers. This is the case whether you are in your first year of practice ownership, have owned your practice for ten years, or you are getting closer and closer to retirement. You should always be managing your practice to your numbers while keeping the number one goal of taking care of your patients to the best of your ability.
So that all sounds great, but how do you manage to your numbers? The first step is grabbing your Profit and Loss statement and a Production by Provider or Production by Procedure report for 2020. If you know Microsoft Excel, you can input the numbers into an Excel spreadsheet. If you don’t know Excel, you can grab your handy-dandy calculator.
Most numbers you manage to are calculated based on a percentage of your gross collections. That’s the top number on your profit and loss statement. You should take the number after returns or other credits to gross revenue. Some Profit and Loss statements may call this number Profit and others will call it Revenue.
The first number to look at is your staff expense as a percentage of revenue. Add your staff salaries, payroll tax for staff, and staff benefits. Divide that total by revenue. Your target should be about 25% of revenue. If you’re slightly above 25%, don’t worry, increasing collections while keeping staff salaries flat will help you improve this number. If you’re over 35% and you really don’t think you can improve collections, you should analyze your staff. Maybe you have too many, or maybe your staff that is overpaid. These days, it’s easy to overpay staff since they’re hard to come by. Time and time again, when we look at practice numbers, this is one of the biggest profitability killers.
The next number to look at is facilities expense as a percentage of collections. This includes your base rent plus any of the common areas that you pay for and other facilities expense – garbage, parking lot maintenance, etc. This expense should not be more than 7% to 9% of revenue. If you are significantly higher than this number, you are not maximizing your facility, overpaying on rent, or you have too big of space for what you need. You can either increase collections or decide to downsize your space, sublease space, or do something else that will help get your numbers down in the 7% to 9% range.
Dental Supplies expense is something else to look at. Divide Dental Supplies expense by revenue. The target is 6% of revenue. If you’re a few percentage points off, don’t worry about it. If you’re at 12% to 15% or higher, you may have supplies walking out the door, overstocking your supply cabinet, or you’re buying top-end products. This should be a quick fix if you have a meeting with your person that orders supplies and give them a budget.
Lab expense is similar to dental supplies. If you’re a basic crown and bridge practice, you should be at 7% to 9% of revenues if you don’t use a milling machine in-house or you don’t place a lot of implants. The latter two will skew the numbers. Negotiate with your lab if you are higher than 7% to 9%. If you’re with a high-end lab, you’re at 12% and love their work, don’t change labs. You’re only a few points off. You can make up the difference elsewhere.
The other quick measure is hygiene as a percentage of total collections. Take your Production by Provider report or Production by Procedure report and figure out how much of collections are coming out of hygiene as a percentage of total revenue. The target is to be above 30% of revenue coming from your hygiene program. If you’re in the low 20% or less and you have a general dental practice, you should take a look at your hygiene schedule and see how many patients they’re seeing per day. Maybe their schedule isn’t full, or maybe hygiene is booked out for several months and the hygienist can’t keep up. You will need to analyze this for yourself.
Looking at your numbers is something all business owners do to help them manage their practice. These are a few simple numbers that you can quickly measure a few times per year, make a few changes and you can get your overhead down below the national average of 65%. Best wishes on the New Year and may your overhead be under control.
Read MoreDid You Achieve Your Goal in 2021?
Did you reach your goals this year? Was one of them to buy a practice by the end of 2021? Ahem, it’s December. You know who I’m talking about! Do you remember when the year started back in January, and you said to yourself, and perhaps to some of your family and friends, “This is the year I’m going to buy a practice!” Well? What happened?
Did you know that on average a dental practice owner makes 20% to 25% more than an associate dentist? Practice owners also build up equity in their practice similar to owning a house. A million-dollar practice with no debt will give you a million dollars in equity. Did you know that most practice owners tend to be happy in their dental profession? Practice owners get the privilege of setting their own hours. They get to choose which procedures they want to do and which procedures they want to refer out. They also hire their own staff and let go of those that they don’t believe are doing a good job. Practice owners even get to pick out the music that gets played at the practice. Although, staff may overrule you on that last one.
