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How Much Is My Practice Worth?

How To Assess Your Dental Practice Competition

Not assessing your competition is a missed opportunity when establishing your dental practice. While competition can make profitability challenging, being smaller and more innovative positions your practice to be purchased by a larger more conventional practice looking to add products and services, and sales to larger competitors are normally quite lucrative. Here’s why and how to get a feel for where you stand.

Competitive market analysis

Create a list of competitors based on specialty or geographic area, including types of products and service lines, expected market share, marketing strategies, and notable strengths and weaknesses. This will help managers account for the presence of competitors when making business decisions, identify the strengths and weaknesses of competitors, and exploit
weaknesses, emulate strengths, or avoid competing in areas where other companies are especially strong. Market analysis should be conducted on an overall basis, as well as a more localized competitive analysis.

Online resources

For better or worse, online reviews and rankings on Google, Yelp, and Facebook can give a clear view of public opinion. Then, utilize online resources to develop your analysis to determine if the information you are basing your decisions on is valid.

Business plan

Create a strong business plan by outlining all aspects of your practice, including mission, goals, structure, and service lines, while also assessing your financial information. Also consider if you are a specialist, your referrals, and if they already have an established relationship with the competition. How can you use that information to gain a competitive edge?

What’s next?

Contact the experts at Professional Transition Strategies to start a business analysis and get a leg up on your competition.

How and Why to Grow Your Dental Practice

You’ve noticed that the revenue of your dental practice is declining or simply staying the same year after year. What do you do to start growing again? Here is some advice to get you headed back in the right direction.

Increase marketing

Intuitively, there is a direct correlation in practice growth with an increase in marketing. This includes campaigns such as patient referrals, postcards, digital exposure with audience geotargeting, and capitalizing on your unique selling proposition.

Evaluate costs

Any talk of budget should include evaluating expenses, such as supply and lab costs, while still maintaining quality. Leverage your buying power by negotiating price and terms and bidding out your business to encourage competition among suppliers and labs. Also consider ordering in bulk or simply scaling back on occasional-use items.

Expand services

One of the most efficient and profitable ways to grow your general practice is to bring on a specialist or multiple specialists. Do you tend to refer out a significant number of implant placements or simple extractions? Bring more services in house to limit how much you are outsourcing to others.

Focus on quality

Above all, don’t forget to connect with your patients on a personal level. Nothing can replace quality care and their experience over time. What’s more, by focusing on recall numbers, reducing the number of appointment cancellations and no-show appointments, and increasing your case-acceptance percentage, you can grow your production numbers and increase your bottom line.

What’s next?

Whether purchasing a dental practice in need of growth or working within your existing practice, contact the experts at Professional Transition Strategies to figure out your next steps for growth.

Transition Timeframes and Factors that Contribute to Them

One of the contributing factors and most commonly asked question when it comes to dental practice transitions is “How long will this take?” As with any business transaction, the answers are not cut-and-dry. Here are some transition timeframes and the factors that contribute to them to help guide your decision.

Buy-out: 0–365 days

A buy-out is the quickest and most predictable transaction with the search being dependent upon marketability and location of practice. In a buy-out, the senior doctor is looking for someone to take over the entirety of his or her practice but can choose to stay on as a long-term associate, contributing to the transition period. Once a buyer is found, the success rate is close to 100 percent.

Buy-in: 1–4 years

A buy-in is essentially a short-term and defined associateship period that is approached from an owner time set, not employee. While the majority of the time is spent finding the right fit, the buy-in should occur within one year after the getting-to-know-you period. A roadmap is established upfront with all the material facts about the transition to make the process more predictable and the time horizon to be more defined.

Merger: > 2 years

The longest part of this transition is finding two clinicians who are not only compatible, but also have a similar timeframe and geographic location, both in terms of real estate. Though not always the case, in most mergers, one facility is kept while the other is relocated. However, the operational side can be as quick as a buy-in as only purchase documentation and operational agreements are required.

Affiliation: < 3 years

Similar to a merger, with an affiliation, the doctor will most likely stay on for a period of time with the buying dental service organization or group, depending on the practice type and location. Also similar to the search process of a buy-out, the operational process for an affiliation can be even quicker even though there is more due diligence as they are familiar with the process, compared to a first-time individual buyer.

