Seller Articles

So, where are we now?  In an article I wrote for the Washington State Academy of General Dentists called The Perfect Transition Storm, I explain that we’re experiencing an anomaly in the practice transition market.  I have been working with dentists since 2004 helping them transition into or out of a practice.  There have been times when interest rates are good, but there are not many buyers.  There have been times when the economy was doing well, but not many sellers selling their practices.  But, in the past almost 15 years, I have never seen a time when everything aligned so well. Here’s how this adds up:

1.  The transition market is still a sellers’ market.  There are not many “good” practices on the market.  Good practices are producing over $600,000 per year with 65% or less overhead and at least 10 to 20 new patients per month.
2. Banks love dentists.  The default rate is below .0125% for dental practices.  More and more, banks have been seeking to lend to dentists to buy practices.  Recent offers from some banks include 1.78% interest rate for the first two years adjusting to 4.9% for 10 years after that.  The average rate currently is 5.125% on a 10-year term loan.
3. The economy is strong.  Many dentists I talk to tell me that they are busy.  Patients are employed and either has the funds or have insurance to get theirs and their family’s dentistry done.
4. Competition for the good practices is up.  We are starting to see corporate practices such as Heartland come into the Northwest and other markets seeking out practices grossing over $800,000 in collections.  Small group practices are also out there looking for good practices.  We also have solo buyers looking to acquire their first practice.
5. Practices values are up due to demand for good practices.  A typical practice may sell for 70% to 75% of collections in an average market.  We’re now selling practices for 5% to 10% higher, mainly due to demand.

Mesh this all together and you get a formula for a good transition market.  There’s high demand for good practices.  Interest rates are low.  Practice values are above normal ranges.  If you are thinking about selling within the next 3 to 5 years, it would be prudent to sit down with your financial advisor, broker, or other advisor to take a look at your situation.  Timing can be everything and good markets don’t last forever.  We would be happy to buy you a cup of coffee and discuss your situation and help put a plan in place to make sure you are in the best position for when it’s time to transition. Contact us today! 877-866-6053.

Freshen up your practice – Buyers like to see a fresh, clean and somewhat updated practice.  That does not mean you need to do a complete remodel and spend a $100,000.  It does mean you need to take a look at your flooring and your walls.  If you have large holes in your wall or your flooring was leftover linoleum from World War II, you should fix the holes and put in new flooring.  Talk to your landlord, sometimes they will help with the cost.  If you have equipment that is held together by the “fix everything” duct tape, contact your local equipment rep and have it fixed.

Update your technology – We run into an occasional practice owner that considers indoor plumbing as new technology.  If you are in that category, or if you have not done any technology updates since Richard Nixon was president, you should look into digital x-rays and other technology that will not only appeal to buyers but will help you increase your production in the practice.  Contact your equipment rep for the latest and great technology.

Financial Review – Have a meeting with your financial planner or advisor to see where you currently stand with your retirement portfolio.  This will help determine how soon you can possibly retire, how much more you may need to put away to retire and/or how much you need to get out of your practice sale in order to retire. 

Practice Valuation – You should get a valuation done on your practice.  This will help your financial planner and you see where you stand with your entire portfolio.  Some doctors rely heavily on their practice sale to be a piece of their retirement nest-egg, so if you don’t know what your practice may be worth, you don’t know what size of nest-egg you have.  Call Omni for a free snapshot valuation. 

Clean up your books – If you have been aggressive in running expenses and other items through payroll, you should work on making sure the books are clean.   If you have multiple practices, but run all of your income and expenses through one tax id number, you should ensure you can separate the income and expenses of both practices.   Meet with your CPA to analyze your numbers and see if you are in line with industry averages.

Grow your practice – One of the worst things you can do is take your foot off of the gas pedal.  If you want to maximize the value of your practice, keep production at least level with prior years.  A growing practice sells quicker and easier than a dying practice.   If you don’t know how to grow your practice and make it more sellable, contact a consultant, or have a practice assessment done.

These are just a few items that you can do to help prepare your practice for a sale.  If you work on these items now and over the next 3 years, you will maximize your practice value, enlarge your pool of potential buyers and be able to sell your practice quicker.  ​

1.  Assess your equipment.  Upgraded practices sell faster.  If you are more than five years away from retirement, I recommend a few upgrades such as recover your chairs if needed and freshen up the paint.  If you want to sell in less than five years, stick to the paint and carpet because you will not get the tax benefit of major upgrades.
2. Clean up your accounts receivable.  Reimburse patient credits, collect old accounts and keep the A/R current.
3. If you have an associate, make sure you have an associate agreement with a non-compete.
4. If you have an employment agreement with your corporation and you are a C-Corporation, you may need to terminate yourself a few years before retiring.  Consult your tax accountant.
5. Consult your financial advisor and tax accountant.  How much do you need to retire?  How much do you have?  What are the tax consequences?
6. Get a practice valuation to see what proceeds you will get from the sale.
7. Be realistic in the time it takes to sell.  In remote areas, it can take a year or two.  Metro areas, much less.
8. Keep your production up as you near retirement.  I see veterinarians slow down all the time in their last few years.  Work the same number of days.
9. Assess your staff.  Do you have too many staff?  Do you have one that should have been let go seven years ago?
10. Have a practice assessment performed by a qualified consultant.  Many will do it for free or a small fee.  This may help show you some areas to improve over the next few years.

