Buying a Practice

Top 5 Fears Dentists Have About Practice Ownership (And How to Overcome Them)

There are many advantages to owning a dental practice over being an associate dentist and not owning a practice.  For one, the average dental practice owner makes approximately 20% more in income than an associate dentist working for someone else.  A dental practice owner also gets to choose what procedures he or she wants to perform, refer out, or delegate to an associate (if there is one).  They can also choose their own hours; pick the days they want to work and how much vacation they want to take.  So, why aren’t dental associates owning practices?  What are they afraid of?  Here are a few fears we have encountered by dental associates and how to overcome those fears:

1. Fear of the unknown – Associates feel they don’t have the experience in owning a practice.  They don’t know what to expect.  They haven’t managed staff.  They haven’t kept financial records.  They don’t know what marketing to put in place.  They don’t know what benefits to give employees, how to hire or fire employees, or even how to balance a checkbook.
   Fear not, you don’t have to know everything at once.  You know how to do dentistry.  That’s the first step in owning a practice.  You have a few years of experience working as an associate in a dental practice.  You’ve observed the owner working with and managing staff.  You may have experience leading a team in school, playing sports, etc.  These are all examples of good experience in leading and handling staff.  You don’t have to know how to keep books right away.   We suggest getting a dental bookkeeper and then getting educated on reading financial statements and eventually doing your own books if you’d like.  This can happen over time.  The bottom line is if you are good at what you do and willing to learn the other parts of practice ownership, you’ll be just fine.
2. Fear of taking on more Debt – Read Robert Kiyosaki’s book, “Rich Dad, Poor Dad”.  Not all debt is created equal.  There is good debt such as student loans and practice debt that helps generate an income and there is bad debt such as credit card debt where you just borrowed money because you wanted something.  Practice debt used to buy a practice that will help you make more money and build equity in an asset (the practice) is a positive thing.  As long as it’s a good practice with good cash flow, you’ll be money ahead in the long run.
3. Fear of the DSO (Dental Service Organization) or Group Practice Giants – Don’t fear the giants.  They have their own niche targeting dental shoppers looking for the lowest price on a cleaning, crown, or teeth whitening.   They also have a high turnover in their staff and doctors.  You will provide excellent service with the same staff and dentist that the clients will see every time they come to your office.  In a corporate environment, they’re not sure which dentist or hygienist they’re going to get next.
4. Fear of not knowing what to look for – This is a valid concern.  You can educate yourself in a number of ways.  There are great resources via Dentaltown, dental podcasts, YouTube, etc., that can help you know what to look for.  Quite simply, you start by looking at your desired location, then look at the cash flow of the practice and after that, you can get into the details.   There are consultants and brokers who can also help you with reviewing practices.  Identify your team that will help you overcome this fear.
5. Fear of a recession – Recessions happen, typically every 8 to 10 years and last 10 to 12 months.  You cannot avoid recessions or downturns in the economy, it’s part of life.  But, during recessions, employees typically get laid off from work.  If you own your own practice, you’re probably not going to fire yourself.  You’ll keep yourself employed and busy.  Owning a practice is a deterrent from getting laid off during a recession.

These are a few of the fears that we’ve seen over the years, and there are others as well.  But the best thing you can do is educate yourself and talk to practice owners, brokers and bankers.  Seek advice and counsel from everyone you can.   This will help you make a wise decision in moving forward with practice ownership.

Ideal Practice Benchmarks

By Jim Vander Mey, CPA, ABI – jim@omnipg-vet.com

People love benchmarks.  They want to know how many glasses of water we should drink each day.  How much we should work out every week.  Or, how many miles per gallon our cars can achieve.

There are also benchmarks to look at when you are buying a practice.  They may not necessarily be deal-breakers, but they help determine what you will need to do to get to your target.  Here are some of the benchmarks you should look at and calculate when buying a practice:

• Staff overhead as a percentage of collections – 20% to 25%.  If it’s higher, the practice is overpaying staff, underperforming collections, or too many staff.
• Facilities Expense – 7% to 9% of collections – Too high and the practice is either paying high rent, space is underutilized or production is too low.
• Supplies – 5% to 7% of collections – If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
• Marketing expense – 3% to 5% depending on the growth stage.  A practice that is looking to grow will have a high percentage.  A static practice may not spend much on marketing at all.
• Collection Rate – Minimum of 98% for a well-run practice.  A low rate means the front desk is not keeping up or managing the accounts receivables very well.
• Total Overhead (all expenses less owner and associate pay) – Ideally should be less than 85%.

