Seeing the Jungle through the Trees
All practices have something wrong with them. Some have more problems than others. The key to analyzing and acquiring a practice is having a vision and being able to know how to overcome and fix the problems.
Case Study #1 – A practice has historically produced $800,000 but is now down to $400,000 with no new patients coming in the door. Turn and run, or look into it further? If you looked further you would find that the doctor has had a health problem. He’s turning away 10 to 15 new patients per month while he’s getting treatment. He has been doing primarily hygiene appointments and x-rays for the past two years. By the way, he is booked out 3 months in hygiene and has over 1,200 active patients. The purchase price is $300,000. A buyer with vision purchases the practice and in his first year, he collected $900,000.
Case Study #2 – A practice in a nice neighborhood has been in existence for 45 years. The doctor is 67 years old and as it often is with older doctor practices, the collections have gone from $1.2 million down to $500,000. As it also is with these practices, he still has one full time and one part-time hygienist, two front desk, and two assistants. His overhead is 75% and he’s taking home $100,000 per year. The equipment is old and the practice hasn’t been updated since Jimmy Carter was President. It’s a dog of a practice. We sold the practice to a buyer for $350,000 who bought it primarily for the good location. The lease was up for renewal, so we assisted the buyer in getting money from the landlord to buy new flooring and repaint the interior. He re-upholstered the old Adec chairs. He offered one of the front desk employees a small severance package to leave the practice. He had the entire staff working the phones and sending letters to patients to get the hygiene columns filled. Within two years he was collecting over $1 million.
Case Study $3 – A practice is collecting $350,000 in a downtown metropolitan area. The doctor is earning around $40,000. There is a hygienist, assistant, and front desk staff. The practice formerly produced $800,000. The doctor is doing a lot of “watches” and not much treatment. The price is $275,000. Bank XXX tells the first buyer they will not loan on the practice because there is no cash flow. The first buyer walks away. Buyer two comes along and likes the practice. She’s also told by a different bank that the practice will not cash flow. We explain the opportunities in the practice to the buyer and how it doesn’t cash flow based on prior years’ collections. However, we are certain the practice will grow a minimum of 10% in the first year and more likely 20%. We suggest to the buyer that they let us help them find a lender who will lend on the practice based on future, projected collections. We speak with a couple of banks and find one who sees the vision of the practice with a young buyer who is ambitious and wants to grow her own practice. The bank agrees to loan on the practice. The doctor does $50,000 her first month in the practice and grew the practice 30% in the first year.
These are all true examples of transactions where doctors were able to see the forest through the trees. They had a vision and confidence in their ability to grow a practice. Not all practices are like these, but if you can see that the practice has a good foundation, or a good location, or good “bones”, you can pick up a practice where you’re not spending $1 million to get a practice that may not grow, but rather spending a lesser amount for a practice that will grow. We are happy to help identify these opportunities or point you to the right resources who can help you out in your quest to be a practice owner.
Current Trends For Veterinary Practice Buyers
Since Omni started in 2004, we have sold well over 300 practices. Prior to approximately seven years ago, the majority of the practices had been sold to individual veterinarians buying their own practices. The past seven years, most of our sales have been to corporations. They have been paying big bucks to acquire practices. They have been paying associates handsomely to work in those practices. But is the trend flipping again back to individual buyers?
Corporate buyers have always told us that they want to acquire large practices with two or more doctors working in the practice. They have been doing that successfully. So well, that it’s hard to find a multi-doctor practice that isn’t owned by a corporation. I know, there still are some, but a lot of them have been gobbled up by the big guys. And they’ve paid a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ranging from a low of 6 to as high as 20 (or more) in certain cases. One of the requirements for the sellers is that they stay in the practice and commit to work for anywhere from 2 to 5 years in their practice after it’s sold depending on what’s been negotiated. Here’s where the corporates are now realizing what happens when the doctors are done with their commitment. The selling doctor may retire completely. The corporate then needs to get another associate. Associate veterinarians are not easy to find these days. Thus, the rush to open up a few more veterinary schools. So, that leaves them with a practice with one less doctor if they can’t find an associate.
Here’s another trend we are seeing. Some of the smart, entrepreneurial younger veterinarians, in their 40’s and 50’s for example, who sold their practices and have fulfilled their commitment to a corporation are now back on the market looking for a practice. They got tired of some of the corporates telling them which supplies and equipment to use and, in some cases, even which procedures to perform. (Yes, I know, they’re not supposed to dictate clinical work, but some do).
As I previously stated, corporations have been passing up on acquiring the majority of the solo doctor practices. We see lots of practices with only one veterinarian collecting a million dollars or more, booked out a month or two, working six days per week and they just can’t find, or afford an associate. Some of these practices, if they had two doctors, would quickly grow to collect $1.5 to $2.0 million. Those practices are prime acquisition targets for the solo doctor who sold to the corporate, has practice management skills, can retain the selling doctor, and quickly grow the practice. They can potentially then sell the practice in a year or two to a corporate as they now have a multi-doctor practice if the seller stays on. Or, they can hold onto the practice and reap the cash flow from the now two-doctor practice.
