October 30, 2023

5 Types of DSO Deal Structures

There is much more to selling your practice to a dental service organization (DSO) than a signature on a dotted line. Before deciding to affiliate with one, it’s important to explore other options beyond selling 100% of the practice to a traditional DSO. Good news: Because deal structures are shifting, dentists are getting more value out of these transactions than ever before. We help you scratch the surface on this group of investors and unpack everything you need to know about the different types of DSO deal structures.

100% affiliation

This is the original model for DSOs, perhaps one you’re already familiar with. In this situation, you sell 100% of your practice to a DSO and either step into a role of strictly handling patient care or even going straight into retirement.

Joint venture model

In the joint venture model, the dentist sells 60% to 90% of the practice for cash now — as early as 30 years out from officially transitioning — but retains equity ownership of 10% to 40%. The type of equity retained depends on the dentist’s goals and transaction structure, which varies based on levels of risks and rewards. The dentist and DSO both invest capital in the form of money, equipment and other assets into the joint venture, sharing proportionally in the growth of the practice. The dentist retains day-to-day clinical control of the practice.

Equity roll

With a group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then trade in their equity into the DSO as a whole and roll however much of their equity into the DSO to keep growing their investment.

Sub-DSO

This deal structure has some characteristics of a joint venture and equity roll. When transitioning as a sub-DSO, the practice owner will exit the transaction debt-free with a large upfront payment and typically hold 40% ownership and profit share in the sub-DSO portfolio. The equity in this model isn’t held at the DSO or practice level but rather in a holding space to give you room to expand. Returns are made on various levels, including equity, profit sharing and exit upon a parent DSO recapitalization.

Direct investment with private equity

If you have a more robust practice, you don’t need to go through a DSO. A direct investment is when an investor purchases ownership within an operating company, bypassing the DSO if your practice is big enough. The amount of ownership in the operating company varies per deal. This direct investment can be a buyout with controlling interest transferring to the investor or it can be a minority growth investment. You would then become a founding member of a DSO, if that’s the route you choose.

What’s next?

There’s no one-size-fits-all solution when selling your dental practice. Contact the experts at Professional Transition Strategies to see which DSO deal structure works best for you and your practice.

May 26, 2023

Guide to Dental Practice Valuation

person getting dental work

No matter your plan for your dental practice, it is always advised to understand the health of your dental practice. While many doctors believe they can determine their dental practice valuation by taking 70% of your last three years’ collections, or 1.5 times your net income, there is a lot more that goes into establishing the value of a practice. There are multiple methods used to give fair market value to dental practices, but the methods that are most appropriate are market and earnings (capitalized income). Any valuation will ultimately use one of these approaches but using combinations of approaches will form a more reliable indicator of value. We want to help with our guide to dental practice valuation.

Whether you’re looking to sell all or a portion of your practice or just want to know what the health of your practice is, it’s smart to obtain a prospectus. You’ll better understand your options, so you can make an educated decision based off fact in addition to having a good understanding of where you are and gaining a clear line of sight as to how to reach your goals.

Fair market value, according to IRS Rev. Ruling 59-60, 1959-1 C.B., is defined as, “the price at which a property would change hands between a willing buyer and a willing seller when the buyer is not under any compulsion to buy and the seller is not under any compulsion to sell, with both parties having reasonable knowledge of the relevant facts.”

There are many factors used in calculating the value of your practice. At Professional Transition Strategies, we use the most effective method of calculating your practice’s worth by looking at both attributes and challenges and how they have impacted the success of the practice.

Factors used in determining value of a dental practice

The practice’s location, visibility and population of city or town
Type of medicine or dentistry, revenue sources and active patient base
Growth potential
Patient attraction and retention rates
Reason for sale of practice
Projected patient and revenue retention after the sale
Condition and age of medical and dental equipment based on wear and tear, as well as technical advancement
Office decor and condition
Long-term trends of the practice’s revenue and profit margin

The value determined by analyzing the information listed above, as well as financial information, will be the best indicator of what a practice can garner on the open market. It is important to note that in most cases, this valuation will not include the accounts receivable (A/R) of the practice, cash on hand and any other bank or cash accounts, as well as the practice owner’s belongings, marketable securities, real estate or vehicles, if any.

One component included in evaluating a practice is the adjusted earnings before interest, tax, depreciation, and amortization (EBITDA). Put simply, EBITDA measures the practice’s operating performance. Adjustments to doctor’s compensation, P&L, personal and one-time expenses and net income of the practice are added together to achieve adjusted EBITDA.

At PTS, we also take into consideration who the buyer will be. For example, the fair market value of a practice being sold to an individual will oftentimes be very different than the value if being sold to a DSO or private equity. The reason for the difference is that the value revolves around the limitations on what a bank will lend to an individual vs. the buying power for a group or fund. With our market knowledge and industry expertise, we are experts at delineating the two and presenting accurate values for each type of buyer.

