Seller Articles

The holidays are an interesting time of year.  Whether you celebrate Christmas, Hanukah, Kwanzaa, Rohatsu (look it up) or another holiday, we all are wrapping up the current year and beginning to think about the new year on or before January 1.  You may have a process or a traditional way of doing this.  Reviewing your 2017 goals versus what you actually accomplished and then setting new goals for 2018 is a typical way of viewing things.
As I look back at 2017, I go through the names of the doctors whose practices I sold and understand a bit more about them.  I look at the doctors’ names of the practices and, amongst other things, I think about why they sold their practices.  I see names of doctors who sold their practice because they are ready to retire – this is the typical reason for selling.  But I also see the names of doctors who sold their practice because they were diagnosed with cancer and could no longer practice.  I sold four such doctors’ practices this past year.  I also see the names of two doctors, both under the age of 42 who were planning to practice dentistry into retirement, whose practices I sold because they got nerve damage in their hands and wrists.  There are also several doctors who sold because they were tired of managing a practice – dealing with insurance companies, staff management and managing their landlords.
Not long ago, I had a conversation with two doctors in their late fifties who both had recent health scares and had family members and friends who passed away from cancer at early ages.  This hit home as my Dad passed away in July of 2017 from non-Hodgkin’s lymphoma and my brother was just diagnosed with pancreatic cancer.  And as these doctors ask me questions about selling their practices, I remind them that just because you sell does not mean you’re done with dentistry.  You can still work as an associate dentist in another practice, teach at the dental school, or volunteer at a clinic.  I let them know that I’ve never had a dentist tell me that they sold too early.  In fact, many have come back and said I wish I would have sold several years ago because they are loving their freedom of being able to come and go as they please, fill in for vacationing friends, or work in a clinic when they get the itch to do dentistry.
As you celebrate your holidays, try not to think too much about work.  Also, as you set your goals for 2018 and do an assessment of your career and life, don’t forget to think about what’s important to you.  For some, it may be that dentistry takes priority over everything and it’s your passion.   For others, maybe it’s time to turn to the next chapter and enjoy what you have – family, friends, time, giving back, etc. Whatever direction you go, know that we are here for you and happy to provide a free consultation anytime you would like.  We’ll even buy the coffee!
OMNI would like to wish you and your family Merry Christmas, Happy Hanukkah, Kwanza yen iwe ha heri, Happy Rohatsu, and CHEERS to the New Year and best wishes for everything you desire in 2018!

I’m sure many of you have sold a car, boat, or a house by yourself.  For the most part, cars and boats are pretty simple to sell. Even selling a house only involves a couple of pieces of paper, an escrow agent, and a few other steps.  But selling your practice is another ballgame.  Emotions get involved as you are attached to your patients, staff, and heck, you built this baby!  There is a valuation to do – how do you do that?  Additionally, there is due diligence, lease assignment, document preparation, letter of intent, renegotiating after due diligence, closing process, CPA’s and on and on.  It’s hundreds of hours of doing a lot of different things.

ARE YOU READY?
You might be saying, “This practice has been my baby and my life for many years,” Or, “I still want to treat patients a couple of days a week after I sell my practice.” Before you make any decisions, ask yourself some questions:

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 necessary adjustments to non-collectables.

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.

As we approach the end of the year, you should contact your patients and let them know that they should look at their insurance to see if they have available funds to complete procedures, or fit another cleaning in before the end of the year.  There are standard patient letters that many consultants use to send out to patients.  Or, you can use one of the internet based patient notification systems to let your patients know to use their insurance.  We also have a letter template for insurance notification.  Send us an email ​and we’ll send you a copy of the letter. ​

There are a number of reasons that doctors sell their practices.  Some are good reasons, like when you have reached a point where you have enough money to live comfortably the rest of your life while you are still healthy.  Other situations may not be good.  Those can include failed health, a practice that is quickly losing production, or the worst-case scenario — you suddenly pass away.

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.

In the September 2017 subscription of JADA, there is an article titled “Practice Ownership is Declining” by Marko Vujicic, Ph.D.  As the title reveals, the article is about the decline in practice ownership by dentists.  If you have not read the article, I highly recommend it.  The statistics in the article support what we are seeing in the market for dental practice and some of the articles I’ve written recently.  If you do not subscribe to JADA, here are a few of the highlights.

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.”