What You Need to Know Before Buying a Dental Practice
Your dental practice will most likely be the most expensive purchase you will ever make. It is a considerable investment, not only financially, but as an investment in your family’s future. Ensuring that you are looking at the right metrics will ensure that you are not setting yourself up for failure before you even step foot in the practice.
Learning about the practice and using experts to help you understand what kind of business you buy and identify any potential red flags that could save you thousands of dollars and a lot of headaches.
Five things to know before buying a dental practice:
- Certified Valuation of the practice has completed. Make sure you review with your buyer broker or CPA to understand the Valuation and the financial methods used to get fair market value. Keys areas are overhead expenses, cash flow, and profitability. Knowing what your projected overhead and profit will allow you to forecast future business and personal expenses.
- Demographic information, understanding the current market demographics and the number of competitors in the area, will help show the practice potential for growth and what marketing expenses will be needed in the future.
- Professional Advisors, having competent and experienced advisors that you can trust and rely on to provide you guidance without any conflicting interest. Do not make one of the most significant business decisions of your career without experts to guide you.
- Transition Plan, developing a detailed checklist, and a strategic plan will help ensure a smoother transition from the selling doctor. Getting your list done before you open the practice will save you a lot of “time, effort, and energy.” We at Omni have developed a “72 point” checklist and are continually adding to it with every transition that is completed.
- Review existing staff benefits, knowing that the typical staff salaries range from around 20 to 25 percent of the annual collections and how this compares to the current staffing expenses. Knowing this information will allow you to have a plan for future benefit negotiations with the existing staff and especially the “highly paid and compensated” staff. Developing an employee handbook and reviewing this with all the staff will help with the transition. If you are going to make any transitions in staff, make sure to first consult your attorney and professional liability carrier for possible recommendations or advice.
Your understanding of these areas and more about the practice will make your decisions to move forward with buying the practice that much easier. Omni Practice group has been helping dentists with selling and buying practices for over 15 years. Omni’s trusted team of experts is here to help you find a successful practice.
Read MoreEffectively Managing and Maximizing the Value of your Practice
By Kevin Brady, OMNI Practice Group
Dental Practice owners know, there’s a lot more to running the business than treating patients.
Owners are responsible for hiring and managing staff, billing patients and insurance companies, handling accounts payable and receivable, and becoming proficient on dental software to operate the practice.
All these duties have a negative impact on both the time dentists are available to their patients and the profitability of the practice.
Practice Demands
It’s no secret that dentists face increasing constraints on their time. This means providing high-quality care for their patients, which entails creating treatment plans and participating in continuing education to keep abreast of the latest innovations in dentistry.
At the same time, the dentist needs to be CEOs of their practice. In this capacity, they are tasked with:
-Hiring, training, firing, and managing staff
-Marketing the practice
-Understanding insurance changes and HIPAA regulations
-Managing the billing, collections, and account payables/receivable processes
-Ensuring the office is running smoothly
-Maintaining and enhancing office technology
-Dealing with economic conditions affecting the bottom line of the practice
A lot of dentists come out of school dreaming about doing dentistry and they become disillusioned after a short time learning that not only do they perform dentistry, they have to run a business. When a dentist is overwhelmed with the business aspects of their practice, it is time to seek help.
Outsourcing
Employing third parties to help with the daily business aspects can allow dentists to focus more on their core competencies to enrich patient care. Dentists have many choices when seeking advice and outsourcing partners. Most major software companies have additional services to help with outsourcing patient billing and insurance billing, which allows the office to go paperless. Enhancing the Billing/Collections and freeing up doctor and staff time allows the practice to be more productive and profitable.
Marketing
Developing a Marketing plan is important in building a sustainable practice over time. The ADA says a good rule of thumb when budgeting for marketing expenses is to allow 3-6% of a new practice’s expenses; 2-3% for mature practices; and about 4% for practices that are in the middle. A start-up practice should plan to spend about $40,000 on marketing during the first year, with those costs incorporated into the overall practice financing.
Internal marketing is the least expensive way to build and maintain existing patients and generate new patients. Practices that successfully connect with patients have the best marketing vehicle available – positive word of mouth that current patients share with families, friends, and coworkers that generate new patients for little or no cost.
