Seller Articles

​By Rod Johnston, MBA, CMA

A few years ago, I decided to sell my house in Kirkland, WA.  I wasn’t planning on moving anywhere.  I still planned on living for quite a while longer.  I didn’t have any health issues, nor was I downsizing from my 1,100 square foot house to a smaller house.  I purchased the house almost 20 years prior and it was nearly paid off, so I had quite a bit of equity built up into it.  I had just decided it was time to harvest the equity I had built up in the house and use part of the equity to buy something else, part of it to put towards retirement, and part of it to have as a safety cushion for a rainy day.  I’m glad I sold the house as it was over 1/3 of an acre and had a lot of flower beds and landscaping.  It was also getting older and required quite a bit of maintenance.
I’m telling you this story because you can do the same thing with your practice.  You have put in many years of hard work in your practice.  It may need maintenance every year that you may be tired of taking care of.  After 20 years of staff issues, they may be getting to you.  Maybe you just had a new corporate move in down the street, and you’re worried about competing against them.  It could be that you just want to be a veterinarian and just want to see patients – not manage staff, clean the office, pay the bills, deal with the leaking roof, post to the office Facebook or Twitter pages, come up with new ads to get clients in the door or any of the other 100 items that are required of a veterinary practice owner.  I know, as I’m also a business owner – and who do you think cleans our toilets on the weekends?
No laws say you must own a practice to be a veterinarian.  You can Harvest your Equity from your practice and continue to be a veterinarian.  Imagine getting hundreds of thousands, if not millions, out of your practice, continue to work in your own practice, or go to work in a different practice if you choose and no longer have to manage a practice.  You can put the money you receive to work for you in a retirement or investment account.   You can free up some of your time to enjoy your family.  You can buy a vacation home that you’ve always dreamed of, or just simply put the money away for a rainy day and continue to work.
So, what are the steps to Harvesting Your Practice Equity?

1. Set up a free consultation with one of our advisors.
2. Have a practice valuation done on your practice.
3. Meet with your financial advisor to discuss your plan and the valuation.
4. Meet again with an Omni Advisor to discuss possible options in selling your practice and the feasibility of working back in the practice.
5. Let Omni take over the selling process and find a buyer that matches your needs.  The “your” is vitally important as we are matchmakers and want to find a buyer who will be a near-perfect fit for you, your practice staff, clients, and the community.
6. Close on the sale of your practice and plan your new, less stressful life.

That’s all there is to it to take back control of your life.  Of course, there will be some work between steps such as running reports, meeting with a potential buyer(s), and discussing options with your advisors.  But if you rely on Omni and other experts, the process can be simple.

We have helped numerous veterinarians who sold their practice and are working back in their practice or are working for someone else and appreciating their newfound joy again being a veterinarian and helping animals get better.  The first step is the easiest.  Just give us a call at 360-941-2341.

By Megan Urban
Broker/Production/Collection Consultant, Omni Practice Group

​Thinking of selling your practice but don’t want to pay the broker’s commission? Think again. Do you ever refer out procedures because you know the specialist has more experience, may get a better result, and take less time? 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 7-10% commission will be much more digestible than the result if you try to do it yourself. I receive calls from senior dentists 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 chair 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 real estate license. If you own your space, it’s 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 dentists 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 dental 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 dental specific banks, CPAs, and attorneys to determine the value of your practice and facilitate a smooth and successful transition.

By Megan Urban
Broker/Production/Collection Consultant, Omni Practice Group
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If you are considering selling in a few years, contact a broker now that has lots of dental experience and can assist you to prepare. You may want to continue the way you have until you sell, but if you have any interest in doing a few things to secure a higher price and have a desirable practice to buyers, continue to read.

There are usually a few easy ways to increase collections which gives you more money now and in the future at sales time. No, you don’t want to do an expensive remodel and purchase all the new equipment and technology available, but you do want to have up-to-date flooring and paint, and good curb appeal. You can determine your new equipment options with your favorite rep if yours is really old and not functioning properly. A new buyer needs to be able to come in and start producing immediately without shag carpet and 1970s decor.

