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How to Get a Return on Your Dental Practice Investment

Purchasing a dental practice is no easy task, but it’s only the beginning of the hard work you’ll need to do to see a return on your investment. Whether the practice is new or existing, opportunity cost should drive all your post-buying decisions. Here’s how you can ensure ROI is top of mind.

Time value

At the top of your considerations list should be the theory that a dollar in the bank today is worth more than the expectation of receiving a dollar in the future. In other words, spending and earning wisely now will only pay off in the long run.

Loan payment

Like taxes on your mortgage, interest on your loan payment can be written off as a deduction. Consider taking out a longer-term loan with lower payments to increase the cash flow of the practice, similar to taking out an insurance policy.

Tax advantages

Along the same lines, maximizing tax advantages with every decision will only pay off every year. For example: While all assets depreciate in value over time, Section 179’s Depreciation Schedule allows you to depreciate all assets up to a certain amount in the first year so that no taxes will be paid, in most cases. (Note: Associates don’t receive the same type of tax advantages as the practice owner.)

Cash flow

When purchasing an existing dental practice, cash flow should be analyzed by the income stream of the practice, the compensation necessary for the purchasing dentist, and any obligations incurred, no matter if you are looking at the loan for the actual purchase of the practice or any other working capital needed for equipment, supplies, or anything else to get the practice ready for operation.

Sole proprietorship

Rather than taking the safer route working as an associate or for a dental service organization that will only provide a commission for the work you do, owning your own practice will only maximize the investment of your dental degree because you’ll not only receive a commission but also a profit component.

Prospectus

When working with the experts at Professional Transition Strategies, an approximate ROI equation for the purchase of the practice is included in each prospectus, which adds up the compensation of the doctor, any adjustments made for non-business-related expenses, and net income distributions. The remaining amount is an approximation of the cash flow or immediate ROI available to the purchasing doctor.

What’s next?

Read up on the buying process in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at PTS to help guide you through the process.

4 Steps to Selling Your Dental Practice

A successful dental practice transition doesn’t happen overnight. In fact, a well-laid plan to sell your dental practice should start as early as five years out, depending on whether you’re looking to retire or bring on a partner. Here are the steps you should take to sell your dental practice.

Hire a broker

A qualified broker will perform a complete appraisal on your practice, help you understand your options in terms of a timeframe for the sale, offer advice on how to increase the value of your practice, market your practice and reach out to potential buyers, and schedule showings of the practice, as well as ensure you are still concentrating on the health of your practice. (While most brokers charge a fee, Professional Transition Strategies can occasionally perform these services at no charge.)

Vet potential buyers

A non-disclosure agreement is signed by every potential buyer who inquires about your practice, after which time a prospectus is sent. A conversation between the potential buyer and broker then takes place to answer questions and gain a better understanding of the buyer’s intent. If the practice is deemed to be a good fit, a letter of intent is submitted, which typically takes 10 days.

Due diligence process

Once the seller and buyer agree to the terms, the due diligence process begins, which can take anywhere from 30 to 45 days. PTS can provide a checklist of the due diligence process for the seller that includes a breakdown of the practice corporation, personal funds, and treatment of accounts receivable, in addition to real estate, insurance, and licensing.

Notifying patients and staff

In order to preserve the relationship with your patients and staff, you’ll want to tread lightly when announcing the transition. Staff should be notified 15 to 30 days before the closing, whereas patients and referrals should only be notified after the closing date.

What’s next?

Read our e-book “Strategies for Transition,” then contact the experts at PTS to start the process of selling your dental practice.

Quiz: How Well Do You Know the Dental Practice Transition Process?

You’ve kept up with our blog; now it’s time to put your dental practice transition knowledge to the test. We’ve put together a 10-question quiz that covers everything from the different types of transitions to the factors that contribute to the “goodwill” of your practice. The prize for a perfect score? Priceless information to help guide you through the dental practice transition process.

How Well Do You Know the Dental Practice Transition Process?

