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How Much Is My Practice Worth?

Buying an Existing Dental Practice versus Starting from Scratch

If only the decision to buy a dental practice were so simple. Aside from deciding on the type of transition you want to engage in, the literal million-dollar question is whether to buy an existing practice or start from scratch. Both options have their pros and cons specific to your financial and personal situation. Here are some considerations to take into account before making the leap.

Timeline

Starting any business from the ground up will ultimately take more time than taking on a previously existing practice. However, if time allows, you can design and customize the practice to represent you personally and professionally based on your vision, including a floor plan that allows for increased productivity and efficiency, as well as determining rather than inheriting the culture within the practice. But if making money is your first priority, then a dentist who purchased an established practice will make more money within the first few years than one that is started from scratch.

New versus used

While it may seem fun to pick out all new equipment, it will, of course, come with a price tag. But used equipment can prove to be costly, too. Consider that equipment and technology might be outdated and in need of a little sweat equity to get the office up and running in terms of software and even aesthetics. However, with a new practice, time must be spent negotiating pricing for equipment and construction based on national pricing.

The numbers

Any new business venture requires a significant amount of number crunching. With a new business, debt commonly ranges from $500K to $1 million with profitability projected between six and nine months, plus an attrition rate between 15 and 20 percent, compared to an existing practice in which you can expect a profit from day one but an expected 7 to 10 percent of the existing patient base to leave after the transition.

Location and demographics

Just because you opened the practice of your dreams, doesn’t mean patients will automatically come in the doors. However, when you choose the location of your practice based on precise demographic data, the right location will expedite that growth. Starting a dental practice from scratch in the location of your choice will ensure pre-chosen patient demographics are in your favor, while having an established patient base with proven market potential means you won’t need to spend much on bringing new patients in the door.

Teamwork

With a new dental practice, factor in the time spent implementing and executing training for all employees, as well as interviewing and assembling a complete list of vendors. Along the same lines, a new practice requires time and money to market yourself and the practice, as well as a forecast and plan for your growth strategy.

Valuation

All things considered when buying an existing dental practice, make sure you have a proper third-party valuation prior to purchase so you know what you’re getting into, including “goodwill.” If starting from scratch is not an option for you financially or personally, it doesn’t mean any existing practice is the right one.

What’s next?

Read more about the transition options available in the “Transitions: Your Next Adventure Awaits” e-book, then contact the experts at Professional Transition Strategies to determine which option best suits your needs.

5 Considerations when Entering into a Dental Practice Merger

Many scenarios exist under the merger umbrella when joining dental practices. Most notably, are you merging with a practice so that you and the existing dentist partner together? Or are you merging with an established practice where the selling dentist is leaving? Either way, to ensure a successful dental practice merger, careful due diligence is imperative. Here are some considerations to take into account.

Consider the pros

When combining two dental practices, it’s expected that you’ll expand your patient base and reduce your competition, all while increasing your production numbers and growing your bottom line.

Accept the challenges

With two personalities to consider, it’s only natural that disagreements and disputes can occur. If not resolved correctly, it can create a contentious environment that will ultimately affect the arrangement. If dentists don’t agree on deadlocks, it is advised to seek legal counsel to create a way to resolve disputes.

Embrace change

It’s important that all aspects of the new identity, including new logos and possible name change, be considered upfront. What’s more, assess whether or not a larger location will be needed to accommodate the merger. From there, decide if all current staff positions will be retained (including spouses) or if there are duplicate positions.

Assess compatibility

Do both practices currently accept insurance and the same plans? If not, decide what you are going to keep and what you are going to stop taking. Keep in mind that patients may switch providers should you stop accepting their insurance. Are your fees similar? Patients don’t want to feel as though they are now being overcharged after the merger and may ultimately leave the practice.

Share revenue and expenses

How will assets be divided? Will expenses be shared based on productivity or ownership? Will revenue be shared based on productivity, ownership, or a combo of both? All these questions and more should be answered prior to engaging in a merger.

What’s next?

Read up on more dental practice transition options in the e-book “Strategies for Change,” then contact the experts at Professional Transition Strategies to plot your next steps.