I’m ready to proceed with a valuation. What do I have to do?

The typical information collected to create a dental practice appraisal includes:

Three years of profit-and-loss statements
Three years of tax returns
Current balance sheet
Production broken down by provider
Production broken down by procedure type
Total active patients
New patients per month for the past 12 months
A/R aging report
Copy of current lease (if applicable)
Employee roster with hire dates and hourly wages and benefits
Website
Lists of insurance plans the practice accepts

Please note nearly all information can be run on your practice management software or accounting software, as well as your certified public accountant (CPA).

I just remodeled my practice with all new equipment. How does that affect my valuation?

While hard assets located within the dental office tend to be a differentiator between two similar practices, it is important to know the equipment value will not reflect the insured value or purchase price. It will represent only the current market value. For example, the value of equipment is included in the prospectus valuation and is comparable to what one would pay if purchased on eBay or Atlas Resell Management.

How do patient base and demographics affect my valuation?

Even though the patient overview may not directly affect the value of the practice, it is still wise to understand how your patient base is broken up, especially in cases when you may be looking to sell. This is one of the reasons it is important to know not only your patient demographics, but also have accurate records of active patients and patients in recall. In addition, the insurance plans your dental practice accepts, as well as the percentage of patients on said plans, may not factor into the value, unless it is a heavily Medicaid practice. Having the basic knowledge of the breakdown is important to having a deeper understanding of your patient base.

How does real estate factor into my practice’s valuation?

It’s also important to know that your practice’s value won’t be impacted whether you own or rent your real estate. However, it is important for any potential buyer to know the real estate situation, which is why it is incorporated into a prospectus. Not only are they interested in the square footage of the dental office, as well as if the practice is in a retail space or a medical complex, but they also want to know if you owe the space and if it is for sale along with the practice. Of course, just because you may own the real estate does not mean that you must sell it, as well, you can also retain the office as an investment and lease the space out to the new buyer. In addition, if you don’t own the real estate and simply lease it, it is important to know leases can be transferred, as well as negotiated when the new tenant signs on.

What other parts of my practice affect the valuation?

It is also smart to be aware of the type of dentistry performed based on the composition of the production. For instance, is the practice hygiene heavy, is it a bread-and-butter practice, is there a lot of specialty work performed in the practice, or is it primarily referred out?

One thing that is not included within a valuation is A/R. The A/R can be sold separately or not at all. The reason A/R is not incorporated into the value is that it changes by the day, hour or even minute. Therefore, the value of accounts receivables will be determined the day of closing.

Should you be seeking a prospectus for your dental practice because you plan on selling all or a portion of your practice, it is important to note that while the previous three year’s financials are included and trends are analyzed, the most recent year is what the valuation is primarily based on. This is one of the many reasons it is advised to consider a transition during a peak in your production rather than after you’ve slowed down and decreased the value of your practice.

So, who’s interested in buying my practice?

Just as there are different transition types, there are also different types of buyers, as mentioned before. To ensure you have all the information you need to decide the right strategy for you and your dental practice, it is advised to understand the difference in value from an individual receiving a bank loan compared to a larger dental service organization (DSO) with private equity backing.

Unfortunately, unlike basic real estate, there is not a multiple listing service (MLS) or a centralized database of dental practices previously sold. This is one of the several reasons you should a professional complete the appraisal for your practice. As noted, business magnate and philanthropist Warren Buffett says, “Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation.”

When’s the right time to get a valuation done on my practice?

The reasons one seeks a practice appraisal can vary. A dentist could be considering selling their practice or bring on a partner or associate into the practice. One could be trying to determine their own personal net worth. In this same regard, it is common for a dentist to need an appraisal prior to marriage or prenuptial agreements, or possibly due to an upcoming divorce. It is also advised to have a valuation completed to establish a baseline for future business endeavors, as well as simply having a deep understanding of the health of your practice. Other common reasons include allowing for fair disposition of assets for your estate or simply for disability purposes. Lastly, it is advised to know the value of your dental practice for retirement and estate planning.

I’m interested in getting my practice valued. Who should I go to for a valuation?

While many companies and individuals claim they can determine the value, it is important to go with a company that has significant experience valuing dental practices. This ensures they can provide adequate comparisons and experience to help determine what the marketplace will bear in addition to what lenders will loan.

Should you be seeking a prospectus to potentially put your practice on the market, you should know what a buyer’s return on investment (ROI) would be. To calculate the annual or monthly return, you will take into consideration the doctor’s payroll plus adjustments and net income distributions less any new debt service for the most recent year. Typically, debt service assumptions are 100% of purchase price/10-year loan/5% interest rate.

An experienced dental practice broker can walk you through all the steps of the valuation process so you can prepare for a transition or even get a better picture of the health of your practice. Interested in conducting commitment free prospectus? Let’s connect.

February 5, 2021

Dental Industry Trends to Watch for in 2021

Are you ready for dental industry trends in 2021? Professional Transition Strategies is.

