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6 Types of Dental Practice Agreements

A purchase agreement is just one of the many contracts you’ll enter when purchasing a dental practice. While the amount of paperwork may seem daunting, it’s important to make sure all aspects are covered so there are no surprises after signing on the dotted line. Here are six types of agreements (and their subsections) you can expect.

Purchase agreement

Asset purchase agreement

In a straight buy-out, it’s important to outline what assets are included in a practice—most notably, the equipment—just like you would when purchasing a house with or without the kitchen appliances.

Stock purchase agreement

When entering into a partnership, all terms and conditions related to the purchase and sale of a company will need to finalized to protect both the buyer and seller to determine what’s included and what’s not, such as the name of the practice.

Real estate agreement

Upfront purchase

Opening a new practice may mean purchasing a property from the beginning, for which the rights, obligations, and liabilities are outlined of both the buyer and seller, including defining the property that is being purchased or sold.

First right of refusal

Having a real estate agreement upfront will give the first right of refusal to a partner when selling the practice should the doctor decide to sell the building so that the buyer is not then a tenant.

Lease agreement

If not purchasing the property, a lease agreement will outline the term and scope in regards to whether or not the buyer will get everything for a flat rate or will have to pay for upgrades, such as cosmetic updates like wood floors.

Employment

When not a straight buy-out, an employment agreement will outline the terms of an associateship before and after the transition, such as how long the seller stays on to work, the terms of payment (day rate, per diem, or percentage of collection), and if the practice value is determined before or after the sale.

Operating

In the case of a partnership or merger, laying out how the practice will operate will help determine all the logistics, like who is going to pay for marketing, any staffing conflicts, and whether the doctors will be paid based off collections or a percentage of the practice.

Promissory note

Simply put, this is, in essence, an IOU to determine the terms of which a loan of a certain amount will be paid back, including how much and by when. A promissory note can be held by either or both the buyer or seller, depending on the type of agreement.

Closing statement

This is where both the buyer and the seller will dot their I’s and cross their T’s, breaking down all the terms and conditions that need to happen in order for the purchase and sale to go through, including timeframe of sale and final asking price.

What’s next?

Contact the experts at Professional Transition Strategies, who will help walk you through the paperwork process.

4 Sections of a Dental Practice Prospectus

When looking to purchase a dental practice, obtaining a prospectus is part of the valuation process that will help you determine if the practice is growing, in status, or declining. The 20 or so pages broken down into different categories of interest to the buyer will identify the areas that potentially need attention, such as marketing and additional operating costs. As for the seller, the information gathered for a prospectus is typically the same that is required by the bank. The key metrics used to appraise a practice are generally agreed upon in the practice’s specialty and include the following.

Practice description

This includes a biography of the selling doctor, location of the practice, office hours, and types of equipment with supporting photos, as well as employee roster with hire dates, hourly wages, and benefits.

Production

A three-year weighted average of production is broken down by production type and provider, in addition to an evaluation of the types of procedures.

Patient analysis

Included in this is the total active patients and new patients per month for the past 12 months to analyze growth trends.

Finances

The financials that are involved in a sale include top and bottom line numbers, most recent tax returns, past three years of profit-and-loss statements, investments, list of insurance plans, current balance sheet, accounts receivable aging report, and a copy of the current lease in relation to take-home pay and capital spending.

What’s next?

Read more about the process of buying a dental practice in our e-book “Transitions,” then reach out to the experts at Professional Transition Strategies to help start the process of assembling a prospectus.

6 Ways to Lower Your Dental Practice Overhead

Regardless of whether or not you’re looking to sell your dental practice, lowering your overhead is always in your best interest. Changes can be thought of from an expense perspective and production point of view. Here, we recommend where to make some smart cuts, big and small.

Staffing

A change in staffing doesn’t necessarily mean layoffs, but it is an opportunity to evaluate employee productivity and see if there is any duplication of effort or if cuts need to be made since payroll accounts for 28 percent of your standard overhead costs.

Lease

With a constantly fluctuating real estate market, it never hurts to try and renegotiate your lease by researching comparable commercial rentals and examining costs to be covered. Rent should account for 10 percent or lower of your standard overhead costs.

Supplies

Just as you would shop around for any personal or professional products, finding the best deal on office and dental supplies can be as easy as buying in bulk or changing suppliers. Combined with lab work, supplies should account for 15 percent or lower of your standard overhead costs.

Lab work

Negotiations can even be made with your lab to provide a better pricing schedule, going so far as to examine the clauses that dictate your billing agreements. Combined with supplies, lab work should account for 15 percent or lower of your standard overhead costs.

Marketing

Rather than scaling back on your marketing efforts, staying consistent or expanding your reach will only increase production. Still, marketing should only account for 3 percent of your standard overhead costs.

