Author: omniadmin

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:

1. Do the demographics support another dentist in the area?  (1,500 people per 1 dentist)
2. Do you have the patience to do a startup?  (ADA says it takes 24 to 36 months to break even)
3. Do you have another income, or 12 months of 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 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.

Welcome to the New Year!

In this blog, we aim to provide educational and other information as it relates to practice transitions, sales, management tips, accounting, and tax advice, and an occasional humorous quip or two.   Our depth and breadth of knowledge range from practice sales to how to increase production to how to make great salmon with jalapeno pepper sauce!  If we don’t know it, we’ll figure it out.

We look forward to educating you on all your practice business needs!   Feel free to comment and provide any feedback you would like.

Rodney D. Johnston, MBA, CMA

The very first recommendation I have is that you should be at least 2 years out of school.  I have seen dentists buy a practice right out of school, but I’ve seen the majority of them struggle for two years until they finally figured things out.  Now that I’ve got that out of the way, here are your steps:

• Contact a bank that finances dental practice acquisitions and make sure you can qualify for a good loan.  The days of just having a D.D.S., or D.M.D. and being qualified are gone.  Banks now require decent credit scores, cash in the bank, and in some cases a current associateship.  Try to avoid SBA loans if you can as they can be expensive with early payment penalties.
• The next step is to understand a little bit about practice valuations.  You don’t want to go into a sale not knowing if the practice is worth the price listed or not.  A “rule of thumb” is that a practice is typically worth between 65% and 75% of its’ last 12 months production.  Remember, that’s a rule of thumb.  I’ve seen practices go for as high as 110% of production and as low as 50% of production.  For a book on Practice Valuations, contact me and I’ll send it to you.
• Think about where you want to practice.  You’re probably going to be there a while, so you might as well like the area.   Also, research demographics.  There are excellent demographic sites that sell great dental demographic information for about $500.  It will tell you where the best locations to practice are.
• Put together a good team.  Get referrals for a good dental attorney, a good broker, and a good accountant.  They’ll help you analyze the practice, do the legal work and help you find a practice.
• Study up on practice management and dental financial ratios.  You should know that lab fees should not be any higher than 10% of the practice production.  Or, that staff expense should be between 20% to 25% of production.  Be an informed buyer.
• Be prepared for your due diligence.  You need to know what to look for when you do get to the point of buying a practice.  Is it an older dentist selling that hasn’t done much treatment in the last 5 years?  (buyer beware) or Is it a conveyor belt dentist that has done very spec of dentistry, and then some, on all the patients, so there’s none left for you.  Know how to spot these things.
• Finally, spend some time with a broker before you go look at the practice.  Understand what the practice you are looking at is all about.

Does the broker think it’s honestly a good practice?  Why?  Once you’re comfortable with the numbers, then go take a look at the practice.
By being an informed buyer, you will avoid a lot of headaches and potential problems down the road.  There are practices that are gold mines and practices that you should not touch.  Being educated and knowing the difference is critical in your practice acquisition success.

In every business and in every goal that you set, you have an end in mind.  When you set your New Year’s Revolution on January 1 of getting in shape, you had in mind a fit, toned body at the end.  The same goes for a dental practice.  When a dentist first purchased or started his/her practice, he or she had visions of grandeur of helping patients achieve top oral health while making a good living.  Most dentists achieve that goal.  But then, they let the practice go, stop replacing equipment, stop marketing and watch their production and patient base dwindle down losing 20% to 50% of the value of their practice.  Money they could have put towards retirement.  They end up having to retire vs. planning to retire.

So when do you start planning for retirement?  How about now?  Especially if you’re within 5 to 10 years of retiring.  Here are a few steps to follow to help you plan for your transition:

• Meet with your financial planner to determine how much money you will need to retire.  They can help you calculate how much you will need to save in order to maintain your current standard of living while in retirement.
• Perform an assessment of your practice.  This would include an assessment of your equipment, technology, procedures, ratio analysis, hygiene, new patients, financial review, overhead, marketing, etc.  If you do not have the time or know-how on how to do this, you can either contact me or your Henry Schein representative.  Henry Schein has a great tool called the Dental Practice Assessment Tool (DPAT).  It points out all the good things and opportunities for improvement in your practice.
• Go over your practice assessment in detail with someone knowledgeable about practice management and transitions to determine your targeted sales price you are hoping to achieve when you transition your practice.
• If you need help implementing improvements in procedures or other recommended areas in your practice, hire a reputable dental practice management consultant.  They can help you get to your goals quicker.
• Implement improvements recommended as part of the assessment.  If you’re within 7 to 10 years of a transition, it’s the perfect time to update your equipment and even remodel your practice.  Having a fresh look will help your practice sell quicker.
• After you have implemented the recommended improvements and tuned up your practice, have an appraisal of your practice performed.  I would recommend having one performed every few years as a litmus test to see if you’re getting close to reaching your targeted value of your practice.

By completing these steps and putting a transition plan in place, you will have planned and optimized your transition.  You can then transition when you want to instead of when you have to.

There are approximately 150,000 dentists in the United States.  Over half of these are classified as baby boomers.  In the next 20 years, it is estimated that one-half, or 75,000, of the currently practicing dentists, will retire.  The current number of graduates coming out of dental school is on a decline.  According to the Journal of American Dental Association, there will be 500 fewer dentists coming out of school than retiring over the next 20 years.

What this means to the baby-boomer dentists will be reflected in practice values.  Currently, if you live in a desirable area, Seattle, or Portland, for example, you can sell your practice for an average of 75% of the last 12 months of production.  (Disclaimer: This is a rule of thumb; an actual valuation should be done to determine your practice’s value).  I have even seen practices selling for as high as 100% of production in certain cases.  This classifies the current market for practices as a seller’s market.  The high percentage is primarily due to the shortage of practices for sale in certain states and prime locations.

Thanks to the current poor economy, there are many baby boomer dentists who were going to retire but have decided to work a little longer while they recover their paper losses in their retirement portfolio.  Most dentists assume the sale of their practice will make up 20% of their retirement account.  While the baby-boomer dentists hold on to the practice, it is creating an adverse effect on future practice values.  Dentists who cannot find an existing practice to purchase are opening their own start-up practices.  Also, when the economy does pick up again, there will be a log-jam effect of dentists retiring.  This will drive practice values down to at least the national average of 65% of production.

So, if you are holding off on selling your practice to recoup some of your lost retirement portfolio, you may want to do some math to determine if holding on to your practice is the right thing to do.  It may be better to sell your practice and harvest the equity while the values and practice are at their peak.  You can then work as an associate to continue building your dream retirement, or better yet, retire to your dream retirement spot and live your retirement dream.