Associate: 5 years

On paper, taking on an associate is normally the fastest route as there are often a lot of prospects; however, with a one-in-five success rate, timing can be unpredictable finding the best match for your dental practice. While the search can be the quickest part at about one month, the operational part of having that person buy in can take up to a year and ultimately might not work out in the end.

Private equity investments: > 5 years

The underlying goal of this transition is to make sure the practice is big enough that a private equity group would be interested in funding it. Private equity groups are constantly searching for the right practice and can close as fast as any DSO or individual once the correct partner with a solid platform is found. However, the majority of the time is spent because the doctor would need to stay on board for at least five years since it is the business they are looking to take over.

What’s next?

Read up on the different options for dental practice transitions in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to start the conversation.

Webinar: “The Secrets of Practice Brokers — How to Buy a Practice”

Every so often, Professional Transition Strategies hosts a webinar for buyers to learn more about the transition process. On February 13, a webinar geared toward buyers detailed the steps and options when considering buying a dental practice. Here are the key takeaways.

Decide where you want to go

The most important decision you can make is to choose a location for your future dental practice since dental practices are hard to move. Your decision should be based on prospects from brokers and demographic reports, as well as building type, such as retail, office condo, high-rise building, hospital, medical/dental complex, or stand-alone building.

Build an advisory team

Based on the type of transition you wish to pursue, a good advisory team will make the whole process painless and help achieve the goal of 99.7 percent success rate for a loan. Start with getting prequalified before submitting all the paperwork needed for approval. A good broker cycles through banks based on location and deals from clients, as well as gives back any kickbacks to the client or local charity.

Practice due diligence

Your advisory team will help guide you through the auditing process, including charts, equipment, technology, and finances, after first completing a prospectus and submitting a letter of intent outlining the purchase price, close date, and details for after the transition. This will then help to calculate the return on your investment.

Know your deal-breakers

After finding the practice of your dream and leveraging your team in the due diligence, auditing, and contract processes, you’ll want to weed through the advice to learn what your deal-breakers are. Fraud being the most obvious, the list goes on to include equipment or technology in disrepair, unacceptable quality of dentistry, and any other aspects that can’t be worked out contractually or financially.

Sign the contracts

A proper attorney will help you sign on the dotted line with confidence while helping you to know what you’re looking for. For example, an asset/stock purchase agreement will include details about a noncompete, rework, liens and liabilities, accounts receivable, and the allocation of purchase price between goodwill and assets. Other paperwork will include an operations agreement, real estate, seller-carried financing, and an employment agreement.

Close the deal

Remaining items include the bank’s final loan approval, setting a closing date, and signing the documents. What’s more, you’ll want to verify that you are credentialled with all insurance companies you want to keep and set up your bank account with a copy of your bill of sale so you can deposit checks
made out to the seller in your account.

Don’t change a thing

It can be easy to get excited and want to overhaul everything to make it your own as soon as you take over a practice, but the best advice is to wait at least six months before making any changes after you’ve had a chance to debrief the transition with your adviser and learn which changes actually need to be made and when.

What’s next?

Learn more about the dental transition process in an upcoming webinar, then contact the experts at Professional Transition Strategies to learn about the next steps.

4 Steps for Practice Success

Regardless of your transition goals, it’s never a bad idea to hire a consultant to take a step back and evaluate your practice. Where do you stand, and where could you afford to go? Start envisioning your dream dental practice now, and follow these four steps along the way.

Evaluation

When hiring a consultant, the first step is a deep analysis of a practice’s business procedures and value on the market. The in-depth analysis includes as many site visits as necessary to collect data and assess the situation first-hand. The end result is a written document in booklet form that discusses in detail every business aspect of the practice, including effectiveness against potential in production, collections, and marketing. A full appraisal values the practice in its present state, in addition to an assessment of the doctor’s personal retirement planning, if appropriate, as well as recommendations to improve business operations where advisable and to raise the overall value of the practice. 

Strategic Planning

The analysis provides a guide from which to determine the best course of action to pursue. There is no one-size-fits-all solution so a custom-tailored approach is taken to present many options depending on the direction the doctor wants to take their practice. Solutions are then discussed during a practice solutions meeting when the physician or doctor will determine where they want their own practice to excel and will budget their time and effort accordingly. 

Implementation

A strategic plan will only get you so far; the steps must be put into place while being walked through the process. A custom-tailored program is designed by the doctor and implemented by the consulting team working with the doctor and their staff. Acting as a true partner in the process, the consultant implements the ideas in a yearlong program to help build the practice of your dreams, whether that means bringing more patients into the office, determining financial arrangements, building a high-quality team, or transitioning your practice.

