fbpx

How Much Is My Practice Worth?

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.

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.



Contact Us

Completed 200+ Transitions in 37 States