We gave buyers a mulligan in 2020. Covid-19 hit us all pretty hard. I caught it early and it took most of the year for me to get back to normal. The industry reeled for a few months due to the Covid shut down and various mandates provided at the federal and state levels. But after the shutdown was over, patients came back. Practices came back with a vengeance. Offices that were collecting $80,000 per month prior to the Covid-19 shutdown were producing $80,000 or even more upon the re-opening. In 2021, I would say the majority of practices are back at full capacity. We can’t predict when this Covid craziness will go away, especially with a new variant popping up every six months or so. But we can say that dental practices are resilient.
Those of you who kept your goals and purchased a practice in 2021 are doing well. The practices they purchased are at least producing what they were producing prior to them acquiring the practice. They took out a 10-year loan and they are now 1/10 of the way to paying off their practice debt. Think about those who purchased a practice five years ago. They’re halfway to paying off their practice debt. If they purchased a million-dollar practice, they now have $500,000 of equity in their practice. A half a million dollars! I tell the story of a dentist who would come to our buyer’s seminars year after year. At year 7 this dentist came to our buyer’s seminar, and I called her out. I pointed out that if she would have purchased the first practice that I showed her 7 years ago with a 7-year loan, she would have had the practice paid off. The practice was a $950,000 practice. She would have equity of close to and if not more than $1 million if she would have just taken action. That motivated her to purchase a practice a few months after the buyer’s seminar. The practice she purchased was three miles from the first practice I had shown her 7 years earlier!
So, as we end the year and you start to think about your goals for next year, think beyond the goal. What can you do better this year that will help you reach the goal of purchasing a practice in 2022? Make finding a practice to buy a priority. In the not-so-long run, you will be thankful you did. The brokers at Omni are always available for a phone call to discuss what you need to do to purchase a practice. Just pick up the phone and give us a call – 877-866-6053.
Read MoreWhy Practices Don’t Sell
By Megan
Your practice has successfully worked for you for many years so why isn’t it selling? It could be the transition consultant (broker) you are using, or it could be your practice.
Working with an experienced transition consultant is important. We know where and how to advertise. It doesn’t work to simply advertise on a website. You will want marketing and advertising in schools across the country, dental journals, and county/state societies. An experienced consultant already has a list of potential buyers for your area or type and may have other creative grassroots ideas to find the right buyer.
The right consultant cares about you, your team, practice, and goals. It shouldn’t be just about the commission money. Your consultant should be responsive and professional to potential buyers and you.
A comprehensive valuation and prospectus are important. If you or your consultant price your practice too high, it can be offensive to potential buyers, and they won’t feel comfortable offering a lower price. Even if you find a buyer willing to overpay for your practice, the bank will not finance 100%, which means you have to become a bank for a specific amount of the purchase price.
Sometimes even when you have the right consultant your practice may have other reasons for not selling. Sometimes it’s simply not finding the right dentist at the right time. Often it is because your location is not desirable to new buyers and their families. Sometimes it’s the size of the practice. We all know 3 op practices can be very efficient and profitable, but many buyers want 4 to 6 ops, especially to add more hygiene.
Declining collections the last 3 years or simply low collections can be a deterrent to potential buyers and banks unless you have a reason. They understand more time off due to vacation or health issues. Low new patient count, too many PPOs with low reimbursement, and low hygiene production can be concerning to buyers.
Most buyers understand they may need to update style or equipment and technology, but if it’s a lot of cost and effort, they may keep looking for a better practice.
If your practice falls into any of these areas of concern, it will take more time than the average to sell. Lowering the price may help, but if there is no interest, it’s not the price that’s the problem. Don’t give up or get mad, just understand that while your practice may have been perfect for you, it can be a while to find the right buyer.