After the dumpster fire that was 2020, we may finally see a light at the end of the pandemic tunnel in 2021. While the past year was anything but typical, it certainly shed light on the latest exciting trends and emerging technologies in the dental industry to look forward to in the new year.

Kyle Francis, Professional Transition Strategies founder and president, thinks “there are plenty of reasons for optimism in the dental sector,” even though “predictions may be riskier than usual this time because we’re exiting a turbulent year that disrupted normal life and business in ways that are still coming to light,” according to an article in DrBicuspid.com. (1)

“This year has been challenging for everyone, personally and professionally, but the dental industry remains strong, and the future is bright,” Francis predicts. “The industry will continue to evolve, and the pandemic may accelerate some of the trends we’ve already seen emerge this year. Dentists who stay ahead of the curve can look forward to a happy and prosperous 2021.”

The experts at Professional Transition Strategies are here to offer our best-educated guesses about what the year ahead will hold in hopes of answering the all-important question:

“Is your dental practice ready for 2021?” (Spoiler alert: Yes, it is!)

As a bonus, by reading between the lines, we’ll also help you answer these questions:

Is the dental industry growing?
What is the highest paying dental specialty?
What type of industry is dentistry?
What are the latest trends in dentistry?
What makes a dental practice successful?
Can I make my dental practice stand out?
How big is the dental market?
What kind of technology do dentists use?
What is the biggest challenge for dentists?

The role of technology in dentistry

AI leads the way

Advancements in computer processing, data analysis, and cloud computing have driven the convergence of innovation and technology in dentistry. Of all technology, artificial intelligence is “poised to change the dental industry significantly,” Francis said.

Specifically, AI can be used to help dentists interpret X-rays more effectively by simply saying, “Alexa, show me the bitewings of number 19.” It can also pull up patient records and analyze them using machine learning, and even book appointments and communicating with patients directly thanks to chatbots.

More recently, AI has been used to help dentists identify carious lesions more accurately, and detect dental decay, periodontal disease and oral cancer. In the future, augmented reality will be used with implant procedures.

Graphical processing units, Internet of Things devices, advanced algorithms, and application programming interfaces will all contribute to the evolution of AI to make it smarter and more useful.

3D printing follows suit

3D printing has come a long way from custom-made keychains. The dental industry 3D printing market is expected to reach $930 million by the end of 2025, according to Medical Technology. (2) As recently as 2020, dental scanners can now mass customize aligners and night guards, crowns, surgical guides, models and dentures quickly and inexpensively in-house — a benefit to both dentists and patients.

“As a result of today’s COVID restrictions, currently more and more doctors are making their choice in favor of clear aligner therapy versus braces,” said 3D Predict Founder and CEO Marina Domracheva, M.D. (3) “Treatment using clear aligners requires less frequent and shorter consultations with less manual procedures, so it is safer and more convenient for doctors and patients in the current environment.”

No real change in teledentistry trends

“Dentists shifted gears quickly, using their skills to take care of patients and protect their businesses under challenging circumstances,” Francis said. While teledentistry filled in the proverbial gaps when COVID-19 forced dental practices to shut their doors because of social distancing, it is not a long-term solution. Even though “dentistry is highly specialized and tactile,” it is not feasible to expect dentists to gauge the depths of caries with an iPad right now, though it’s a quick step toward addressing any concerns with a patient who may be reluctant to come back after the pandemic.

It is important to note: Teledentistry sessions are not generally reimbursed in part or full by insurance companies.

Advantages of laser dentistry

Laser dentistry (“light amplification by stimulated emission of radiation”) has made leaps and bounds in the world of drill-less treatments since its inception in 1989, using a narrow, concentrated beam of light to remove or shape soft or hard tissue, such as around a wisdom tooth, crown or inflamed gums. The result is decreased bleeding, faster healing, reduced risk of infection, and less of a need for sutures during procedures, including treating hypersensitivity, tooth decay and gum disease.

The U.S. Food and Drug Administration has approved the use of lasers in the dental industry after dentists undergo training from manufacturers, professional organizations or dental schools. But despite its benefits to patients for general dentistry, the American Academy of Periodontology has reported there isn’t sufficient evidence to support that treatment with a laser is better than traditional treatments for periodontal diseases, such as scaling and root planing. (4)

The American Dental Association has yet to approve laser dentistry as a treatment option for dental conditions, but stay tuned as this emerging trend continues to develop and evolve.

Implement cloud-based practice management software

If your dental practice doesn’t already use cloud-based management software, what are you waiting for? Simply put, cloud-based software runs on the internet rather than being hosted locally on the computer in your dental practice office. In a digital era, it might be surprising to learn that cloud-based management software is not the norm—but it’s moving in that direction thanks to backup and integration capabilities, virtual access, and savings on physical space within the office.