How to Manage Your Dental Student Loans

While dentistry will most certainly be a lucrative career in the long run if you play your cards right, the harsh reality is that the average dental school debt is approximately $260K. Add to that an average of $220K in lost earnings plus interest, and a graduate can count on expening $570K toward dental school. Don’t be discouraged that dentistry is the number one job in America for debt; your investment is typically paid back within eight years of practice. Here are some points to consider along the way.

Buy a practice

Rather than starting as an associate or even working for a dental service organization, after graduating with a negative net worth, the fastest way to make dentistry worth it is through practice ownership, most notably in an area where there is demand. Though counterintuitive, taking on more debt will pay off.

Grow your practice

Consider the population-to-dentist ratio in your practice area, then hire consultants to grow your practice and stand out above the rest. Working with smart financial planners and CPAs throughout the process will keepy you headed in the right direction.

Shop insurance providers

The leading cause of a lower income is the lower fees associated with PPO insurance plans. Shopping insurance providers will not only be financial beneficial as a business owner, but for your patients, as well.

Ask the right questions

What are my debt repayment options? Can I pay down my student debt? Can I limit my student debt? Should I repay my debt? And perhaps most importantly, will practicing dentistry make me happy?

What’s next?

Read up on other options in the e-book “Recent Graduates,” then contact the experts at Professional Transition Strategies help guide you on the right path.

The Kids Are in College; Now What?

Becoming an empty-nester is a natural time to start thinking about your next steps, as well. While there is still tuition to be paid, a well-laid dental practice transition takes years of planning, whether that means engaging in a partnership or preparing for retirement. Here are some steps to start taking now.

Contact a broker

It takes approximately 150 hours to transition a dental practice, which is one of the many reasons to hire a professional broker. In order to get the most of your sale, both financially and personally, a professional broker will help you focus on the bottom line and create an accurate appraisal of your dental practice while vetting potential buyers and removing any emotion from the transaction.

Crunch the numbers

Determine how much you need for retirement, how much debt you have left, and how much you need to get out of the practice when you ultimately decide to sell it. The most important point is to plan for your transition while production is still high to ensure you gain a higher valuation. Because the most recent years’ collections are weighed heavier than past years, you’ll want to go out on a high note if a sale will take place in the next two or three years.

Know your options

With all the transition options available, you’ll want to have an understanding of your ideal transition and discuss with a broker what is currently possible and what you need to do to get to your ideal transition plan. Planning early will allow you the option to affiliate with a dental service organization, bring on a partner who will eventually buy the remaining share of the practice when you are ready to retire, or simply understand where the practice needs to be financially and strategize how to increase the value of the practice if needed.

What’s next?

Read up on sellers’ options in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to get the proverbial ball rolling.

How Divorce Can Affect Your Dental Practice

Divorce can truly be a life-changing event, even when it comes to owning a dental practice. While no one plans on ending a marriage, it’s important to take precautions upfront in order to ensure your assets are secure. Here are some steps to follow before, during, and after.

Get an appraisal

Knowing the true value of your practice will help avoid a situation in which a spouse will try to inflate the value and the dentist will try to deflate. Neither strategy is correct, which is why it is important to have an independent valuation completed.

Define details

Detailing the ownership structure within the practice won’t leave any questions to chance. From there, under the ownership structure, define whether they fall under the real estate or asset category. Along the same lines, outline and understand all debt load, from personal to business debt.

Plan ahead

Thinking through details, such as a spouse’s benefits, ahead of time will help ensure a clean break in the long run. Is your spouse an employee of the practice, or do they have retirement or other benefits from the practice? Likewise, are you able to keep the practice, or is a practice sale required?

Organize your documents

Inside and outside your dental practice, you’ll need to get all important documents organized, including but not limited to judgment for divorce, permanent parenting plan, insurance policies, deeds, marriage license, updating beneficiaries of your life insurance and retirement accounts, updating your will, and updating your medical directives.

Manage your time

Evenings and weekends are ideal to gather data to curtail as much of your professional time as possible. However, that isn’t reasonable for everyone, so determine how much professional time you will need to cut back on during the divorce proceedings and have a plan in place to ensure production remains steady.