Production

Increase production by expanding hours and bringing in more services rather than outsourcing treatments, while first making sure the demand is there.

What’s next?

Learn the value of your dental practice, then reach out to the experts at Professional Transition Strategies to see if selling is in your financial future.

6 Factors when Valuating a Dental Practice

The process of valuating a dental practice before selling is not only necessary for the banks and buyer but also valuable for assembling a prospectus. A proper valuation will include an appraisal, which will help the seller determine which transition option is best. Here is what you can expect to provide during that process.

Upgrades

Should you upgrade before selling your dental practice? Yes, if selling within five years; no, if selling within a shorter amount of time. Upgrades can be as small as getting rid of clutter and giving the space a facelift as you’re not going to get out what you put in when prepping to sell.

New equipment

While purchasing new equipment before selling your dental practice will add to the value of a prospectus, you won’t get a return on your investment dollar for dollar. When it comes to hard assets, consider what you could get it insured for and the resell value, among other financial factors. When valuating, Professional Transition Strategies will conduct a physical observation of the office with photos of the equipment.

Goodwill

There’s more to a prospectus than hard assets, which are easy to quantify. However, the majority of a practice’s value comes from its ability to generate a long-term income stream to the buyer, which includes the doctor’s status within the community, practice name, location, staff loyalty and longevity, and brand awareness and marketing, all of which mean you pay fewer taxes at closing.

Finances

The financials that are involved in a sale include top and bottom line numbers, most recent tax returns, a three-year weighted average of collections and production broken down by provider and procedure type, past three years of profit-and-loss statements, investments, list of insurance plans, current balance sheet, accounts receivable aging report, and a copy of the current lease.

Specifics

Other factors that will be included in the analysis will be whether or not the practice is digital (and the cost to make it digital, if it’s not); the desirability of its location; if the practice refers out all its work; the total active patients and new patients per month for the past 12 months; employee roster with hire dates, hourly wages, and benefits; a bio of the selling doctor; and office hours.

Buyer

Your practice will value differently if you’re selling to a dental service organization. A DSO won’t take hard assets into account but rather will focus on collections and other finances. DSOs also have private equity money, which is favorable to a bank over an individual buyer when it comes to securing a loan.

What’s next?

Read up on the process of valuating your dental practice in our e-book “Strategies for Transition,” then begin calculating how much your practice is worth on the PTS homepage.

How to Assemble Your Team of Advisors

Whether you’re looking to purchase an existing dental practice or start your own, assembling a team of advisors to help guide you through every step of the process will ensure the success of your business is established from the beginning. As with any team, you’re only as strong as your weakest link, so it’s important to choose advisors who have experience in the dental industry. Here, we break down your options.

Banks

Choosing whether to work with a local, regional/national, or dental-specific bank or the Small Business Administration, even if just applying for an equipment loan, is arguably the biggest decision when financing a dental practice, whether to acquire or grow a business, so take care in choosing the best fit for your needs.

CPA, CFA, attorney, and insurance agent

To raise your rate of success, choose individuals who specialize in working with dentists, in addition to specialists from different firms within the industry as opposed to a one-stop shop. You’ll want someone who can write and review contracts, as well as someone who can run the numbers, not one firm that does both.

Headhunter

When looking for an associateship, a good headhunter—especially one who specializes in the dental industry—will present you with a variety of opportunities, including ones not yet on the open market, similar to working with a real estate agent.

Marketing agency

For your convenience, a full-service marketing agency will help you establish your practice once the sale has been made, from website development and social media management to advertising and brand development.

Equipment representative and supply company

This long-term relationship should start with interviews of potential companies and testimonials from current customers to hear about different product offerings.

Commercial real estate broker

When it comes to securing a location for a new or existing practice, PTS has a pulse on the country that puts your best interest at heart, including competitor locations and cultural or religious reasons that would affect the success of your business.

Contractor and architect

A successful start-up begins with a smart office layout, and a contractor and architect who are familiar with the dental industry, in addition to local building codes and regulations, will ensure a smooth process from the ground up.

Practice consultant

A practice consultant who focuses on your specialty will be your extra set of eyes to advise you on how to increase profits quickly by establishing a timeline and budget with trackable results that work for all parties involved.

Technology advisor

Both established practices and start-ups need dental software to make the business run, so it’s important to work with a technology advisor who implements the software and services it on the back end once it’s in operation.

Transition broker

Hiring an experienced transition broker like PTS will help you market your abilities to the places you want to go so that you can relax and focus on your day-to-day responsibilities of tending to patients and running your business.

What’s next?

Read more about assembling your advisory team based on your specific transition situation in our e-book “Recent Graduate: I Just Graduated from Dental School, Now What?” Then, contact the experts at Professional Transition Strategies for referrals and recommendations.