From new patient counts to cancellations and all of the day-to-day operations in between, it’s no small task to keep up with it all. The advantages of software that lives on the cloud include remote scheduling, document storage and sharing for X-rays and images, contact databases and reporting, such as dental history charting, patient notes and treatment plans that can be easily accessed by front-desk staff and dentists from any computer. The software-as-a-service may also include communication platforms for staff, assistance with filing and tracking insurance claims, and integration with billing or accounting software.

The efficiency afforded by the right program can make the difference between a smooth operation and confusion for staff and patients alike.

Just make sure to do your research on software that has good reviews, is compliant with the U.S. Health Insurance Portability and Accountability Act, offers easy-to-access customer support, and comes with a free demo or trial period so you and your staff can learn more about it in real-time without a big investment.

Navigating the transition process

Should you join a DSO?

If anything, the strength of dental service organizations (DSO) was solidified in 2020 since independent practices have treaded water navigating the storm of business ownership during a pandemic, displaying “incredible resilience,” according to Francis. During these uncertain times, you may be hesitant to make a drastic change. But now more than ever, DSOs are looking for private practices to purchase in spite of economic standings.

In turn, new buyer groups have emerged due to the recent changes. Fewer legacy DSOs will be buying practices at this point because they need to concentrate their efforts on managing the ones they have. Smaller DSOs, small business investment company-backed DSOs, new private investment-backed DSOs and family office-backed DSOs will emerge as frontrunners when it comes to buying.

Analysts on staff to help dentists make data-driven decisions, bulk purchasing power to secure personal protective equipment, and human resources professionals to handle staffing issues have all become attractive solutions available through DSOs. DSO membership can also be an excellent way to boost practice value for a profitable exit when the time comes and achieve a better work-life balance in the meantime.

Deals now will receive 2019 values thanks to earn-outs in the next year, if not sooner, while those that wait will see a lesser value. Waiting puts at risk lesser values in 2021 since 2020 numbers will weigh heaviest during the valuation process. What’s more, tax rates are expected to double, and DSOs can pay more for a dental practice than a single practitioner based on private equity money, economies of scale, cost structure optimization, and loan amount.

Dental practice M&As moving forward

It would be an understatement to say the dental industry was hit hard during the pandemic. While the American Dental Association (ADA) reports revenue is down in total, many dentistry practices have managed to turn a profit in the five months since they have been allowed to open up again after catching up with the pent-up demand. (5) However, practice expenses are up as patient visits need to be spaced out and the need for extra cleaning costs and personal protective equipment continues to rise. Dentistry Today says all signs point toward an increased interest in selling dental practices or joining DSOs. (6)

Private equity groups have turned toward dental practices as an attractive investment opportunity, particularly specialty practices such as endodontists and oral surgery groups, since they were deemed essential services. Investors typically would analyze the past 12 months of earnings with interest, taxes, depreciation and amortization, but investors are now either writing off 2020 or looking at the past 15 months to make up for the time when practices had to close their doors.

Likewise, dental practices need to continue to rebuild their staff and patient bases in the year ahead, which will inevitably turn up in a valuation down the road, during which improvements like laser technology will only improve the value of your dental practice.

The big picture

A change in essential health care workers’ status

“This year proved that dentistry is, in fact, an essential service,” Francis said. “Delayed preventive care led to restorative care. Delayed restorative care led to endodontic care. Delayed endodontic care led to replacement procedures.” While it’s gratifying to recognize that dental services are vital to overall patient health and well-being, essential medical services are subject to health care reforms. In the immediate future, dentists across the U.S. have been surprised to learn they don’t qualify as “health care workers” under the distribution program from the Centers for Disease Control and Prevention that will dictate who receives the first round of COVID-19 vaccinations as part of the phased-in approach.

Capital gains tax reckoning

Massive government spending programs during the pandemic will come at a cost, even after helping to keep the economy afloat. A capital gains tax is most likely the solution, because, Francis says, “It’s hard for politicians to raise taxes on individuals and keep their jobs.” He thinks this may drive dentists to seek an affiliation or exit sooner than later.

Financial advisers are advising those in dentistry to hang up their proverbial hats in anticipation of an increase in capital gains tax. For example, a 20-point increase would reduce the net profit from the sale of a practice valued at $3 million by $600,000 on the first day.

A beneficial commercial real estate glut

The value of commercial real estate is likely to drop in 2021 with partially or fully remote workforces. Because dentists can’t do house calls or work remotely due to diagnostic equipment, leasing professional office space is a necessity, which gives dental practices the upper hand when it comes to renegotiating a lease, rental rates or other concessions. Rent should still account for 10% or lower of your standard overhead costs.

Focusing on the dental industry

Decrease in dental care spending

The American Dental Association’s (ADA) Health Policy Institute reports that, “depending on the scenario, U.S. dental care spending is now projected to decline from 31% to 38% in 2020, and anywhere between 0% to 20% in 2021 compared to pre-COVID-19 estimates.” (7) In particular, dental practices, especially solo practices, will feel extra strain to retain patients and replace churn, and staffing shortfalls will continue to impact the dental industry.