Note to the young buyers out there that have been out of veterinary school for 3 to 5 years, you can do this too! The seller has the experience of running a practice. Many that we speak with are willing and want to stay on to mentor the buyer and help run the practice, they’re just getting tired and want to cut back a few days. Most love being a veterinarian and want to continue the clinical aspect of veterinary work. They just want to pass on the management to the buyer and work less days. So, the opportunity is ripe for veterinarians who are tired of working for a corporation and want to own your own practice. You don’t even have to sell to a corporate. You can hold onto it and make it your own practice for years to come and be proud of what you’ve built, or the legacy you’ve carried on.
There are a lot of great solo-doctor practices out there waiting for a buyer to come along. The potential is both lucrative and gratifying to the buyer and the seller. You don’t need to work in a corporate environment the rest of your life. You can enjoy your freedom and work in your own practice. The choice is yours.
We’re always just a free phone call away and happy to help in any way we can.
Read MoreThe Importance of a Good Team When Purchasing a Dental Practice
Buying a practice can be a daunting task. That’s why it’s important to not only have the skills and education to analyze a practice, it’s also important to have a good team on your side. On your team, you will want a Certified Public Accountant that has a big emphasis or specialization in your field. They need to know the industry, numbers, etc., they should also be accredited in practice valuations. The second person on your team will be a dental specific attorney. There are too many idiosyncrasies to not have someone who doesn’t specialize in your field. Non-compete provisions and other conditions are specific to dentistry. A banker that specifically works on practice loans is another important member. They will know the reasons why a practice may be what it is and explain to the underwriters what’s going on in the practice. You will also want a broker who has done many transitions. Having an experienced broker will help make the transition as smooth as possible. Another person that may be necessary is a dental consultant. The consultant can help analyze the practice and make sure it’s what you are looking for. Omni Practice Group has a list of many of these team members. If you would like our preferred list of vendors, please e-mail us at info@omni-pg.com.
Read MoreEntrepreneurial Energy
By Corey Young, MBA, Practice Transition Specialist
What defines entrepreneurial energy? According to David Lyons PhD,
“Entrepreneurial energy is the force that sustains the momentum and velocity of progression in the venture. Energy can rise through excitation/agitation and fall through decay of the energy as a result of predicaments or failures.
Entrepreneurial energy is an endogenous force that fuels motivation and sustains entrepreneurial action and momentum. Encapsulating hope, optimism and obsessiveness, the nature and experience of the entrepreneurial energy provides meaning to the entrepreneurial pursuit and venture. Entrepreneurial energy is a motivational construct characterized by positive intense feeling, emotional arousal and internal drive and engagement in the pursuit that is salient to the self-identify of the entrepreneur. The positive affective state also generates positivity in the cognitive state fostering creativity and recognition of new patterns of information critical to opportunity recognition and exploitation in the external environment.
Entrepreneurship, after all, is a science of turbulence and change, not continuity. Turbulence is caused by certain force. Such is the force in entrepreneurship, like the wind is felt but not seen; or seen through the ruffle of the leaves but not the wind itself.”
Most of you reading this article can relate to those attributes, especially early in your career. Remember talking to your friends in veterinary school and making plans for your practice? Remember the excitement of updating your new practice? Remember the hours put in behind the scenes to get the practice where you wanted it?
Do you still have that energy in you? If you do, this is a great time to be a veterinarian entrepreneur. Consolidation is happening and it will favor the big and the bold.
What if you don’t? That is okay also, but the time to consider harvesting your practice asset is now.
In my exit-planning training, coaching our clients to either grow or sell their businesses was absolutely paramount. Stasis really is an illusion. Equipment gets older. Technology becomes dated. Marketing plans become obsolete. Business values decline.
So ask yourself, grow or sell?
Read MoreEntrepreneurial Energy
By Corey Young, DDS, MBA, Practice Transition Specialist
What defines entrepreneurial energy? According to David Lyons, PhD:
“Entrepreneurial energy is the force that sustains the momentum and velocity of progression in the venture. Energy can rise through excitation/agitation and fall through decay of the energy as a result of predicaments or failures.
Entrepreneurial energy is an endogenous force that fuels motivation and sustains entrepreneurial action and momentum. Encapsulating hope, optimism and obsessiveness, the nature and experience of the entrepreneurial energy provides meaning to the entrepreneurial pursuit and venture. Entrepreneurial energy is a motivational construct characterized by positive intense feeling, emotional arousal and internal drive and engagement in the pursuit that is salient to the self-identify of the entrepreneur. The positive affective state also generates positivity in the cognitive state fostering creativity and recognition of new patterns of information critical to opportunity recognition and exploitation in the external environment.
Entrepreneurship, after all, is a science of turbulence and change, not continuity. Turbulence is caused by certain force. Such is the force in entrepreneurship, like the wind is felt but not seen; or seen through the ruffle of the leaves but not the wind itself.”
Most of you reading this article can relate to those attributes, especially early in your career. Remember talking to your friends in dental school and making plans for your practice? Remember the excitement of updating your new practice? Remember the hours put in behind the scenes to get the practice where you wanted it?
Do you still have that energy in you? If you do, this is a great time to be a dentist entrepreneur. Consolidation is happening and it will favor the big and the bold.
What if you don’t? That is okay also, but the time to consider harvesting your practice asset is now.
In my exit-planning training, coaching our clients to either grow or sell their businesses was absolutely paramount. Stasis really is an illusion. Equipment gets older. Technology becomes dated. Marketing plans become obsolete. Business values decline.
So ask yourself, grow or sell?
Read More