When did you last update your PPO and UCR fees? The last thing a bank wants their new buyer to do is to raise fees immediately and risk losing patients. Confidently set your fees now based upon your skill level and overhead. Patients expect to pay for quality care and by simply adjusting your fees you could add tens of thousands of dollars.

What is your patient retention? If you’re not looking at this and providing tools to your team to be successful, you could be losing patients without even trying! One easy way to calculate this is to determine if about 2 times 85% of your active patient count equals the number of adult and child prophys and perio-maintenances in the last 12 months. So, if you have 2,000 active patients, you should have completed around 3,400 of codes 1110, 1120, and 4910 in the year. How full are your hygiene schedules in 4 months, 5 months? Ensuring every patient has their next hygiene appointment can increase collections by tens of thousands of dollars and it means you are providing ideal care.

Have you spoken with your CPA and/or financial planner? It’s important to have a plan for the money you will get from the practice sale. There are retirement plans that allow you to put much of it in tax-free, but either way, you will want to get a tax plan together to try to ensure you pay off any debt in a way that makes sense, save as much in taxes as possible, and put your money in the right “place”.

Your CPA and/or financial planner will assist you to determine if you have the money needed to fully retire. If you decide for financial reasons or you’re having too much fun to quit completely, determine if your practice can provide enough patients/money for 2 dentists. The banks will want to know that the new buyer is making enough to pay off the practice debt and feed themselves and family. Do you want to do what it takes to increase new patients? Will you be dropping days? It’s also time to think about how you will truly feel “sharing” your practice. You will not be the owner and you will be living with a new roommate in the space and practice that you created and lead for years.
If you don’t want to make any changes as you practice for the next few years, that’s certainly your choice, but don’t expect your practice price to be higher than reality dictates. If your collections have decreased, banks will want to know why. If collections decrease, ensure spending decreases appropriately as well, such as team payroll and dental supplies. A good dental practice broker can assist you to transition out of your practice in a successful and smooth way. This is a very important time for you and your family.

​All practices are not created equal.  We list several practices each year that for one reason or another, do not sell.  It’s a frustrating experience not only for the seller, but for us as a broker.  Here are some reasons that your practice may be difficult, if not impossible, to sell, and how to avoid not selling your practice.

1. Your overhead is too high.   Practice buyers and their supporting cast of CPAs, bankers, etc. want the practice to not only support the debt it’s going to incur, but also pay the buyer a minimum salary.  The ratio the bankers look at is called the debt coverage ratio.  Most of the time, they want to see the debt coverage ratio of 1.2 times to 1.  That means for every $1.00 in debt payment, they want to see $1.20 of net income to cover the amount borrowed.

   How can you improve this, so you have a good debt coverage ratio?  Make sure your overhead is under control.  The national average overhead is 65%.  You should be at, or below, the overhead level of 65%.  The preference is to be below the 65% overhead mark.  Go through your expenses with your accountant or consultant and figure out how to improve your overhead and cash flow.

2. Your collections are going down.  Bankers don’t like to see annual collections going down every year.  That tells them patients are leaving the practice and seeking treatment elsewhere.  It also may trigger a question on the reputation of the practice.  Another question may be, “Is all the dentistry done, and there’s nothing left to do?”

   You can fix this by keeping your numbers up year after year.  At least be relatively flat, but it’s best to grow your practice at least slightly every year.

3. Staff overhead/problems.  One thing we see often in older practices is that the staff overhead is above the target of 20% to 25% of total gross collections, including taxes and benefits.  If you’re way above that, you need to look at both sides of the equation.  If an assistant is making $45/hour, or front desk making $60/hr. and your staff overhead is at 40% of total collections, you have a problem that a buyer does not want to inherit.

   It’s a tough position to be in, but if you’re a couple of years away from selling your practice and your staff overhead is at 40%, you should either increase your collections considerably by cranking up production, or ask the staff to take a pay cut.  If they don’t want to take a pay cut, you may consider letting a staff member go – the buyer will be doing it anyway so you might as well get it over with.