It’s not all doom and gloom, though.

Studies have shown that ongoing communication with patients and even staff about changes made to your dental practice since the pandemic will help put everyone at ease and set expectations for all parties. This will also give dentists the opportunity to focus on attracting new patients to the practice.

Focus on goodwill

While not tangible and maybe a bit harder to understand, the goodwill within your practice will make up a good part of your practice’s value (as much as 80%!). The goodwill comprises those non-categorized assets, such as your community status, patient relationships (shown many times through your recall systems, active appointments, patient charts and referring doctors), and staff loyalty and longevity (so now is a good time to focus on appreciation for your dental team throughout this past year!). This goodwill, when the practice is transitioned correctly, ensures long-term income for the buyer.

Adoption of conveniences for patients

If 2020 has taught us anything, it’s that now is the best time to reinvent the way we communicate with others. For dental practices, that means the ability to schedule appointments for patients online, complete intake paperwork online, ask questions to staff via chatbot, and pay online or on mobile devices. What’s more, expanded office hours to accommodate spaced-out patient appointments as a result of social distancing make finding a time that’s convenient for patients easier and less intrusive rather than spending a seemingly endless amount of time in a waiting room with other patients.

Invest in emotional dentistry

All of this is to say that, yes, improvements to your dental practice and its procedures will hopefully make the lives of your staff easier, but especially, your patients will reap the rewards. Steps like using software to show patients how their smile will look after treatments will make the patient feel invested in their own well-being, as well as that of your dental practice. Similarly, a focus on patient education will increase registration efforts, in addition to tackling the age-old question of why adults avoid going to the dentist, especially getting patients to return to your dental practice after the pandemic. The rising value of convenience is sure to pay off for your staff and patients alike in the new year.

What’s next?

Contact the experts at PTS to help you navigate through the new year and beyond!

References

DrBicuspid.com
https://www.drbicuspid.com/index.aspx?sec=log&URL=https%3a%2f%2fwww.drbicuspid.com%2findex.aspx%3fsec%3dsup%26sub%3dbai%26pag%3ddis%26ItemID%3d327696
Medical Technology
https://medical-technology.nridigital.com/medical_technology_jan20/open_wide_how_3d_printing_is_reshaping_dentistry
3D Printing Media Network
https://www.3dprintingmedia.network/3d-predict-ai-driven-teeth-aligners-us/
American Academy of Periodontology
https://www.perio.org/consumer/gum-disease-laser-therapy
USA Today
https://www.usatoday.com/story/money/2020/10/19/dentists-coronavirus-pandemic-ada-cdc/3653734001/
Dentistry Today
https://www.dentistrytoday.com/news/todays-dental-news/item/7426-a-look-ahead-the-dental-m-a-landscape-in-2021
American Dental Association
https://www.ada.org/en/publications/ada-news/2020-archive/june/hpi-research-brief-webinar-share-dental-spending-projections-for-2020-and-2021

February 5, 2021

How to Choose a Dental Practice Broker — A Comprehensive Guide

man holding up glasses

Selling a practice takes approximately 150 hours, which is why you’ll want to hire Professional Transition Strategies (PTS) to do the heavy lifting rather than attempting to add that task to your already-full plate. As a business owner, it may be instinctual to want to take the sale of your practice into your own hands rather than hiring a professional.

But hiring PTS to handle one of the largest financial transactions in your life will help you get the most out of your transaction in the long run. Likewise, both financially and personally, there are other considerations that can affect the outcome of selling your practice. After all, your time is money, and your time is better spent on keeping the value of your practice up.

Whether you are looking to sell your dental practice, bring on a partner or buy a dental practice, PTS makes the process easy, painless and seamless for general and pediatric dentists, endodontists, orthodontists, prosthodontists, oral surgeons and periodontists across the country.

However, not all dental practice brokers are created equal, which is why you’ll want to hire PTS to focus on the bottom line and vet potential buyers while alleviating stress for you.

As an aside, we’re also here to help you answer these questions along the way:

How do I find a dental practice to buy?
What should I look for in a dental practice?
How do I set up my own dental practice?
What is a dental practice broker?

Know the difference in dental practice broker services

Buyer representation

By having a dental practice broker act as your fiduciary, you can feel confident your best interests are being represented rather than just the interests of the group. PTS isn’t compensated by any group. While being your advocate in the transaction, we don’t have any other skin in the game.

PTS helps you answer all the important questions, such as: Should I take out a loan? How much will the loan cost me? Is this fair market value? We have the expertise to answer these questions and more. We even have a calculator to estimate what the monthly cost of a purchase would be.

Seller representation

Whether you want to sell a practice and leave, partner with another dentist to help carry the load, sell but stay on as an associate, or simply merge or affiliate with a larger practice or dental service organization (DSO) in your area, PTS will provide the dental practice broker services you need to make your transition successful.

