Patient Insurance – Use It or Lose It
When is It Time to Sell?
If you are still in good health but are not sure if you are in a good financial position to be able to live comfortably the rest of your life without working, we recommend you speak with your financial planner. They can analyze your situation and see how much more you may need to work. Or, if you can sell your practice, put the money into a retirement account and work at a practice and continue to make an income while harvesting the equity you have in your practice. This is one of our favorite transition strategies. It’s like selling your house, but you get to continue to live in it. Just because you sell your practice does not mean you need to stop working or retire. You can still work clinically if you still enjoy dentistry but don’t enjoy the management or dealing with insurance companies continuing to lower reimbursements.
Another time to consider selling is when your practice is continuing to go down in collections or net income. We have numerous examples of when a doctor could have sold two or three years prior and made another $200,000, $300,000, or even $400,000 more if they would have sold at the height of their practice production. Instead, they watch the production numbers and patients go down year after year after year. Even though the owners knew they were getting tired, referring more work out, or simply seeing fewer patients, they continued to hold onto their practice thinking they can sell it based on what the numbers were at the height of production.
The worst time to sell is when you have to sell, say when you or a family member have failed health, or you suddenly pass away. In this scenario, you or your family are left trying to quickly get the practice sold before all of the patients leave and there’s a skeleton of a practice left to sell. That can be a devastating situation, especially when the funds from the sale of the practice were counted on as a source of future retirement income. At a minimum, you should keep an emergency contact list for your family in your office that includes your attorney, accountant, practice broker, supply company, etc., that can alleviate some of the burdens on your family.
Whether you are 20 years from retirement or 2 years from retirement, you should be always be prepared and have an exit plan. We are always available at no charge for either a phone call or a meeting over a cup of coffee to help you put together that plan.
Practice Ownership is Declining
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.”
Building Your Team
The first team member you need to bring on board is someone who can help evaluate a practice. That can be an accountant, consultant, or broker that specializes in dental practices. Those last four words of that sentence are critical. Specializes in dental practices. They have to know what they are doing and how to analyze and value a dental practice. I once was representing a seller who had a practice collecting $800,000 with a net income of $300,000. The buyer’s consultant put together an offer of $280,000 when we had it valued at $550,000. The consultant ruined the deal. The seller was so upset with the buyers low-ball offer that the seller refused to even work with that buyer even with a higher offer.
The second team member is the attorney. Again, use an attorney specializing in dental practice transitions. It’s critically important. Do not use your cousin, friend, neighbor etc., who are divorce, bankruptcy or personal injury attorneys who took a contract class in law school. I’ve seen “friends” charge the dentist $25,000 for a review of a contract where a dental attorney would charge around $5,000.
You also need a dental CPA to help you with the numbers. They can help with the valuation, analyze the payroll and tax returns, help with the purchase price allocation and set up your legal entity.
Fourth is your banker. There are a number of banks that finance practice acquisitions and startups, and they all have their pros and cons. It’s important you work with someone you trust who will give you a fair deal. Sure, banker B may have a slightly better rate, or a cool toaster give away for new accounts, but go with someone you like and can build a relationship with. They’ll be there in the good times and the bad times to help you out.
If you need some names of good team members, let us know. We work with a lot of CPA, attorneys, consultants, bankers and brokers. We have a good feel for who will be looking out for your best interest and will do a good job for you. Give us a call and we’ll help you build your team for your practice acquisition or startup.
Are Solo Practice Owners Going the Way of the Golden Toad?
When I talk about corporate practices, I’m primarily speaking of the non-dentist owned corporate practice. There are dentist owned practices where a licensed dentist owns 3, 5 or more practices. He or she has full and legal ownership of their practices. I call these small group practices. Corporate practices tip-toe down the legal sidelines of practice ownership by having a dentist own the clinical aspect of the practice, called Dental Services Organization (DSO) and the non-licensed dentist corporation owns the non-dental management aspects, called a Management Services Organization (MSO). Note that this structure can also occur in small groups, but in the small group, a licensed dentist owns both the MSO and DSO. The large corporates include Aspen, Gentle Dental, Pacific Dental Services and others. Both solo practices and corporate practices have their pros and cons from both a patient perspective and from a dentist perspective.
As a patient, I prefer to know who my dentist is going to be when I go into the office. I want to build a relationship with him or her and want my dentist to know the history of my dental care — and a little bit about me as well. In a corporation, you might get the same dentist the next time you go in, but there’s a good chance it will be a different dentist. Small groups lean more towards a solo practice and you will have a reasonably good chance to get the same dentist in the well run small groups.
From a dentist perspective, most dentists do not want to be told what treatment to focus on, what supplies to use, etc., The majority of dentists surveyed by the ADA still have a dream of owning their own practice, being their own boss, making their own decisions.
Recent court decisions in New Jersey, Allstate vs. Northfield, sided on the side of dentists. It may begin to set the tone to start scaring away the non-dentist corporate owners. Washington State has been trying to pass a bill to allow non-dentist owners and so far has been successful. If you’d like to read an article on the New Jersey case, you can read it here.
So, if you have been holding off on not buying a practice because corporates are going to drive solo practices away, think again. There will always be a need and demand for a solo practice. Court cases like Allstate vs. Northfield will help ensure non-dentist owned practices stay away. Join the practice ownership club today!