January 30, 2019

Buy-In versus Buy-Out: Which Is Right for You?

When looking to transition into a dental practice, the options are not often mutually exclusive. In fact, one type of transition can lead to another, as in the case of a buy-in to buy-out when the senior doctor is looking to hang up their proverbial hat. It’s helpful to know how each works upfront, though. Here are the similarities, differences and overlaps of a buy-in to buy-out.

Agreements

A buy-in typically refers to an associate becoming a partner (which covers more than 100 points in the agreement), while the selling doctor can stay on board as a long-term associate with a buy-out, allowing the doctor to give up autonomy but not employment (who can, in turn, be terminated). In addition to noting if the practice will be structured as a single corporation with all doctors as co-shareholders or if it would be a partnership or limited liability corporation (LLC) with the dentists as partners, the following agreements should be put into place:

Income allocation

Will revenue be allocated to the dentist who did the work, or will all or some of it be split based on ownership, fixed percentages, or a hybrid model in which doctors are paid as employees based on the percent of procedures complete and net income split on a prorata share of ownership?

Expenses

Expenses that are personal should be outlined, broken down and paid by the doctor who incurred the expense, such as meals, auto, travel and education.

Buy-sell

Agreements should be included to address what will happen if one dentist leaves the practice, including insurance policies that will help with the decision. Is it mandatory for the other doctor to buy out the departing doctor, or will they simply get the first right of refusal?

Real estate

Does the senior dentist own the real estate? If so, will the junior partner have a rental rate, or will they have the option to buy in to the real estate, as well?

Valuation

The best way to value a buy-in is to appraise the practice from day one so everyone understands the starting value and reappraising the day of the transition, then averaging the two. That way, the seller takes advantage of the risk of an associate, and the buyer doesn’t have to pay double for the growth of the practice in the interim.

Timeline

Each transition strategy comes with its own timeline. A buy-in takes place over a long period of time since the partnership isn’t set up for a year, but a buy-out can happen essentially immediately with the sale of a practice.

Success rate

While both strategies work, it’s important to note that a buy-out has a 100% success rate since there is a guaranteed sale. Even if your future isn’t guaranteed since control of the practice has been given up, you gain more flexibility by becoming an employee rather than the owner. What’s more, dental service organizations (DSOs) use this strategy to attract dentists to their groups.

Endgame

The bottom line is the best partnerships have to be built on communication to be successful, so ask yourself if the practice is big enough to have two happy partners so as to not set yourself up for failure. However, while most dentists want long-term associates to lead to buy-ins, many theories say otherwise, including one from the book “Blink” by Malcolm Gladwell, which makes the comparison that arranged marriages have a better success rate than traditional marriages. Most decisions can be made extremely quickly, and initial impressions won’t change after additional thought or data is given.

What’s next?

Read up on more buying options in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at Professional Transition Strategies to start the conversation.

January 25, 2019

6 Perks of Buying a Rural Dental Practice

When buying or starting a dental practice, it’s easy to be drawn toward big-city or metropolitan areas. After all, more people equals more money, right? Not necessarily. One in 10 dentists practices outside of a 30-minute radius from a large city, and for good reason. Here are some perks worth considering if you’re in the market.

More complex cases

For better or worse, rural towns tend to have more complex cases. That is, dentists trend toward seeing more restorative work versus preventative treatment, similar dental procedures to that of urban practices, such as dentures, crowns, bridges, onlays, inlays and dental implants.

More patient demand

Statistically, less competition as fewer dentists are gravitating toward major cities and suburban areas means more patient demand, which equates to a better financial outcome in the long run for the practicing dentist.

More economic and buy-in opportunities

Established practices in rural areas offer more economic and buy-in opportunities simply because existing clinicians are doing well financially and, therefore, don’t have to put off retirement. Similarly, while many young graduates are having a harder time finding associate-to-buy-in opportunities, less competition means more economic opportunities.

Accelerated loan forgiveness

In areas with dental shortages, some states offer accelerated loan forgiveness based on the number of years a doctor practices in a shortage area. What’s more, in reducing your debt, you’ll be able to purchase a practice in a less-competitive market at a competitive price, resulting in a better return on your investment.

Lower overhead, higher net profit

Lower cost of labor, lower occupancy costs, lower rent and office costs, lower housing, and comparable dentistry fees to urban areas all contribute to lower overhead costs, which, in turn, results in a higher net profit for the practicing dentist. And, contrary to popular belief, most rural or small-town practices have updated facilities and high-end equipment.

Better goodwill

It’s no surprise that smaller towns come with a slower pace, allowing you to build a stronger connection with your patients that then translates into goodwill for your practice in the community while also significantly increasing your level of job satisfaction.

What’s next?

Read more about the buying process in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at Professional Transition Strategies to find a rural dental practice for sale in your area.

January 16, 2019

5 Considerations when Sharing a Dental Office Space

Transitions aside, an often-overlooked option is to share an office space. Renting out under- or unutilized office space can come with its financial advantages if done correctly. In locations that are more densely populated and with greater competitive saturation, just by joining forces, consolidating operations, minimizing facility costs, bundling overall expenses and maximizing production, an additional 14% can be made on the bottom line. However, like with any leasing agreement, there are factors to consider to ensure you aren’t costing your dental practice money or goodwill. Here are some considerations to take into account before signing any agreements.

Share the load

A space may be underutilized if there are multiple unused operatories or the current doctor only works a few days a week, leaving the office closed for many days. Renting out space to another doctor will also provide emergency patient coverage while one doctor is away.

Save on costs

Taking on a tenant to help reduce overhead will only help increase income, not to mention the ability to upgrade equipment through a shared cost with the lessee, while also offering additional networking and business opportunities for both parties.

Provide a test-run

A lessee is afforded the opportunity to save on business expenses in terms of equipment and office space until they build up their own practice. Along the same lines, the leasing doctor is able to test out success rates in specific geographical areas before opening their own practice doors.

Draw the line

Just because you are sharing space, does not mean that you are also sharing patients. It is important to know the difference between a spaced share versus an associateship or partnership as it can be harder to sell your practice if you already have a space share in place.

Crunch the numbers

Have an attorney with health care law experience draw up a legal contract before the commitment is made, including duration of and terms of lease, termination and renewal terms, conflict resolution, insurances accepted, outline of equipment sharing and maintenance costs, any shared staff or office number, and schedule for the shared space.

What’s next?

Contact the experts at Professional Transition Strategies to learn more about different space-sharing opportunities to find out if this option makes sense for your dental practice.

January 9, 2019

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%, compared to an existing practice in which you can expect a profit from day one but an expected 7% to 10% 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.

January 3, 2019

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 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 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 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 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.