The steps to selling a dental practice or merging a dental or medical practice are intricate. It includes not only the financial and physical challenges, but emotional ones, as well. We realize that every situation is unique, and we will help you decipher which option is best for you. And while it’s important to know the difference between buyer and seller representation, a dual-representation broker could never truly have the best interest in mind for both parties.

Single agency versus transaction broker

Brokers who are single representatives can act on behalf of either the buyer or seller. A single agency broker tends to have fewer qualified buyers in their arsenal since they only work with one party. Unlike a transaction broker that acts as a referee throughout the process, a single agency broker has fiduciary toward the buyer or seller. Along with disclosure, confidentiality, accounting and reasonable care, a single agency broker also owes the client obedience and loyalty.

A transaction broker who represents both parties owes each party the promise of disclosure, confidentiality, accounting and reasonable care while having no fiduciary in the game. Acting as a mediator between both parties, a transaction broker ensures a smooth transition will take place. The transaction broker will help the seller determine a competitive list price, as well as help the buyer prepare an offer. They will help facilitate communication between both parties, including coordinating the transaction from the time the offer is accepted to the time it is closed. In addition to marketing the practice, finding qualified buyers, writing the contract to buy and sell, and assisting in negotiating terms, they will also assist with the closing entirely.

The PTS difference

Industry knowledge

Just like your patients come to you for your experience, dentists come to PTS for our expertise.

We are experts in the industry and have extensive market knowledge that will lead to a more seamless and possibly faster sale. When representing yourself, it can be hard to get to the bottom of each interested party while also negotiating the terms and running a successful practice at the same time.

For the buyer, our knowledge expands to medical or dental competition and patient demographics in your location of interest, along with expertise in practice appraisals to determine a fair market value. Our real estate, legal, accounting and strategic knowledge rounds out a complete transition service all in one place.

Industry experience

Along with industry knowledge comes experience. As with any team, you’re only as strong as your weakest link, so it’s important to choose advisors who have experience in the dental industry. The easiest route to a smooth transition is to hire PTS that is familiar with practices like yours. While we may not be in your geographic area, we have experience with the size and type of transition you are working toward.

PTS takes a proactive approach to finding the right fit for dental practices, ensuring fewer days on the market. Additionally, PTS has personal experience with the DSOs, making it easy to predict which way the transaction is heading and negotiate accordingly, whether simple or complex.

Leave the dental practice details to us

Appraisal process

Arguably, one of the most important steps during the beginning of a dental practice transition is to have a practice appraisal to determine where you are most valuable and where there is room for improvement in areas that are not as highly profitable. This includes the practice’s location, visibility, and population of city or town; type of medicine or dentistry, revenue sources and active patient base; growth potential; patient attrition and retention rates; reason for sale of practice; long-term trends of the practice’s revenue and profit margin; condition and age of medical and dental equipment based on wear and tear, as well as technical advancement; and even office decor and condition.

The extensive practice appraisal offered by PTS breaks down the current value of the practice and where the practice needs to go before the sale. The appraisal uses the most effective method of calculating your practice’s worth by looking at both attributes and challenges and how they have impacted the success of the practice. Best of all, PTS can perform these services at no charge with no commitment obligation.

Prospectus process

Whether you’re planning to put your investments toward retirement or another investment, you’ll want to ensure a smooth and lucrative transition. A prospectus breaks down the facts to ensure business owners are making an educated decision on their largest asset, which is when the work has just begun.

PTS offers a complimentary prospectus to assess the true value of your practice and which options are available. While many brokers say practice value is as simple as 70% of collections, it also includes applying a multiplier (including location of the practice, type of building practice is in, office itself, longevity of doctor and staff, and procedures performed) to a three-year weighted average of collections, seller’s discretionary earnings (SDE), and earnings before interest, taxes, depreciation, and amortization (EBITDA). And unlike other dental practice brokers, PTS doesn’t just sign with dentists to get the necessary information for you to make the right decision.

Contracts in place

PTS already has the contracts in place rather than hiring an attorney to draft documents for you, saving thousands of dollars, whether you’re planning a location, new startup, quarterly performance review or legal services. Our complete counseling starts from evaluating your practice to implementing the necessary changes through evaluation, strategic planning, implementation and consulting. PTS will be by your side through the entire real estate transaction process, managing the process with landlords, banks, general contractors, architects, city building and planning departments.

And speaking of contracts, don’t hire someone with a long-term contract, allowing the broker to be passive and wait for leads to come to them and limiting the number of offers you receive. Six months to one year is standard, but PTS has a 30-day contract with no penalty to cancel. Add this to the list of questions you’ll want to ask your broker before hiring.

Enlist the professionals at PTS

Dream team

Consider PTS part of your transition dream team, making sure all the agreements are in place and identifying ahead of time any issues that may arise. Avoiding a direct negotiation, PTS removes 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.