By focusing on these items in the coming years as you near retirement, you will avoid having your practice production and the price of your practice go down in your later years.  Call me for a free consultation.  I would be happy to take a look at your practice and give you my thoughts.  Or, if you are thinking about transition right now, I have a database of buyers looking in your area. 877-866-6053 ext. 2.

For those of you that have been around for a few years, you have probably noticed that the economy is cyclical.  Factors such as interest rates, employment levels, consumer spending and even retirement rates ebb and flow.  This flux creates optimal opportunities to buy and optimal opportunities to sell.
Currently, the market for a practice transition is a seller’s market.   This means there are more buyers looking to acquire a practice than there are sellers looking to sell a practice.  It has been this way for a number of years.  But there are a number of factors that make the current market a perfect storm.  These factors are as follows:

1. There are not a lot of practices on the market.  Low supply and high demand equate to higher practice values.
2. Interest rates are still relatively low.  This makes note payments more affordable, so buyers are looking to take advantage of lower rates by purchasing a practice.
3. The economy is strong.  Patients are getting their dentistry done.  They are employed and have insurance, or can afford to pay cash and get work done.
4. There are more buyers than sellers. Doctors have been holding on to their practices and delaying the sale of their practice in part because of the down market in 2008 to 2010.  The average retirement age for dentists was 62 in 2000 – it’s now closer to 67.

Just as perfect storms at some point break, so will the perfect storm for a transition.  Interest rates are already starting to increase.  Over 50% of doctors are now over the age of 55 and getting older.  They are beginning to sell either to retire or, unfortunately, because of health reasons.  Seller’s markets are flipping to buyers markets in other parts of the country with older populations.  It will eventually happen where you are as well.  If you are thinking about a transition within the next few years, we would be happy to meet with you and answer your questions and put help formulate your transition plan.  Just give us a call at 877.866.6053 or send us an email at info@omni-pg.com.

1. Collections – Most buyers want a good base amount of collections.  The average practice produces around $500,000 per year.  If you’re below this amount, expect your practice to take longer to sell as there are few dentists who want a small practice that they can grow.  Most want to buy it, move in and get cash flow from the very start.
2. Cash Flow – Buyers want to be able to pay the debt service on the practice and also pay themselves a decent paycheck.  If you have an average size practice, your overhead should be at or below the national average of 65%.  This is after the “add-backs” that are done on your tax returns which “add-back” those expenses you are running through your practice which are really not operational to the practice.
3. Hygiene Recall – A solid recall program should be in place.  Approximately 30% of the collections in the practice should be from hygiene for a stable practice.  A little less is okay, but the lower you get, the closer you are to running an emergency clinic than a stable dental practice.  Not that there is anything wrong with that, you just reduce your pool of buyers if you have lower hygiene production.  At the same time, if you have really high hygiene – 40% or higher, that either means your hygienists are awesome and so is your patient retention, or, you’re not doing much in the way of procedures and doing a lot of “watches”, fillings instead of crowns, etc.,
4. Digital Technology – While this isn’t a must, most buyers want to see digital x-rays at a minimum.  You can still sell your practice without digital x-rays, but expect the price to be slightly lower.  Panoramic x-rays are great as the machines are less and less expensive.  Digital charts are also nice to have.
5. Decent Lease – With the commercial real estate market going crazy, you never know what you’re going to get.  It’s good to have a lease term of at least 5 years out with a 3-year option on top.  Problematic leases with tear down clauses, little parking, or those with short-term leases and the landlord not willing to extend the lease will cause a formidable problem in the sale of the practice.
6. Updated equipment and décor – If you have older chairs, be sure and at least have the coverings in good shape.   Older chairs are fine, but torn dental chair covers are not.  Dental chair covers are inexpensive.  Get new ones if yours are not in good shape.  Old carpet, paint and outdated countertops are also a turn-off.  A bit of new carpet, paint, and countertops go a long way in making a practice feel fresh and new for not very much money.
7. Poor Bookkeeping and Accounting – Have I got stories in this area!  However, I’ve been sworn to secrecy.  If you’re running your Porsche lease, spouses’ dermatologist appointments, vacations to Italy, or doing anything remotely grey in the accounting world through your practice, STOP!  We have had practices we could not sell due to too much funny business going on in the books.  Bank credit departments look at the numbers and ask a lot of questions which leads to buyers getting very scared and running away.  I’m sure if you have a good accountant, they are following generally accepted accounting principles for your practice and there will not be a problem.

These are just some of the hot items that can quickly turn off a buyer and will give you the best chance of selling your practice.  Not being able to check off the box for each of these items does not mean you cannot sell your practice, it just means your buyer pool will be smaller and it will take longer to sell.  If you’re two to three years away from selling you can use this as a guideline to prepare your practice to sell over the next couple of years.