Seller Articles

​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.  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 of 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.

For a chance to get advice from a team of experts all in one place – broker, banker, attorney, etc., we have 3 Practice Ownership seminars coming up this fall, all are free!  Click the link below for more information.

1. Am I emotionally and financially ready to step away from the practice where I’ve invested so much of my time and resources?
2. What do I want to do after I sell? Will I retire from dentistry, work part-time, or volunteer my services?
3. How do I want to sell my practice? For example, should I sell to an associate and immediately retire, or should I transition to another dentist and gradually step aside?  Should I sell to a corporate?

It’s understandable you want to preserve your practice legacy while ensuring the ongoing care of your patients and staff meets your high standards. That’s why it’s important you find the right buyer to entrust your “baby.” It’s one thing to be financially prepared for retirement. It’s a whole other ballgame to emotionally handle walking away from your practice.
 
READY, SET… GO!
After taking stock of your personal finances, retirement, and practice transition goals, it’s time to call in the experts to help you prepare for the sale. Your team of professionals should include a CPA, wealth management advisor, practice transition specialist, and an attorney.
 
Certified Public Accountant (CPA): A CPA will compile and review all your financials. Be upfront about anything that might be considered outside the normal scope of dental practice business, i.e., expenses above industry averages, any non-cash benefits, or family members on the payroll who don’t work in the office. This allows your CPA to do a thorough analysis and advise any necessary adjustments.
 
Wealth management advisor: The sale of your practice could be the single biggest contribution to your retirement fund. Consult an expert wealth management advisor to help you plan for any related tax consequences and long-term investment strategies.
 
Practice transition specialist: A good practice transition specialist will review market prices in your area, establish a practice sale timeline, conduct a comprehensive practice analysis, and have a pool of financially viable buyers. Get recommendations from colleagues and interview each one to find the best match for your needs.
 
Attorney: Attorneys provide much-needed protection and attention to practice sale transaction details. Due diligence and sound legal advice benefits you, your practice transition specialist, and the buyer. Find an attorney who is well-versed in dental practice transitions. This will save you time and money, and potentially add tens of thousands of dollars to the purchase price of your practice.
 
FINANCIAL PREPAREDNESS
Be sure to have all of your financial statements in order to accurately show the fiscal health of your practice. Make sure you prepare and review monthly and quarterly profit and loss statements with your accountant. If you have not done that, start doing so immediately. Review each line item to manage revenue fluctuations, expenses, and ancillary accounting issues.

The ADA, a member of the Academy of Dental CPAs, or a transition specialist can give you current industry averages for revenues, expenses, new patient flow, fee schedules, and much more.

Buyers will look at your profit and loss statements to compare each line item to industry averages. Make sure your CPA explains any noted differences upfront, otherwise you could lose significant value to your practice. It also puts to question the integrity of your practice financial information.

• Due diligence: Potential buyers will want to review your production against industry averages. Carefully analyze the following key reports generated by your practice management system:
• Provider summary report: This report actualizes productivity by provider and type of procedure. When reviewing this report, make sure your hygiene production numbers are within industry averages. Also, if you offer specialties such as orthodontics or sleep apnea, you need to make sure any potential buyer can replicate those procedures. If they can’t, it could negatively impact the purchase price of your practice because that revenue would be deducted from the valuation.
• Accounts receivable report: Buyers pay close attention to the percentage of receivables based on the delinquency bucket. Be forewarned: most buyers will not pay for balances over 90 days. Large account receivable balances are a red flag for any potential buyer. It usually signifies a lack of controls for effective practice collections and cash flow management. Carefully analyze each account and make the necessary adjustments to non-collectibles.
• Fee schedules: Review your current fee schedule and adjust fees to the minimum 80th percentile for your area.

FINAL INSIGHTS

• Carefully vet all potential buyers. If they don’t have a clear understanding of the market and how it relates to the value of your practice, move on.
• Establish relationships with industry professionals. Their expertise and support will be an invaluable resource.
• Determine a specific date of sale with a realistic timeline. Communicate clearly when you want to stop practicing dentistry.
• Plan early and anticipate delays. Your location, mix of procedures, and practice revenue trends can impact the pace of your practice sale.

Rule of thumb valuations are ones that are typically quoted and overly abused.  The typical rule of thumb in a dental practice is a value based on a percentage of the practice’s gross collections.  For metropolitan areas, the rule of thumb can be from 85% of collections up to 100% of collections.  For a rural area, the value is typically 65% up to 85% of collections.  Sounds simple and straightforward, but is it accurate?  There are several reasons it is not. 