 

1.) Which of the following is a top reason to sell your dental practice?

a.) Retirement

b.) Maximize management responsibilities

c.) Marriage or divorce

d.) None of the above

 

2.) What is one way to increase the value of your practice before you sell?

a.) Limit services

b.) Sell equipment

c.) Lower expenses

d.) Increase expenses

 

3.) Who is buying dental practices?

a.) Dentists looking for an additional location

b.) Dental service organizations

c.) Associates

d.) All the above

 

4.) What is one consideration you should make when relocating your dental practice?

a.) Smaller square footage

b.) Proximity to competition

c.) Overhauling equipment and building

d.) Maximizing downtime

 

5.) When should you start thinking about a pre-retirement plan?

a.) 3-5 years

b.) 5-10 years

c.) 10-20 years

d.) Never

 

6.) How should you notify your patients of a dental practice transition?

a.) When they show up for their next appointment

b.) Joint letter to patients and newspaper announcement

c.) Changing the name of the practice

d.) None of the above

 

7.) What changes could you make after a dental practice transition?

a.) Discontinue supplies

b.) Bring more specialty work in-house

c.) Lay off employees

d.) Sell patient list

 

8.) What is one factor that does not contribute to the valuation of a dental practice?

a.) Office hours

b.) Return on investment

c.) Accounts payable

d.) Equipment

 

9.) What factors contribute to the “goodwill” of a dental practice?

a.) Community status

b.) Patient relationships

c.) Staff loyalty and longevity

d.) All the above

 

10.) Which of the following is NOT a type of dental practice transition?

a.) Buy-in

b.) Associateship

c.) Distribution

d.) Merger

 

Answer Key:

(1.) A. Retirement; (2.) C. Lower expenses; (3.) D. All the above; (4.) B. Proximity to competition; (5.) A. 3-5 years; (6.) B. Joint letter to patients and newspaper announcement; (7.) B. Bring more specialty work in-house; (8.) A. Office hours; (9.) D. All the above; (10.) C. Distribution

 

To learn more about the transition process, check out a few of our previous blog posts:

Why should you sell to a dental service organization?

How can you lower your dental practice overhead?

What are the sections of a dental practice prospectus?

What types of dental practice agreements will you enter?

Who should you have on your team of advisors?

How should you choose a lender?

What questions should you be asking yourself before selling your dental practice?

What considerations should you make before starting a multispecialist dental practice?

What questions should you be asking your buyer?

How can you ensure a successful dental practice transition?

What options are available for dental school graduates?

10 Steps to Buying a Dental Practice

You’re ready to start the dental practice buying process. But how? Before getting the keys turned over to you, there are a few steps you’ll need to follow first. Here’s what you can expect from the transition process.

Get pre-qualified

Providing your net income, stress, and how much debt you can handle to your bank will help gauge your debt-to-equity ratio, debt-to-income ratio, and credit score.

Make an offer

While approval by the bank will be dependent upon the type of practice you are considering, getting pre-qualified before making an offer will give you a ballpark for what you can be backed for financially.

Perform a practice analysis

Allowing adequate time for a practice analysis—sometimes as long as a year—can lead to a better understanding of the type of fit for your qualifications, both personal and financial.

Work with a broker

A good broker should be a part of your transition dream team, making sure all the agreements are in place and identifying ahead of time any issues that may arise.

Present letter of intent

The official offer letter is not actually a legally binding document but rather expresses your intent to follow through with the transaction.

Negotiate

As with any private sale, price, terms, and closing date are all on the table between the two parties.

Initiate due-diligence process

Getting all your advisers in one place to review the financials and various aspects of the transition will leave little room for error in the long run.

Outline asset purchase agreement

In a straight buy-out, it’s important to outline what assets are included in a practice—most notably, the equipment.

Assess operating agreement

In the case of a partnership or merger, it’s important to determine 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.

Complete practice loan

This is where 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?

Read more about the steps of a transition in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at Professional Transition Strategies to streamline the buying process.

5 Steps to a Pre-Retirement Plan

Any business owner will tell you retirement doesn’t happen overnight. A well-planned retirement from your dental practice can start as early as five years out. Here are some suggestions to help grease the wheels in the meantime.

Valuation

You don’t need to wait until you’re ready to sell to start the valuation process. Valuating your dental practice before retirement is on the horizon will give you an idea of how much it’s worth and what you need to increase (production, collections, or otherwise) in order to pay off your loan, if you have one.

Scale back

If you’re looking to cut back leading up to retirement but can’t stop collecting or increasing services for financial reasons, consider hiring on a dentist to moonlight or even take on a partner, depending on the size and value of your practice (above or below the $1.2 million mark).

DSO affiliation

In order to get more flexibility by releasing the office management and HR of your practice, consider affiliating with a dental service organization at the peak of your production. While this isn’t an option for everyone since each DSO has its own practice profile or practice requirements (including collections, EBITA, number of ops, location, and type of dentistry), you’ll get a higher valuation and be able to completely retire in a couple of years when the time comes.

Resale

Not every dentist will make money when looking to retire the business. Smaller practices might benefit from reselling equipment and charts separately rather than as a whole entity. Selling patient records is often recommended when a dentist wants to increase production in a short amount of time.

