Seller Articles

Q&A on Covid’s Effect on Practice Values and Sales

By Rod Johnston, CMA, MBA, OMNI Practice Group

As dentists start going back to work and opening their offices, they have a lot of questions on their minds.  The questions range from Human Resources related questions to questions on selling their dental practice.  While I am not an HR expert, I can answer the questions on practice values and sales.  Or, at least, I can give my thoughts and opinions like everyone else.  Below are some questions that I have received with the answers I provided.  Disclaimer – the answers I provided are my own only and are based on my opinion, the opinions of other “experts” and past history.

Question #1 – How are COVID and the mandatory shutdown going to affect the value of my practice? 
Answer #1 – Good practices in good locations are going to sell for a good value in the short and long term.  Practices that are in a good area with good cash flow and profitability, good patient base with great staff will sell for a price similar to that of prices pre-COVID shutdown.  Buyers reps and consultants will argue that there should be a “COVID Discount” because we don’t know if patients and numbers are going to come back.  I call cow-pucky on their argument.  For these good practices, there is a reason they are good practices.  The goodwill – location, staff, reputation, even the selling doctor is still there.  Patients will need work done and the numbers will follow.  I’ve spoken with several doctors in the past two days who have nice practices and they reported that their schedule is filling up into the end of June already.  There is pent-up demand.

Now, for those practices performing below average of under $450,000 per year with not great margins, older equipment, and transient patient base, they may need to take a discount to sell.  They probably would pre-COVID as well, but its even more firm now.  The discount can be 10% to 20% depending on the practice.

Question #2 – Are Buyers still Buying Practices?
Answer #2 – In short, yes.  We have been marketing our practice listings continuously throughout the shutdown.  We have received a number of calls and e-mails with interest in practices.   The high demand metropolitan areas are getting the most interest, but we are still getting interest in other areas as well.

Question #3 – Can Buyers get Bank Financing?
Answer #3 – As President of the National Association of Practice Brokers, I have been in contact with many banks across the country.  There are some banks that provide practice financing that have completely stopped lending on practices at the moment.  They reported that they will start lending again when everyone is back up and running.  There are others who have been continuing to lend.  Practice sales have occurred even during the shutdown.

Question #4 – Are Banks changing the way they are approving and structuring the transaction?
Answer #4 –   Most of the banks have told us that they want to see 60 to 90 days of productivity after the practice has opened.  They would like the production to be a minimum of 75% to 85% of pre-COVID production before they’ll approve the loan.  For example, a practice producing $100,000 per month pre-COVID will be expected to produce a minimum of $75,000 per month for the two or three months after re-opening.  This depends on the bank and there may be exceptions to the rule.

On deal structures, some banks are saying they are lowering their loan amounts to 75% of the production and some will remain at the pre-COVID number of 85%.  If the price of the practice is above 75%, the seller will be asked to “carry-back” a portion of the loan.  For example, a seller with a practice valued at 85% of collections that is being purchased by a buyer who is using Bank X which has a loan to gross collections of 75% will be asked to carry a note for the last 10% of the value of the practice over a period of time.  The term or length of time of the carryback can be negotiated to some degree.

Question #5 – What are the most important things to do if I’m thinking about selling my practice in the near term?
Answer #5 – As “they” say, Cash Flow is King.  You need to get your collection numbers back to near where they were pre-Covid as quickly as reasonably possible.  You should also evaluate the profitability of your practice and see where you stand compared to where you should be.  Ratio analysis will tell you if your payroll, supply, lab expense, etc., is too high, or where it should be.  If you need help with the analysis, give Omni a call.

If you have any other questions related to selling your practice either now, or in the future, please feel free to call us anytime.  We are always here to give you any guidance and advice that we can.  Stay safe and be healthy.

Sell a Dental Practice Now?

By Corey Young, DDS, MBA, CVA

What a crazy time we are in. At least to me, this is a sober reminder that major disrupters are almost impossible to predict. I am reassured that our nation seems to be taking the situation seriously and I do firmly believe we can weather this storm. Most of you reading this are making difficult decisions about staffing, how to deal with emergencies, and how you are going to pay the rent for the next few months. I don’t envy any of you right now. There is a strong support system in this industry ready to help. Don’t hesitate to reach out. I think you will find all of us willing to go the extra mile right now to help you keep the ship afloat.