The rest of your dream team consists of an attorney who specializes in dental practices, a certified public accountant (CPA), investment and insurance advisors, and practice consultant to identify your current assets and perform a gap analysis before the sale goes through.

While many CPAs, real estate agents, and attorneys think they can sell a practice, only trust a professional transition broker, such as PTS, just like you won’t ask your chiropractor to perform a full arch fixed dental implant bridge.

Focus on your bottom line

Your primary focus during the selling process is to maintain the success of your practice. Both you and your buyer will suffer consequences if the value of your practice decreases with a decrease in production. Your time is better spent focusing on the well-being of your practice and its employees and patients before hanging up your proverbial hat.

Don’t go it alone!

February 1, 2021

How to Diversify Your Dental Practice Insurance

As the dental insurance landscape continues to evolve, now is the time to improve your profitability and patient relationships by latching onto the emerging trends. But what consequences are there for the dental industry? We break down the latest need-to-know information.

The facts

According to a 2020 survey by DentistryIQ, it all points “away from costly fee-for-service models and toward coordinated care, value-based reimbursement, and more streamlined, affordable, and prevention-based experiences.” In fact, the number of health plans offering adult dental benefits has more than doubled since 2018, according to West Monroe Partners, adding to the convergence.

What this means

Standalone insurers have historically dominated the market, but now they will be forced to evolve, partner with health plans or lose out to the new competition. Additionally, individual plans could shift toward employer-sponsored plans. In turn, dental practices will have to adapt to the growing demand for value-based care with lower costs in terms of reimbursement terms.

The results

Dental insurance plans will continue to converge to offer a unified product for oral and overall health. The health integration is supported by value-based dentistry, health plan partnerships and available dental insurance driving patients to routine care, resulting in more dental visits and even more billable opportunities for your practice.

When to strategize

Designate someone on your team to track insurance trends and explore the options that work best for your patient base. When necessary, outsource for efficiency and cost-efficiency. Staff members can continue communication with patients related to insurance education and benefits.

Continuing trends

While the COVID-19 pandemic continues, manage your practice workflows with cloud-based practice management software for the benefit of both the patients and staff. And though not a long-term solution, teledentistry can be used to communicate any changes to patients without the need for an office visit.

What’s next?

Contact the experts at Professional Transition Strategies to get more guidance on how dental insurance trends may affect your practice.

January 28, 2021

Your Complete Guide to Hiring a Dental Practice Consultant

dental practice family

You invested time and money into your dental practice, but just because you are an amazing clinician, that doesn’t necessarily mean you are the savviest businessperson. To ensure your practice has everything it needs in place to succeed, it is wise to reach out to a dental practice consultant for complete strategic and business counseling. Here, we break down all you need to know about hiring a dental practice consultant.

Benefits of hiring a dental practice consultant

The right dental practice consultant can help you develop and execute a successful and thorough dental practice business plan. With expertise in business, leadership, finances and deep knowledge about dental practices, Professional Transition Strategies (PTS) is here to help you every step of the way. Here is just a smattering of our offerings.

Why use a dental practice consultant

At PTS, we help dentists and specialists throughout the country grow their dental practices, from startups to dental practices that want to increase value to get ready to sell.

A few common reasons our clients seek counseling for their dental practices are that they realize they are not seeing enough patients or they seem to be working more but making less. It is also usual for a practice to seek a dental practice consultant’s help because they realize they don’t have a growth plan in place or their team is no longer engaged and helping grow the practice.

Seeking outside advice to further the success of your practice is often the wisest choice and can help solidify your commitment to changing certain aspects of your practice to make room for progress. The change may be small, such as changing the insurance plans you are in-network with, or the change may be large. The best way to ensure success for your partnership with your consultant and practice is to stay open-minded to the suggestions, as well as the reasoning behind suggestions. The most critical components for your success are listening to the professional advice and being open to change — not just for you, but for the entire staff, as well. In the end, the result should be a more enjoyable and profitable dental practice for you and your team.

While a consultant won’t be able to fix everything in a day, by following the suggestions and new rules implemented, you and your team will be increasing your success and the potential of your practice.

Our proprietary 4-step program for practice success

Analysis of dental practice business procedures

A deep analysis of a doctor’s practice business procedures and value on the market is where we begin. The client will first engage us for an “In-depth Business Analysis.” This analysis includes as many visits as necessary to the practice to collect data and assess the situation first-hand.

The product of this analysis is a written document in booklet form that discusses in detail each and every business aspect of the practice, including effectiveness against potential in production, collections and marketing.

Also included is a full appraisal of the value of the practice in its present state and an assessment of the doctor’s personal retirement planning, if appropriate. The final section includes recommendations for the owner to improve their business operations where advisable and raise the overall value of the practice. These recommendations will be critical in the strategic planning phase.

Strategic planning and best solutions to pursue

From this analysis, we can determine the best courses of action to pursue. We at PTS do not agree with a one-size-fits-all practice solution. Instead, we custom-tailor many options depending on the direction that you want to take your practice.