4. Lease issues.  We have seen practices not sell because there are problems with the lease.  Reasons include: the lease being too high, the landlord wants to tear the building down and not extend the lease, the landlord wants the seller to stay responsible for the lease for the entire ownership term of the buyer, or the landlord being unreasonable with proposed new terms.

   Negotiate with your landlord when your lease is up for renewal.  Add an “Assignment Clause” to your lease.  This states that you can assign your lease to a buyer when you sell your practice.  At that time, you will be removed from any responsibility from the lease.  Also, work with a commercial broker to make sure you are getting current market rates on the lease and not way above market.

5. Low Production.  Low producing practices, below $400,000 per year, are hard to sell.  They are viewed by buyers as a startup practice, especially if there is a downward spiral in the practice.  Buyers and bankers want a practice with solid cash flow that they can instantly make a living and not have to work another job as an associate.

   Sell your practice when the collections are high.  This is the smartest thing you can do in a practice transition.  I have seen doctors sell now for $300,000 when they could have sold 3 years ago for $600,000.  They lost $300,000 in the purchase price by waiting too long.  Remember, just because you sell your practice does not mean you need to stop working.  You can always work as an associate.

These are a few things that keep a practice from selling.  Be sure and prepare your practice and yourself to sell about 5 years before selling.  Call us and we’ll meet with you to give you guidance on what you need to do to your practice to sell 5 years from now.  We are happy to help at no cost to you.
 
info@omni-pg.com
877-866-6053

By Rod Johnston, MBA, CMA & Jim Vander Mey, CPA, ABI
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Everything has a cost.  If I hit the snooze button on the alarm one time, my cost could be that I potentially get to work late.  If I get up early and don’t hit the snooze button, the cost is not being able to sleep an additional 10 or 15 minutes. I’ve been around the block long enough to know timing is everything.  If I would have bought $10,000 worth of Microsoft stock in 1985, I would have stock worth $3,000,000 today.  On the flip side, how many near-death experiences can I account for where if I would have stepped off the curb a split second earlier, I would have ended up in the hospital?

And what is the cost of holding onto your practice for a few more years and not selling?  You get the opportunity to work more and make more money, right?

Right now, practice values are at an all-time high.  Corporate buyers are paying up to 10 times your earnings before interest, taxes, and depreciation (EBITDA).  The historical figure is 1.5 to 2 times EBITDA.  They have been lowering their threshold on annual revenue requirements and have been looking at practices with values as low as $650,000.  But, we have recently seen a small shift in their tone.  The corporate buyers have been scrutinizing practices a bit more.  Their offers on practices have been a bit less than they have in the past.  Few groups are looking at smaller practices.  It seems their buying frenzy has slowed just a little bit. What does this matter to you if you’re holding onto your practice?  Well, if you currently have an EBITDA of $300,000, your offer today may be 8x EBITDA, or $2.4 million.  If the trend continues and corporates lower their offers, your offer may go down to 5X EBITDA, or $1.5 million.  You just cost yourself $900,000 by waiting a few more years.  Sure, you made $400,000 in income over those few years, but you could have still made an income had you sold the practice and continued to work for the corporate acquirer.Granted, we don’t have a crystal ball.  We don’t know how quickly the corporates are going to reduce their offers and by how much.  However, we do have economic history, a bit of analysis, and common sense.  Corporates want the bigger practices making over $1 million.  Approximately 33% of practices collect over $1 million per year.  The corporates and small groups already own a large portion of the practices that are high-producing practices.  They make the highest margins on these types of practices.  As they use up capital and run out of large practices to buy, their focus will then be on making their practices as profitable as possible, thus, lowering their offers on practices as this happens.

So, just like choosing to hit your snooze button versus continuing to sleep in, there is a cost in holding onto your practice.  The smart thing to do would be to sit down with your trusted advisor.  Whether it be your accountant, financial planner, or your friendly neighborhood broker, someone can help you analyze how much it may cost you to hold onto your practice.  We can always be reached, at no charge at info@omnipg-vet.com.