Having a website that connects the practice with your ideal patient is critical to keeping existing patients and generating new patients. Once you have a branded site, make sure you continue to enhance it with Search Engine Optimization – (SEO). Keeping up with SEO will increase the quality and increase the visibility of the website to internet search engines.
Making sure you have the right branding and marketing strategies designed to endure the current market conditions and changes are critical for the practice to compete with larger corporate dentistry groups.
Practice Transitions – Buying or Selling a Practice
Just as dentistry is a profession that is highly trained and practiced, so are the professional services recommended for selling and buying a practice. A dentist that is looking to sell or buy a practice should seek professional help. Selling or buying a practice can have very complex processes and numerous legal, financial, and tax implications.
OMNI Practice Group is one of the experts in the industry helping dentists with developing plans for adding associates, developing transitions plans, and selling or buying a dental practice and real estate.
Omni provides:
-Practice Appraisals
-Web Practice Listing Services
-Marketing and Listing services
-Practice Real Estate and Lease services
-Banking Referral Options
Being a Dentist/CEO can present a lot of challenges with operating a dental practice in today’s market. Using the right partners can help improve efficiencies, generate new patients, and increase the value of the practice.
Contact us today for a no-obligation consultation with one of our expert Practice Transition Advisors.
Click here to connect with Kevin on LinkedIn!
Read MoreGoodwill in Dental Practice Value – For Buyers
By Megan Urban, OMNI Practice Group
As many of you know, in the sale of dental practices, typically the biggest contributor in determining the purchase price is “Goodwill”. Are you aware of the aspects that make up goodwill? Of course, it includes your patients and business reputation, but it’s also based on patient retention, which is your hygiene program or Recare.
Savvy buyers understand that the repeat or retained patients are critical to on-going success. It is also important to lenders working with buyers. If you have a bulk of your patients coming in for large cases and your collections are high, that is commendable, however, a new buyer will be concerned that your patients have completed all treatment leaving them nothing to do and eliminates the chance for the buyer to meet and keep your patients.
All dentists focus on getting enough New Patients, as they should, but what happened to all the New Patients you treated over the years? As a buyer, Recare is consistently an area of opportunity. Even if Recare isn’t where you’d like it, consider what can be done. Take a look at this example:
Let’s say you averaged 15 NPs per month for 10 years and you saw each on an average of twice per year in hygiene or Recare, you would need approximately 514 days of hygiene if you see an average of 7 per day. Some of you may see more patients in hygiene, but some may be SRP and perio patients may be coming every 3-4 months. You may work around 180-195 days per year so you would need approximately 2.75 hygienists. So that means if you retain at least 85% of those patients, you will need more and more hygiene days each year. Is this happening in your practice?
I have analyzed hundreds of practices and found that the average potential for increased collections from goodwill or patient retention is $30,000 to $150,000, depending on the size of the practice. I know it’s usually a high priority in any practice but needs a little tweaking that can bring big increases. And this doesn’t include potential increased collections from diagnosed treatment from all those periodic exams!
Every practice has areas of opportunity and here is one for you to capture.
Read More5 Reasons to Purchase a Practice in 2020
Happy New Year! Is this the year you finally take the plunge and buy your own practice? Or are you content with being an associate working for someone else? Here are a few reasons why 2020 should be the year you become a practice owner:
- Interest rates are starting to move up. The past few years have rewarded buyers with interest rates in the 4% to 5% range and some with as low as 3.75%. Interest rates moving up means you may have higher payments on your practice loan.
- Bank financing is readily available. If you think you cannot get financed because of high student loan debt, personal debt, bad credit, etc., then think again. Banks view your diploma and the accompanying school debt as a positive thing. It’s an asset that can be used to generate a good income. Call us and we can hook you up with a bank to discuss your situation.
- Jump in, the water is warm. Studies have shown that those who are successful in both business and in their personal lives take calculated risks. Owning a practice is a well-calculated risk with the failure rate on practice ownership less than .25%. Yet, many doctors continue to be an associate as they deem practice ownership to be a risk.
- Pay off debt and retire sooner. By purchasing a practice this year versus several years down the road, you can pay off your debt sooner, put more money in your pocket and retire sooner. I know of several examples of doctors who bought a practice two years out of school and five years later had their practice completely paid off and are putting that money towards retirement. Plus, practice owners make an average of 25% more per year than typical dentists who are associate employees in someone else’s practice.