The first reason is the practice may have a good gross production number, say $800,000, but it also may be mismanaged with a high overhead of $750,000, leaving $50,000 leftover for debt service and salary for the doctor.  Do you want to work for nearly nothing?  Using a rule of thumb approach, this practice would be valued at between $700,000 and $800,000 if in downtown Seattle or Portland.  The problem is that it doesn’t cash flow enough for bank financing.  Secondly, you don’t know what is being run through the gross revenue production number.  Is the practice on capitation plans, DSHS, or another low reimbursement program?  Low reimbursement means low money to the practice, narrowing the margins.  If you get a high volume of the low reimbursement programs, you can bump up your gross and leave little to pay off debt and doctor’s salary. 

Another valuation method that can be dangerous is called the cash flow method.  This method calculates an adjusted cash flow to the practice.  The valuator will then normalize a doctors’ salary and calculate a value based on how much debt the practice can afford to pay.  In some practices, the valuator will use a forecasted number to get the value even higher.  This helps the seller when selling a practice, but is bad for the buyer, as he or she is stuck paying a high debt payment each month.

Omni follows standards set by the Institute of Business Appraisers and the Society of Certified Public Accountants Certified Valuation Analyst program.  We have an Accredited Business Appraiser on staff as well as two Certified Valuation Analysts.  We use three different valuation methods to determine the value of a practice – the Production Acquisition Method, the Capitalization Rate Method and the Book Value method.  Each of these methods focuses on a different aspect of the practice.  After we calculate all three methods, we blend them to determine the total value of the practice.  Blending these methods gives us a value that looks at the assets, cash flow and overall collections of the practice – a full picture of the entire practice and not just a glimpse of one aspect of the practice.

If you are interested in hearing more about Omni’s Practice Valuations, send us an email or give us a call today – 877-866-6053.

Thinking of selling your practice but don’t want to pay the broker’s commission? Think again. History shows that any time you sell your business and/or real estate yourself, the chance of failure of the transaction is over 50%. A commission will be much more digestible than the result if you try to do it yourself. We receive calls from senior veterinarians stating they sold their practices and took payments and it didn’t work out. After one year, they often must take the practice back and struggle to resurrect it to try and sell again. This is typically an experience that is new to both buyers and sellers. It takes time, marketing expertise, sales experience, buyer and advisor contacts, and lots of patience.

Your broker may spend hundreds of hours on your transition and your time is better spent at the clinic and planning your retirement agenda. Brokers do lots of specialized marketing which can be costly and time-consuming, and it includes many weekends and evenings meeting with potential buyers. When working with a broker, the average practice sells in about 6 months so selling it alone can be much longer. Your broker should have a list of qualified buyers and a commercial real estate license. If you own your space, it’s often critical to sell the building at the same time or get a solid agreement together for future purchase. Time and time again we see senior veterinarians sell the practice and lease the space with a loose agreement and lose their renter. The buyer decides they like a newer building down the street and leave you with an empty veterinary building.

A good broker will determine the value of your practice and there is much that goes into this process. It’s not just about collections. Everyone’s goal should be to sell at a fair price in a timely manner.  If the price isn’t “right”, the banks won’t finance, and you certainly don’t want to carry the loan. If you get pressured to sell too low, which we often see, you can lose tens of thousands of dollars. Brokers spend a lot of time working with all the trusted advisors you need such as veterinary specific banks, CPAs, and attorneys to determine the value of your practice and facilitate a smooth and successful transition.

Thinking of selling your practice but don’t want to pay the broker’s commission? Think again. History shows that any time you sell your business and/or real estate yourself, the chance of failure of the transaction is over 50%. A commission will be much more digestible than the result if you try to do it yourself. We receive calls from senior veterinarians stating they sold their practices and took payments and it didn’t work out. After one year, they often must take the practice back and struggle to resurrect it to try and sell again. This is typically an experience that is new to both buyers and sellers. It takes time, marketing expertise, sales experience, buyer and advisor contacts, and lots of patience.

Your broker may spend hundreds of hours on your transition and your time is better spent at the clinic and planning your retirement agenda. Brokers do lots of specialized marketing which can be costly and time-consuming, and it includes many weekends and evenings meeting with potential buyers. When working with a broker, the average practice sells in about 6 months so selling it alone can be much longer. Your broker should have a list of qualified buyers and a commercial real estate license. If you own your space, it’s often critical to sell the building at the same time or get a solid agreement together for future purchase. Time and time again we see senior veterinarians sell the practice and lease the space with a loose agreement and lose their renter. The buyer decides they like a newer building down the street and leave you with an empty veterinary building.

A good broker will determine the value of your practice and there is much that goes into this process. It’s not just about collections. Everyone’s goal should be to sell at a fair price in a timely manner.  If the price isn’t “right”, the banks won’t finance, and you certainly don’t want to carry the loan. If you get pressured to sell too low, which we often see, you can lose tens of thousands of dollars. Brokers spend a lot of time working with all the trusted advisors you need such as veterinary specific banks, CPAs, and attorneys to determine the value of your practice and facilitate a smooth and successful transition.