20+ Questions to Ask Your Buyer to Ensure a Successful Transition

After so many years owning a private practice, you’ve become invested both financially and emotionally. Once you’ve decided it’s time to sell, it is to your advantage to concern yourself with the buyer‘s intentions to ensure a successful transition for all parties involved. Here is a comprehensive list of questions to ask potential buyers to get one step closer to the completion of the sale.

 

Professional background

What is your dental philosophy?

What type of dentistry have you done in the past? What do you like to practice and prefer not to, such as restoring versus replacing implants?

Is there a type of dentistry that you would like to get into, such as orthodontics, endodontics, etcetera?

What do you like and dislike about your current situation, including specialties that are done in-house versus outsourced?

Are you certified or plan to be certified in Invisalign?

 

Finances

How many lenders have you talked with?

Are you prequalified? If so, for how much?

Do you have enough credit and cash in your bank?

Have you ever been delinquent on payments, filed for bankruptcy, or been sued by a patient?

Are you able to prepare a balance statement and show the past two years of tax returns?

 

Real estate

Do you plan to keep the current location of the practice?

Do you want to lease or buy a space?

Do you have a preference on a five- or ten-year lease?

 

Updates

Do you plan to make any updates or improvements to the practice, its equipment, or software?

Are you willing to pay for any upgrades out of pocket after the sale, or do you prefer upgrades to be made before the sale?

Do you plan to keep the existing staff or bring in your own?

 

Corporate buyer

How do you plan to grow practice profitability?

What are the company’s overall economic goals compared to earnings expectations and financial statements and tax returns?

Do you have references from dentists who previously sold their practices to your company? Were these dentists’ commitments fulfilled in the transaction?

Does the company have a track record of successfully purchasing practices and selling off the new combined entity?

 

Future plans

What are your goals for the practice after the sale?

Do you plan to bring on any specialists?

Would you ever sell to a dental service organization or another corporate buyer?

How can we be sure to protect ourselves and our interests to ensure a smooth transition for patients and staff?

 

What’s next?

Start the process of selling your practice or look for practices for sale, then contact the experts at Professional Transition Strategies to take the next steps.

6 Considerations when Starting a Multispecialist Dental Practice

One of the most efficient and profitable ways to grow your general practice is to bring on a specialist or multiple specialists. But before you call every periodontist, orthodontist, and pediatric dentist in the phone book, you’ll want to consider the following.

Patient care

With every decision a general practitioner makes, patient care should always be at the top of the list. After all, it’s the reason you got into dentistry and how your business continues to thrive. As the industry continues to move away from solo private-practice specialty providers toward collaborative multispecialist practices, ask yourself: Does this one-stop shop model benefit my patients as much as my staff in terms of need and affordability? While the ability for a patient to get a referral and set up an appointment is certainly convenient, there’s no one-size-fits-all answer.

Patient need

Before merging with a specialist full time, make sure the need is there first in terms of patient load. If not, there are other options. Consider bringing on a specialist a few days a week or month, one who has his or her own practice location or multiple similar arrangements, using your practice as a satellite office while splitting time between multiple practices.

Office space

Does your current practice offer the space necessary to house a specialist and the accompanying equipment, or will expanding warrant a move? Each new specialist has the potential to come with his or her own assistant and staff, not to mention the need for space to accommodate different equipment and setup. If a move is in the plans for expansion, consider an area that makes geographic sense for all the dentists under the same roof.

Compatability

As with any partnership, it’s important to seek out specialists who have the same practice philosophy so as to not recommend competing procedures that could potentially confuse the patient. Additionally, you’ll want to ensure there’s no overlap between specialists, perhaps between an oral surgeon and periodontist. It benefits the team when the general practitioner is versed in the different specialties being offered but does not take control of the procedures and recommendations. For example, while most general dentists are knowledgeable in endodontics, taking on an endodontist will allow the primary dentist to focus on general dentistry.

Collaboration

There’s much more to share than square footage in a collaborative practice model. Think shared teams, facility overhead, and peer collaboration that all help improve efficiency and productivity. An increase in production and decrease in overhead will result in optimal profitability and better clinical outcomes for all parties involved. A common collaboration is for a recent graduate to become an in-practice specialist at a dental service organization where there’s already a full patient load and the ability to work from the ground up. Additionally, choose partners who complement the work currently being offered, like a general practice with periodontist or an orthodontist with a pediatric practice.

Creativity

The decision to go into a multispecialist practice doesn’t have to be cut and dry. The specialist can bring his or her own equipment, buy new, or even consider a contractual arrangement in which equipment is shared in exchange for services. The owner dentist could supply all bookkeeping, charting materials, and reception scheduling, while the specialist could cover the cost of any treatment incidentals, supplies such as instruments, lab procedures, even cotton balls.