Consulting

Consulting is not the process of determining what is wrong, what the solution is, or even the implementation of a change. True medical or dental practice consulting not only includes all those steps, but also manages the change over time. This long-term care is the exact type of care that you give to your patients. An experienced consultant will be able to navigate the mature relationships, expertise, drive, and partners who will be able to ensure the doctor of the realization of the practice’s goals and growth.

What’s next?

Contact the experts at Professional Transition Strategies to figure out your next steps and start assembling your transition dream team.

How to Start a Dental Practice Roll-Up

When it comes to dental practice transitions, the end game should always be the most lucrative option your timeframe allows. In a roll-up, multiple dental practices are combined under one entity in a group to maximize the economies of scale. A well-laid roll-up plan will then receive a higher valuation when the practice is purchased. Here’s how to start a dental practice roll-up plan.

Determine size

Dental practices can be combined by a central group taking over all the business processes while the practices have a management service contract back in the case of a dental service organization. But smaller roll-ups can also occur by taking underperforming practices, purchasing them at a lower price, and putting in best practices. Those practices may then remain their current location or move to a central location, depending on the owner’s strategy.

Take your time

With a roll-up, it typically takes more than five years for the transition period to occur, including time to centralize services, move practices to a central location, and/or optimize the operations of the practice, as well as find enough practices that fit the roll-up. With enough time and capital, the owner can optimize nearly every expense line item that a dental practice spends money on.

Grow accordingly

As the practice grows, it’s important to keep tabs on growth from all aspects. Can the practice operate in the original space if large enough, will additional offices need to remain in place, or will all practices move to a larger space? What’s more, will the combined practice require additional staff? If so, all can either be fulfilled by normal hiring practices or from the acquired practices, such as associates, partners, and/or hygienists.

Consider investments

The most in vogue way of starting a roll-up is to set up a DSO that will allow for outside investments beyond what a bank can provide. However, a roll-up can be accomplished without a DSO and just be a group practice. This will just limit growth potential, so it’s worth considering both options before starting the dental practice transition process.

What’s next?

Read more about the roll-up dental practice transition process in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to put your steps in place.

How to Roadmap an Associate-to-Buy-In Dental Practice Transition

The roadmap to any dental practice transition can take many forms. In the case of an associate-to-buy-in strategy, a potential buyer is courted from a group of associates to buy-in over a period of time to ensure compatibility and allow time to figure out the future of the practice rather than deciding from the outset. Here’s how to get the ball rolling.

Get it in writing

If ownership is your goal when starting as an associate within a practice, a written plan or roadmap should be in place from the start of employment to limit the amount of gray area. By having everything outlined and in writing prior to the date of purchase, the process will be seamless and effortless when the time comes to officially buy-in. Likewise, the current owner should also have a written plan to limit their liability and chance that the associate leaves because their expectations are not being met.

Take your time

While this transition is the longest approach, lasting at least five years, it is the most flexible as long as division of power is taken into consideration. This allows time for all parties to figure out their compatibility and working relationships, as well as for both the seller and the potential buyer as all the contracts are agreed upon at the start as is the timeframe for the transition. Many times, the contracts can be signed before as well so that the deal is “essentially done” even though it may be a year or more before the transaction actually consummates.

Plan your timeline

Part of your outline should include when and how the buy-in will occur. With a roadmap, there can be a certain amount of years the doctor will be an associate before buying in or it can depend on predetermined growth benchmarks. Either way, exit strategies should also be included so that all doctors are able to exit gracefully and with little financial impact.

Know your worth

Completing a practice valuation from the start will only provide a better understanding of the amount of growth the associate is responsible for to ensure the associate is not paying for their contribution to the increased value of the practice. A second valuation is often then conducted on the day of the transition, and the two valuations are averaged so that the associate does not “double pay” for the work they have done and the seller is compensated for the risk of having a high priced employee on board.

What’s next?

Read more about the associate-to-buy-in roadmap in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to put your steps in place.

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 his or her 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 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 percent 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 use this strategy to attract dentists to their groups.

Endgame

The bottom line is that the best partnerships have to be built on communication in order to be successful, so ask yourself if the practice is big enough to have two happy partners 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.

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 ten 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.

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 percent 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 leesee, 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.



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