Many of you reading this are very close to transitioning your practice, some of you being on the fence. It is human nature to want to put off transitioning until after this crisis is over. You may even be getting that advice from your CPA or financial advisor. I am going to give you four reasons why you should do exactly the opposite.

One, value. We have been in a booming economy. Many of your numbers have been at all-time highs over the last couple of years. Now COVID-19 hits. How long will we be shut down? How will the economy look on the other side? Will patients pull way back on elective treatments for a couple of years like they have done in other recessions? In the present, buyers and bankers will mostly be willing to look past these next couple of months as an anomaly. Practice values will hold. For a while. That said, as someone who does Valuations and sells practices, I can assure you that in two years no one will care what your 2018 and 2019 numbers look like. In two years, what happens in 2020 and 2021 will be the new reality.

Two, market. There is a backlog of practices that are nearing the market. The people who work in the transition market have been wondering when that bubble will burst for a few years now. I for one believe this crisis will do the job. That said, many dentists pathologically suffer from procrastination by analysis. Most are going to ignore me and wait for two, three, even five years, watch the market flood, the economy falls off its current pace, and wonder why their practices are down in value and are hard to sell. The early bird gets the worm.

Three, more rules and regulations. Once this crisis is over, they are coming. They won’t be cheap, fun, or easy. You know it and I know it.

Four, time. Many of your potential buyers had their hours cut, some by 100%. They have unprecedented time right now to look at practices. Odds are you also have more free time than normal. Realistically, practice sales won’t close until this crisis is over. That said, there are months of work between deciding to put a practice on the market and a practice changing hands. When life gives you lemons…

Sell a Practice Now?

Goodwill in Dental Practice Value – For Sellers

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? Consider 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?

How many years have you been practicing and how many hygienists do you have? You may feel it’s impossible to fill more hygiene schedules. That tells me you may need revised scripting and a strategy for talking with your patients and educating them about their dental maintenance.

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!

I encourage you to look at your own practice statistics. How many patients did you see in Recare in 2019? Run a procedure frequency report for codes 1110, 0120 and see if your numbers make sense based on your number of patients.

Do yourself a favor and increase your collections now and increase the value of your practice for the day you sell. This is my area of expertise and something I enjoy helping my clients achieve. Please contact me if you would like to further discuss and make a plan for your practice.

Are You Considering a “Dental Practice For Sale By Owner”?

Many dentists will seek to sell their practice by themselves, presumably to “save money”. Sometimes the grass is greener on the other side so we do things out of emotion instead of “doing the math”. If you have a couple of hundred hours of spare time and love working with intelligent, challenging people, and showing your dental practice to strangers on evenings and weekends, you are going to love the process of selling your practice.
 
For most dentists, their practice is one of their most valuable assets, so if that sounds like you and you would like to go “For Sale by Owner” then now is the time to start to prepare.  Probably a good time to study a little law, accounting, marketing, advertising, sales, and perhaps negotiations. Think about how you are going to tell your staff or decide to wait until they figure it out. Be sure not to lose them or your practice may become more difficult to sell (and you could lose more in practice value than the commissions you are saving). If your practice has seen better days you might consider sprucing it up a bit or maybe a little remodeling? As a do-it-yourselfer, you will save even more money.
 
Ask yourself “how do I value my dental practice” and balance that with what the market will bear. Keep in mind that the buyer will always think they are paying too much and the seller thinks they are selling too low. Once you’re ready to go, write your ads, contact (play phone tag with) the various media vendors to figure out how to best execute your marketing plan. Piece of cake, pay the man and place your ads. Soon your phone will be ringing, don’t forget to follow-up with the inquiries in your new email address.
 
Schedule the viewings after hours, on your day off, and on the weekends. Don’t be too disappointed when something happens and the person doesn’t show up or when the “tire kickers” don’t give you feedback. Soon if all goes well you will receive a Letter of Intent. There will likely be a number of things you’ll need to do to assist the buyer with their due diligence so be prepared to assemble all the information ahead of time if possible. If you are leasing the office, do whatever you can to negotiate with the property owner for as smooth as a transition as possible with the buyer. WARNING: half of all deals fall apart because of landlord conflicts with the seller or buyer. If this happens to you, and there is a 50-50 chance it will. Be prepared to start over and keep your emotions in check.
 
Is it worth it to “Do It Yourself” to sell your dental practice? It depends upon how many hours it takes, how much distraction you are comfortable with, and how much quality of life you are willing to sacrifice.
 
The legal community has a saying, “He who represents himself has a fool for a client”.