Buyer Articles

I remember when I bought my first house.  I wasn’t sure if the timing was right, whether the house the real estate agent recommended I buy was the right house or if I could afford the house payments.  At the ripe age of 26, I took the plunge and bought the house.  It turned out that years later, those trepidations I had were irrelevant.  This wasn’t the perfect house, but I remodeled it and made it near perfect to me at that time.  The value grew and I built equity.  I made adjustments to afford the payments and the timing really didn’t matter. 

The same goes for buying a practice.  The practice you buy does not have to be perfect and the last practice you buy.   You buy a practice that fits your needs at your current time in your life.  You put sweat equity and hard work into the practice to make it profitable.  You do a bit of remodeling to make it fit your personality and style.  You work in the practice building equity and you hone your skills as a practice owner and a business manager.  In the end, timing is not as important as you think.  I know many doctors who bought their first practice when interest rates were 15%.  Also, keep in mind that practice owners earn 20% more than associates who are employees.  (Read Rich Dad, Poor Dad if you want to understand why you should own and not be an employee).

The moral of the story is if you feel you might be ready but are not quite sure, you’re ready.  Interest rates continue to be low.  The economy is doing well.  There are great resources that can help you own and run a practice.  If you would like to discuss whether or not you are ready to own, feel free to reach out to any of us at Omni to discuss your individual situation. Send us an email or give us a call at 877-866-6053 today!

In the September 2017 subscription of JADA, there is an article titled “Practice Ownership is Declining” by Marko Vujicic, Ph.D.  As the title reveals, the article is about the decline in practice ownership by dentists.  If you have not read the article, I highly recommend it.  The statistics in the article support what we are seeing in the market for dental practice and some of the articles I’ve written recently.  If you do not subscribe to JADA, here are a few of the highlights.

There is a steady decline of practice ownership, especially amongst male dentists.  Approximately 80% of dentists currently own practices.  Rising student debt, the emergence of corporate dentistry, shifting work-life balance preferences were just a few examples of why there is a decline in ownership.  One of the big questions brought up is whether the trend is a big deal.  It was pointed out that practice ownership is highly coveted and one of the reasons that dentists got into dentistry in the first place.  All else being equal, owner dentists earn more than non-owner dentists.  The question is, is practice ownership no longer as coveted as it used to be by younger, early career doctors?

The decline in practice ownership will continue for years to come.  A comparison to the decline in ownership by physicians, which is now below 50%, was used as a comparison.  Hospitals and groups have taken over the ownership of physician practices.  The study states that physicians’ net hourly income is significantly higher than for dentists; Although, I would say that the annual income is higher for dentists, all things being equal.   The author also claims that physicians are happier as a result of not being an owner of a practice.  With reimbursements continuing to decline, dentists will be asked to do more with less.  An emerging emphasis on quality and value will spur changes in dentistry. 

If you have not read the article, I recommend you take a look.  Email me at rod@omni-pg.com and I will send you a copy. You can also go to jada.ada.org and search for “Practice Ownership Is Declining.”

Over the past several months, the economy has been going quite well.  The Dow Jones average is up over 21,000 and setting all-time highs.  Employment levels are up while unemployment levels are down.  Current unemployment levels in King, Snohomish and Pierce counties are at 3.3%.  Amazing numbers for a strong economy.
The strong numbers have played a part in the increase in practice sales.  Practice owners who are over 55, are seeing the strong numbers and returns in their portfolios and deciding now is the time to retire.  Buyers are also watching the economy and realizing it’s a good time to buy a practice.  Interest rates are still good at between 5.25% and 5.5%.  Consumer’s discretionary income is up freeing funds for consumers to do elective and cosmetic dentistry.   (I know you shouldn’t base your dentistry on discretionary income, but many do).
The result of all of this is that practice listings and sales are up.  We typically carry an inventory of 10 to 15 practices and we’re now up to approximately 25 practices.  We have spoken to other brokers and most are experiencing a similar increase in business.  The interesting thing is that valuations are still staying true to normal formulas and historical numbers.
What this means to you is you can either be a participant in this booming market, or you can be a bystander and watch opportunity pass you by.   If you would like to get any information on any of our practices, let us know.  Consultations and phone calls are always free!

Practices come in all shapes and sizes.   Some are collecting over $1 million per year with 50% overhead.  Others are collecting $600,000 per year with 65% overhead.  These both appear to be decent practices.   Yet, there are other practices collecting $300,000 to $400,000 with 70% overhead.  The first two practices are definitely practices to consider buying, but is the third practice one that you should disregard?
We attempt to coach sellers to sell their practices when they are at their peak productivity and profitability.  However, there are a number of doctors, over half, who decide to hold onto their practices while they slow down.  They start getting tired, they refer out more procedures, stop marketing and refer more work out to specialists.  I have seen practices collecting $350,000 with 600 to 700 active patients and hygiene production at 40% of total production.  Analyzing these types of practices to see if they are worthwhile acquisitions or merger prospects requires looking at their procedures report, their production by provider report and profit and loss statement.   Turning these practices around and making them more productive may be as simple as stop referring out endo and other procedures that you may be able to do, start marketing and start diagnosing treatment.  If the location is good and the numbers look like they can be turned around, you should not disregard these practices for an acquisition or a merger.