Maintain goodwill

Above all, it’s no secret that a divorce can get messy outside the dental practice, so you’ll want to make sure it doesn’t trickle into your business affairs. Maintain integrity and character throughout as to not affect the goodwill of your practice.

What’s next?

Contact the experts at Professional Transition Strategies to help make sense of what steps to take now.

How to Manage Multiple Locations

You’ve been bitten by the entrepreneurship bug and have started to wonder if purchasing additional dental practices is your next move. But first, you’ll need to understand what’s involved in owning multiple locations. Here’s how to get your gears moving.

Ask the right questions

Start thinking: Do you have an admin who will oversee and manage the business aspects of each location? Will you work at both locations? If so, how will your time be split up? Are you going to bring on an associate or partner (understanding that associateships are only successful 20 percent of the time, while partnerships see a 60-percent success rate)? What are the costs associated with improvements to keep both locations upgraded?

Crunch the numbers

The first consideration that should be made is the amount of operating capital you would need and to make sure you have a good banking partner. From there, you’ll need to clarify options about keeping the two practices completely separate versus centralizing the front office functions, including billing, accounting, and scheduling. Determine how you will increase effective cash flow, by focusing on new patients, efficient equipment, better technology and software, and minimize outflow. Additionally, don’t forget the additional cost of advertising and having an online presence.

Assess the location

The success of a second location hinges on just that: its location. Assess the area growth and population, as well as the competition around you. By placing an additional location in a separate socioeconomic area other than that of your primary practice, you may see that while one practice is slow, the other is booming.

Staff accordingly

Simply put, you can’t run two or more offices by yourself, even if you plan to practice at multiple locations. The staff can travel with you, but depending on your growth plan, it may make more sense to have certain staff members exclusively at the different locations, such as admin personnel, other dentists, hygienists, and dental assistants.

Count your inventory

Creating an inventory system that keeps all office supplies in one location and extra medical supplies in another will only make everyone’s lives easier. What’s more, investing in technology at the same time will ensure you can manage multiple locations from a central location or database. Consider automating your billing and digital staff scheduling systems at the same time so everyone is on the same page.

Consider all options

Starting from scratch isn’t the only way to grow your practice. Consider strategies that involve either an acquisition or de novo startup, both of which have their perks, but understanding the consequences of either will ensure more pros than cons. Alternatively, consider merging your practice with an existing practice to get an influx of patients without the overhead of another office.

What’s next?

Ready to take the next steps? Contact the experts at Professional Transition Strategies to figure out which path is right for you.

Top 4 Vacation Destinations for Dentists

No matter if you’ve been a practicing dentist for five years or 50, ’tis the season to start thinking about a holiday or even early spring break. But where to? Here are some of our top suggestions, broken down by activity of choice.

Golfing

If your idea of relaxation includes greens as far as the eye can see, consider a trip to the Fairmont Scottsdale Princess in Arizona, The Cloister in Sea Island, Georgia, California’s Pebble Beach Resorts, or the ever famous Torrey Pines in San Diego.

Skiing

Hit the slopes at one of North America’s top resorts, like Hotel Talisa in Vail, Colorado, neighboring The Charter at Beaver Creek, Utah’s Waldorf Astoria Park City, or the Fairmont Chateau Whistler to the north in British Columbia.

Hunting

Think rustic luxury when looking at Three Forks Ranch in Savery, Wyoming, Barnsley Resort in Adairsville, Georgia, or River Rock Lodge in Pierre, South Dakota.

Fishing

Visit the great outdoors at Talon Lodge & Spa in Sitka, Alaska, the Florida Keys’s Hawks Cay Resort, or British Columbia’s Walters Cove Resort.

What’s next?

Need some light reading on your travels? Catch up on Insights blog posts, and be sure to check out the e-books “Strategies for Transition” and “Transitions: Your Next Adventure Awaits” from Professional Transition Strategies during your downtime.

 

How to Work Smarter, Not Harder at Your Dental Practice

Whether you’ve recently purchased a dental practice or are even a few years out from retiring, everyone’s goal should be to work smarter, not harder to avoid potential burnout. Here’s how to make sure you’re getting the most out of the hours in your week, months, and years.

