Practice Sales

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.