Improvements

Hiring a real estate professional through PTS will help you evaluate the time remaining on your lease to renegotiate lease terms or sale of the building and advise on any upgrades or other improvements that would add to the value of the practice.

Equipment

It may seem counterintuitive to replace equipment when thinking about selling your practice, but upgrading or overhauling large equipment if you’re more than five years out from retirement will help get your money’s worth out of it. Similarly, equipment with technology (X-ray, intraoral cameras, etcetera) can be upgraded within three to five years before it becomes obsolete.

What’s next?

Start thinking more about retirement with the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to begin the valuation process.

7 Changes to Make After a Dental Practice Transition

No two dental practice transitions are alike, but there is one hard-fast rule that buyers should follow across the board: Don’t make any changes after acquiring a practice for at least six months, no matter how smooth the transition, if you want to keep patients and staff happy. What’s more, it is to your benefit to get a feel for the practice and how (and why) the previous dentist operated before making any changes. Once everyone feels settled, here’s how to proceed.

Go digital

When it comes to radiography, intraoral, and any recordkeeping for that matter, transitioning over to electronic software will only pay for itself in the long run. Not to mention, all successful dental service organizations also wait at least six months before changing practice management software.

Equipment and supplies

It may be tempting to update equipment and supplies when first taking over a dental practice, but waiting will not only allow you to become familiar with the equipment but also give you time to price out other dental suppliers.

Procedure types

Branching out to include additional procedure types or eventually become a multispecialist dental practice is a well-laid plan over time, as long as patient care and need are at the top of your consideration list.

Marketing strategy

Your new practice will need a marketing strategy that is specific to its staff and client demographics rather than carrying over a plan from the previous owner. That said, any good marketing strategy takes time to plan in terms of reach and return on investment.

Staff

What worked for the previous owner might not for your new practice, especially if bringing on your own staff. Consider hygiene and operative schedules, as well as a different payroll strategy for staff, including benefits, dates, and pay rate.

Insurances

Once the dust has settled, it’s a great time to start shopping other insurance companies to make sure you’re offering the best coverage for your patient base, while also opening the door to new patients.

Facility improvements

One of the easiest and least expensive changes to make is giving the facility a facelift by changing paint color or cabinets and countertops. While you may want to make these changes right away to make the practice your own, it will be to your advantage to get to know the space first, while also not making too many visual changes upfront that may turn off existing patients.

What’s next?

Read about more changes to consider on our Insights blog, then contact the experts at Professional Transition Strategies to help facilitate the process.

How To Notify Your Patients of a Dental Practice Transition

A successful transition of a dental practice should always keep the best interest of the patients in mind. Financing and purchase price depend on patient retention after the sale, which is why notifying your patients needs to be done properly and in a timely manner. A properly crafted exit strategy should include these key elements.

Patient letter

Send a letter as soon as the deal has gone through to your current patient base (both active and inactive) stating your reason for the sale (retirement or otherwise) and introducing the new dentist, including their qualifications and background. Additionally, the new dentist could send their a follow-up letter introducing any new staff or changes to standard operating procedures.

Open house

Inviting patients to a social hour, typically held during non-business hours, is a great way for patients to give their well wishes to the seller and meet the buyer. Dentists who have hosted these types of receptions have reported at least 20 percent of their patient base attending.

Profile photo

Something as small as placing a photo of the buying dentist in the lobby with an accompanying bio will help put patients at ease when being welcomed into the office after a transition, affording another opportunity for patients to learn about the incoming dentist.

Newspaper announcement

A joint announcement in the local newspaper will help to involve the community in the transition, perhaps even driving new business to the practice with the added exposure.

Transition period

Regardless of the reason for the sale, the selling dentist could stay on to help ease the transition for both the staff and patients. Limited office hours for a month after the sale will give the seller the opportunity to introduce patients to the buyer and offer advice on operating the dental practice.

What’s next?

Read up on “Strategies for Transition,” then contact the experts at Professional Transition Strategies for more advice on how to ensure a successful transition for all parties involved.

3 Factors that Contribute to the “Goodwill” of Your Dental Practice

When looking to sell your dental practice, think quality over quantity. That is to say that hard assets, like equipment, are only worth what it will resell for rather than what insurance will pay for it and are therefore easy to put a price tag on. However, what makes up the majority of your practice’s value—as much as 80 percent—is its goodwill, those non-categorized assets for tax purposes that assist in the valuation process and help obtain the appropriate financing for the transaction. Here are some intangibles to focus on that will ultimately generate long-term income for a buyer.

Community status

When a dentist who has good standing in the community sells a practice, the goodwill of that practice is transferred over to the buyer. Ensuring a successful transition starts before signing on the dotted line with the practice name, location, and brand awareness and marketing.