What’s next?

No matter the situation you arrive at, you’ll need to inform your malpractice insurance company of the addition of any specialists, consult state regulations on how to categorize a specialist, and make sure all arrangements—including a non-compete agreement, percentage of payment based on collections rather than production, and what the specialist is expected to provide—are contractually agreed upon. Let the experts at Professional Transition Strategies help guide you.

3 Reasons Your Dental Practice Values for More in the Pacific Northwest

The old real estate adage of “location, location, location” carries over to dental practices, too. And in the Pacific Northwest, you’ll find a number of reasons why your dental practice assesses a higher value than other areas of the country. Here, we list a few reasons why now is a great time to sell.

Desirable location

Sticking with the real estate analogy, the more desirable an area is, the higher property values tend to be, whether the housing market or business property. These days, thanks to the tech boom, the Pacific Northwest is proving to be a seller’s market with the influx of business and overseas investments moving to the area. When assessing the value of a practice, the seller comes out on the higher end of the deal in an area where people want to live and work.

High concentration of dental service organizations

Along with big business comes DSOs that contract with individual dental practices to manage the non-clinical operations, leaving you the option to stay on with a lighter workload to release the managerial responsibilities. In a growing market like the Pacific Northwest, DSOs are willing to pay a higher price to expand their services while also leaving you the option to earn a salary after the sale.

Higher insurance reimbursements

Simply put, your dental practice gets a higher percentage back from the insurance companies than other areas of the country, making the potential to earn more an attractive quality to buyers. The higher concentration of business in the Pacific Northwest means insurance companies are able to offer a bigger cut, which translates into more money in your pocket both before and after a sale.

What’s next?

Ready to sell your dental practice? Learn how else you can increase the value of your practice before you sell, then contact the experts at Professional Transition Strategies to start the next steps.

Partnerships versus Mergers: Which Is Right For You?

When looking to combine practices, the million-dollar question (literally) is whether to go with a partnership or a merger. The answer lies in what you’re working toward: retirement or expansion? Here, we break down the two options.

Partnerships

While partnerships have a 60 percent success rate, it only makes financial sense if the practice is collecting $1.2 million annually. If the practice is collecting less, each doctor wouldn’t bring home enough at the end of the day to make a stable living. A partnership could eventually lead toward retirement, but a more lucrative option is to take on a partner who could expand the offerings of the practice, adding to its value and client base.

Mergers

Though not as common, combining two existing practices into one proves to be successful in terms of equality of responsibilities and income, especially when combining a general practice with a specialty partner. The next step when working toward retirement is to then sell after five years or so to a dental service organization. Though staying on to work a reduced schedule is an option, selling a merged practice to a DSO will yield higher profits. And ultimately, the process to sell is more seamless since DSOs already have financial backing.

What’s next?

Read up more on your options to sell in our e-book “Strategies for Transition,” then reach out to the experts at Professional Transition Strategies to get the ball rolling.

5 Options for Dental School Graduates

You’ve studied for the past eight years and now finally have that much coveted dental degree in hand. Now what? Even if your dreams are to own your own practice, there are other options to consider and a few steps you might want to take first.

Associateship

While taking on an associate is risky from an owner’s perspective, it makes sense for a fledgling dentist to get his or her feet on the ground. With this option, you are working for a person or a DSO as an employee without an ownership benefit or management responsibility. This allows you to relocate or move among practices with ease and little stress since there is no real commitment on your end.

Military, school, or government

Working for the military, a school, or the government won’t give you the option of buying in to a practice. It will, however, earn you the notoriety to perhaps one day publish scientific work, if that’s what your goals include. This low-risk opportunity affords a relaxed schedule, long-term potential, and option to pursue a passion that the private sector might not offer.

Buy-in

The next best thing to owning your own practice, a buy-in grants you an ownership stake in the practice with the potential to become a partner. While not typically obtained right out of dental school, a buy-in is achievable within three to five years, making it a reasonable and beneficial long-term option, whether with a single practitioner, group practice, or corporate environment.

Buy-out

With a buy-out, you gain 100 percent interest within an existing practice while having the sole freedom to practice exclusively. Not to mention, purchasing an existing practice outright holds a 99.7 percent success rate for the completion of note. Compared with a start-up, an existing practice comes with its own staff, location, equipment, and patient base.

Start-up

Rather than taking on an existing client base, you would start your own practice from the ground up. Although the ultimate dream for most, it’s worth mentioning that between dental school and bank loans, you have the potential to be $1 million in debt before seeing your first patient, which may not be an issue for you since the success rate for a dental practice is so high.

What’s next?

Read up on our e-book for dental graduates, then contact the experts at Professional Transition Strategies to start the conversation.



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