- Become independent. Owning your own practice allows you to do the procedures you want to do and refer out those you do not want to do. It also allows you to choose your staff, even choose your patients. You get to work when you want to work and go on vacation when you want to go on vacation. It is all up to you as you are the boss!
Whether you decide to purchase a practice in 2020 or continue to work as an associate, Omni Practice Group would like to wish you a Happy and Prosperous New Year!
Read MoreAn Ownership New Year’s Resolution
By Michael Dinsio, Next Level Consultants
As a buyers’ representative and business coach, I talk to hundreds of doctors a year. Many themes emerge from these conversations, but the one that pains me the most is hearing how dentists delay considering practice ownership early in their career. Many desire ownership and watch as friends become owners with a thought of maybe someday. But, for themselves, they hope and wait till the “perfect” situation presents itself, if it ever does. As we roll into the new year, my hope is that more doctors get off the bench and into the game. The time for ownership is right now. Here is why.
#1 MONEY is Cheap
As once a dental specific banker, I can tell you interest rates have never been lower. With rates as low as sub 4% on 15 year practice loans, the cost of money is cheap for buyers. What does this mean? Lower payments equal more cash flow. Even with practices being priced higher than historical averages, lower payments offset the cost to make the purchase affordable. The lower payments also allow buyers to invest in new equipment, stronger marketing, and consulting services to set them up for success. These types of investments help buyers confidently take the leap into ownership!
#2 The Market is Primed
For over a decade, industry experts have predicted a slowdown of practice sales. Fortunately for the 25,000+ graduating dentists every year, this has not been the case. I predict that in 2020 more dentists will put their practices up for sale than ever before. Here’s why.
First, in 2020 the average age of the baby boomer generation will hit 65 and they become eligible for Normal Retirement Age (NRA) benefits. As their retirement benefits start to roll in, many will consider selling their successful practices.
Secondly, the stock market is at an all-time high. Last month the market hit another peak, as investors focus on the progress of the U.S.-China trade talks. Overall the Federal Reserve is upbeat and continues to keep interest rates low. For those retiring baby boomers, this means they can comfortably retire with the nest egg they have, not feel pressured to keep working.
Lastly, Washington State continues to increase taxes. Although a capital gains tax has been voted down, it continues to be an annual discussion in Olympia. New and expanding taxes are always a threat. Kitsap Daily News reported that, “Washington is one of seven states with no state income tax, and one of nine without a capital gains tax, making it an outlier among West Coast states.” Governor Jay Inslee released a three-year plan that contained a proposed 9 percent tax on certain capital gains over $25,000. Sellers may have dodged a bullet this time, but many owners will consider selling sooner to avoid the looming threat of higher taxes.
#3 TIME is valuable
It’s not a secret that small investments over the long term will yield more than large investments over the short term. In short, time is on your side. Working as an associate definitely has some benefits. The corporates make sure of that. With that said, the ownership opportunity dentists have in front of them is difficult to quantify. Just like a mutual fund or a piece of property, dental offices have real value. When my clients choose ownership, they are not only benefiting paycheck to paycheck, but they are also building real value in an asset to sell in the future.
I recently had coffee with a dentist and an old friend. In 2012, when I first met her, she was considering buying an office. I remember the first practice she looked at: it was in a desirable location, the equipment was in good shape and the financials were average. Despite my recommendation to buy, she ultimately passed on the opportunity.
When we sat down, she was so excited to tell me that she just received news of an accepted letter of intent to purchase her first practice. While I’m excited for her, the delay of 8 years got me thinking. If she had purchased in 2012, by now her initial loan would have likely been paid off and her business would most likely have surpassed a million in revenue. Eight years of lost income and equity over trying to find “the perfect practice.”
As a New Year’s Resolution, resolve to take your career into your own hands. The average associate struggles to make ends meet juggling two to three associate positions. For all that hard work, their income ranges anywhere from $120,000 to $150,000 per year and they have less than $25,000 dollars in savings. Yes, becoming an owner is daunting, but the statistics speak for themselves. Default rates remain lower than ever in this industry. The money is right, the market is primed, and time is ticking.
Make the decision in 2020 and invest in yourself!
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