Know your numbers

It’s important to note that even though you may own a high-production office, that does not mean you are necessarily successful. Calculating your office overhead will then, in turn, help you understand your bottom line. For example, if you gross $2 million but have 80 percent overhead, your net profit is only $400K, while conversely, a $1 million practice with only 50 percent overhead is profiting $500K.

Ask leading questions

Getting to know your patients and their needs is as easy as asking “What would you like to change about your smile?” The answer is almost always “a whiter smile.” Showing them the shade chart to illustrate where they are now and where they want to be can start the discussion of teeth-whitening options, whether it is in the office, at-home bleach trays, or crowns or veneers. Initiating this brief conversation could generate an easy profit.

Offer a variety of products

Give your patients the ability to shop inside your office, such as a few various brands of power toothbrushes as part of a daily care regimen or an oral irrigator for those reluctant to or who need to floss. Additionally, for adults who experience hypersensitivity or a high caries rate, offer an in-office fluoride treatment and xylitol gums and mints at a minimal expense.

Manage schedule efficiently

A properly trained front staff leads to fewer unfilled appointment blocks that aren’t bringing in any revenue. Appointments should be scheduled from noon backward and prioritized based on the level of care needed and time required for each patient. Automate as much of the process as possible by confirming all appointments by text or email and sending messages based on a patient’s individualized care plan. Any last-minute cancellations can be filled by sending out a mass text or email to a patient wait list, rather than making individualized phone calls.

What’s next?

Read up on more ways to properly manage your dental practice on our Insights blog, then contact the experts at Professional Transition Strategies for more advice.

What To Do When Your Dental Practice Is Too Busy

Is your number of active patients—those who have visited the office in the last 18 months—more than 2,500 when 1,500 active patients is considered full capacity? Are you booked 80 percent of the time with a six-month advance? Then it may be time to implement a plan of action for a more manageable workload. Here are some suggestions to help get you started.

Manage your schedule

The two most common areas of stress are too many patients and booking patients too far in advance. The answer is to consolidate your appointments. Try treating patients in as few appointments as possible, perhaps by planning to do a querent or half mouth an appointment.

Delegate

Doubling as a business owner, it’s easy to get lost in the day-to-day responsibilities that are, in theory, easier for you to handle than to delegate. Leave the high-level tasks to yourself while passing off other responsibilities to your staff.

Raise your fees

Raising your fees in increments of 10 percent will go unnoticed by most patients. Those patients that are lost by the increase will be offset by the revenue gained.

Bring on an associate or partner

If the workload is still too much to manage, consider enlisting help. However, bringing on an associate or partner should never be done to build up a business. Only then should you consider whether or not your office has the physical space to accommodate another doctor. (Read more on the differences between an associateship and partnership here.)

Reevaluate insurances

When all else fails or isn’t enough, it’s time shop different insurance companies. Compare the list you accept, and measure based on which generate the most revenue.

What’s next?

Read up on more strategies for better managing your practice on the Insights blog, then contact the experts at Professional Transition Strategies to help implement a plan.

Dental Practice Transitions, by the Numbers

You’ve kept up with the Insights blog; you’ve taken the dental practice transition quiz. Now it’s time to learn even more about the process by way of a cheat sheet broken down by the numbers.

1,500

Number of active patients considered full capacity for a single dentist. Any more, and it may be time to consider taking on an associate or partner.

680 

Credit score that is favorable to getting a better business loan.

80

Percent of goodwill that contributes toward the overall value of your practice.

150 

Hours it takes to sell a dental practice, which is one of many reasons to hire a professional broker.

15

Minimum number of days patients and staff should be notified about the sale of a dental practice.

30

Percent of dental practices that will belong to a dental service organization by 2021, as predicted by the American Dental Association.

5

Years out you should start thinking about a retirement plan.

20

Pages that make up a prospectus, broken down into different categories of interest to the buyer identifying the areas that potentially need attention.

99

Percentage success rate of a buy-out, versus 60 percent for a partnership and 20 percent for an associateship.

What’s next?

Read the e-book “Strategies for Transition” to learn more about the different dental practice transition options, then contact the experts at Professional Transition Strategies to learn more.



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