Patient relationships

A dental practice is nothing without its patients, so it’s important to take into consideration the value of current patients who have active appointments, referring dentists, patient charts, and recall system of an established practice, all of which can’t be duplicated when starting from the ground up.

Staff loyalty and longevity

How long the staff has been with the practice can often dictate who would remain with the practice during and following the transition. With both patients and staff, notification about the sale until after the asset purchase agreement is signed and the transaction goes through will also contribute to a successful transition.

What’s next?

Read more on the goodwill of your dental practice in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to begin the valuation process.

5 Ways to Ensure a Successful Dental Practice Transition

There’s more to a successful dental practice transition than signing on the dotted line. It is a benefit to both the buyer and the seller that the process is smooth in order to maintain a reputation while keeping patients and staff happy. Here’s how.

Determine transition type

The first step is for the seller to figure out whether they want to have an outright sale of their practice or bring on an associate to transition the practice over a period of time. This will depend on whether you plan to retire or stay on after the sale of the practice.

Assemble your dream team

Avoid a direct negotiation and instead work through a broker to remove any emotions from the situation by providing a buffer between the two parties, ensuring the buyer-seller relationship doesn’t become strained during the process. Also consider hiring an attorney who specializes in dental practices, a CPA, investment and insurance advisors, and practice consultant to identify your current assets and perform a gap analysis before the sale goes through.

Read between the lines

A good broker will know the ins and outs of the entire transaction, making sure all the agreements are in place and identifying ahead of time any issues that may arise, such as how long the transition should last, how the referrals work, what hard assets should be included in the sale, and whether or not the seller should stay on to practice.

Keep up the value

The buyer is purchasing an established practice rather than starting from the ground up for a reason, so it’s important that the value is kept up during the transition. Continuing to work as a full-time dentist will ensure maximize the value of the practice and optimize exit options to increase cash flow and grow the practice, which a broker will help you manage by growing the patient base, optimizing treatment plan acceptance, and improving overall patient experience.

Notifying patients and staff

Arguably the most important step is waiting to notify your patients and staff of the sale until after the asset purchase agreement is signed and the transaction goes through. Understandably, staff can get nervous and might try to look for another job just as patients might look for another dentist. Proper protocol recommends sending a letter to patients introducing and endorsing the new dentist, perhaps even hosting an open house to meet and greet with loyal patients and staff. For staff, it might be a matter of making sure confidentiality is in place and signing a nondisclosure to ensure they don’t set up a practice next door and try to take patients.

What’s next?

Read up on the questions you should be asking your buyer to ensure a successful transition, then contact the experts at Professional Transition Strategies to keep the conversation going.

6 Considerations When Relocating Your Dental Practice

The old real estate adage of “location, location, location” also applies to your dental practice when considering a move. Whether you’ve outgrown your current space or are just looking for a change of scenery, there are other considerations you’ll want to make when looking to relocate your dental practice.

Lease versus buy

As with any real estate agreement, a lease gives you more flexibility whereas purchasing a space is more permanent and will potentially dictate the rest of your career. When looking to purchase, buy a space that was previously a dental practice or one that can easily be retrofitted to meet your needs. There’s always the option to purchase land and literally build your practice from the ground up.

Timeframe

A carefully planned timeframe is important for minimizing downtime. Stage a schedule that will allow you to operate productively in both locations with the help of a good office manager who will coordinate all the details, like how much is left on your lease, as well as scheduling patients so money is still being made during the transition.

Teamwork

Your office manager will also serve as your liaison between the real estate broker, contractor, developer, and equipment rep, regardless of whether you’re leasing or buying. As with any changes to your practice, having the right team in place will ensure a smoother transition, including proper marketing for the change.

Size requirements

Conduct an analysis to figure out how you practice now and how you want to practice to determine the best fit for your square-footage needs, while being careful not to overbuild your new practice to avoid patient blowback.

Geographic location

Any business that relocates can expect a change in client base, but there are a few ways to ensure that change is negligible. As a rule, the farther away you move, the higher the attrition rate; however, a one-mile relocation in New York City is different from one in Des Moines. Likewise, moving to a similar environment will ensure you keep your demographics unless that is a change you’re looking to make. It is also important to do your research ahead of time to make sure there isn’t a similar dental specialty practicing in that area.

Upgrades

A relocation is a perfect time to think about upgrading equipment. When it comes time to valuate the new practice, it will only increase when it’s time to sell. However, you’ll want to be careful not to overbuild your new location to avoid patient blowback.

What’s next?

Talking with the experts at Professional Transition Strategies will only ensure a successful transition when looking to relocate your dental practice. Start the conversation now.



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