These are just a few benchmarks to analyze when looking at a practice.  Remember, if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it’s a bad practice, it simply means you have work to do in those specific areas.

Contact me if you would like more information.

Seller Carrybacks and Veterinary Practice Transitions Today

You’ve heard the term “Seller Carryback,” but what does it mean?

Seller carryback financing is when the seller of a given property, or in this case, a seller of a veterinary practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.

Years ago, it was commonplace for a retiring veterinarian to act as the lender for someone to purchase a veterinary practice.  Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today.  Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.

Much like the rest of the veterinary world, the industry and the financing supporting transitions have evolved.  In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement.  In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price.  Usually, that amount is 10-25% of the total purchase price.  Why would a bank need that, you might ask?  Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.

Every lender has different standards around seller participation, but here are some common features of that path in the current environment:

• Term: Most carrybacks are amortized similar to the buyer’s bank loan.  Payments based on a 10-year repayment are common.
• Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote.  Right now, around 5% is reasonable.
• Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years.  Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.

With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.

For more information, please contact us today.

Tips for Managing Your Team When Acquiring a Dental Practice

When you purchase a dental practice, you aren’t just responsible for the building and equipment, but you also have a big role to play in making sure that new and existing team members come together smoothly. This can be a delicate process and quite difficult to navigate on your own, but there are a few tips you can follow to make everyone’s lives a lot easier.

Value Your Acquired Team Members

It should never be a case of “out with the old, in with the new” when it comes to putting together a dental team for your newly bought practice. The acquired team members have a lot of value and are an integral part of the relationship the practice has with the patient base. They may also be a big reason that many patients decide to stick with the practice. It’s essential to let existing team members know that they are important and take the time to communicate any changes on how the office will be run. Try to be patient if the transition seems slow because this will make things much more seamless compared to trying to implement whole new systems right off the bat.

Prepare for Bumps

Some of the team members at your newly purchased practice may have been there for decades or done things very differently under the previous owner. Any big changes you make will almost inevitably lead to some dissatisfaction and conflict, so it’s important to be mentally prepared that not everyone is going to like your decisions, even if you know they are in the best interest of the practice. Make it apparent that the lines of communication are always open so that team members can express grievances through the right channels. It’s also important to let your incoming staff know that they may need to help the acquired team acclimate to any shifts in day-to-day operations (they should be instructed on productive ways to do this).

How a Dental Consultant Can Help

Before you find yourself dealing with a mixed dental team, it’s important to work with an experienced consultant when buying a practice so that the transition can be as quick and harmonious as possible. They can help you choose a practice that aligns with your business and personal goals, show you how to train and retrain team members, and help you find the right people so the practice starts on the right foot.

Michael Dinsio has literally helped hundreds of dentists start, buy, and grow countless practices over the years, and Paula Quinn is a practicing hygienist and international speaker with over 30 years of experience as both a dental team member and business owner. Between the two of them, they have comprehensive knowledge of the dental industry inside and out.

Whether you’re thinking about buying a practice or are already in the process of doing so, they can help you get to the finish line with your budget, goals, and sanity all in great shape. If you’re ready to make your life easier, contact Next Level Consultants today.

Choosing Between Buying an Existing Practice or Doing a New Build

By Corey Young, Practice Transition Advisor

Choosing between buying an existing practice and doing a start-up practice can be one of the biggest decisions of your life. Here are four considerations and two suggestions for when you are contemplating.

The four considerations:

Market Saturation – How many veterinarians are practicing in the area you are considering? Hardly any? One on every corner? Somewhere in between? Establishing traction in a high competition area will require a much higher marketing budget. Do you know your marketing budget? Do you have a marketing plan?

Available Practices for Sale – How many practices are for sale in the area you are considering? Do those practices have a broker representing them? Broker representation usually equates to well-substantiated pricing and a defined plan for acquisition. For-sale-by-owner practices can be more of a wild card.

Population Demographics – If you are considering an area for a new build, will the demographics of the area you are considering support your business plan?

Personal Financial Situation – Do you have the financial reserves to weather a start-up? While there are pros and cons to both routes, buying an established practice certainly generates more initial cash flow.

The two suggestions:

Get Help – This will be one of the biggest decisions of your life, whichever route you take. There are some truly skilled and experienced professionals out there that will help guide you through this process in an efficient manner and allow you to minimize risk while seizing the opportunity.

If You Can Produce, Get Moving – Are you a high producer? Can you manage and lead? Can you practice great veterinary medicine without someone looking over your shoulder? If you answered yes to these questions, what are you waiting for?