The solutions will be discussed during our practice solutions meeting in which the physician or doctor will determine where they want their own practice to excel and will budget their time and effort accordingly. This same time budget will be used in the implementation phase of our complete consulting process.

Custom-tailored program

This is the step that most consulting companies miss. They will leave you with nebulous and inapplicable ideas and will not walk through the process with you. But at PTS, our custom-tailored program is designed by the doctor and implemented by our expert professionals working with the doctor and their staff.

PTS becomes a true partner to your office through the yearlong program of implementing the ideas that will help build the practice of your dreams. Whether it is bringing more patients into the office, determining financial arrangements, building a high-quality team or transitioning your practice, we can implement the change and create the perfect strategy for your success.

Managing changes

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 includes all those steps but also manages changes over time.

This long-term care is the exact type of care that you give to your patients. PTS will be this consultant to your practice as we have the mature relationships, expertise, drive and partners who will be able to ensure the doctor of the realization of their practice’s goals and growth.

Additional services

Practice lease renegotiation services

If your dental practice has thrived over the past nine years with only one year remaining on your lease, you, your staff and family may feel it is in the practice’s best interest to stay for another five to 10 years. A potential issue is that your office space may have become outdated and needs a significant amount of upgrades to last the remainder of your new lease term. In addition, perhaps your landlord knows you want to stay and won’t cut you a deal for staying another five to 10 years.

PTS will conduct background research to leverage with the landlord by going out into the marketplace to educate you about market lease rates, tenant improvement packages, building expenses and even free rent. PTS will even work directly with your landlord to get you the very best deal in the market so you don’t have to.

Dental practice associate searches and contracts

We specialize in dental office staffing services, in addition to buying, selling, consulting and leasing services. Whether you seeking a new opportunity or looking for a long-term associate, potential partner or potential buyer for your practice, PTS can help. If your practice needs a dental hygienist, dental assistant, practice manager or front desk associate, then you’ve come to the right place.

PTS specializes in locating and placing doctors and staff with independent practices across the country. Our commitment is to match the best medical and dental professionals with the right dental practices. This means we network with hundreds of potential prospects daily. At PTS, we are not in the business of filling medical and dental jobs with just anyone. Our focus is on fulfilling a long-term opportunity for the candidate and medical or dental practice that will be successful for all parties involved.

Work smarter, not harder at your dental practice

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

Know your numbers

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

Ask leading questions

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

Offer a variety of products and services

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

Manage your schedule efficiently

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

What’s next?

By hiring a dental practice consultant for complete counseling, you will enjoy a happier and more stable environment from all sides — patients, staff, significant others and your bank account.

Contact the team at PTS for a free consultation to see if you and your practice need a consultant to ensure long-term success.

January 28, 2021

PTS In the News

stack of newspapers

Professional Transition Strategies Welcomes Industry Veterans Brent Anderson, Troy Jones, and Kim McCleskey to Practice Transition Consulting Team

New Practice Transition Consultants Bring Decades of Experience, Client Success Track Records, and Complementary Skillsets to PTS Roles

COLORADO SPRINGS, Colo., Feb. 19, 2020, PRNewswire — Professional Transition Strategies (PTS), a company that represents dental practice buyers and sellers and offers brokerage and practice consulting services, today announced that three industry veterans recently joined the business as practice transition consultants: Brent Anderson, Troy Jones, and Kim McCleskey. With deep practice expertise, significant industry contacts, and a commitment to client success, Anderson, Jones, and McCleskey bring unique skillsets to their new roles.

Anderson joins the team with extensive practice transition experience, having recently led the mergers and acquisitions (M&A) team for the country’s largest dental support organization (DSO). In that role, he participated in more than 300 practice transitions, working closely with dentists to understand their objectives and options while helping them make the right decisions and find the best fit. A graduate of Southern Illinois University, Edwardsville, Anderson is passionate about ensuring client success.

Jones has nearly 20 years of experience in the dental industry. During a career focused primarily on the dental supplier sector and additional experience in healthcare real estate, Jones gained perspective and insight by working one-on-one with thousands of dentists and staff. Over the course of his career, Jones built a strong professional network and learned to quickly assess practice strengths and challenges, skills he is applying in his new role to help clients succeed. Jones is a graduate of the University of Evansville.

McCleskey has worked in the dental sector for decades, managing large practices, overseeing dental groups and specializing in pre- and post-dental practice acquisition at established companies before founding her own firm to focus on practice startups, management and transition consulting. Her experience makes McCleskey uniquely qualified to provide insight through education and to assist dentists who are seeking to buy or sell a practice. McCleskey is a Certified Professional Business Coach.

“I am so lucky to have these three on our growing team,” said Kyle Francis, founder and president of PTS. “Brent is one of the best M&A guys I’ve ever worked with, and his ability to find creative solutions for clients and deep understanding of DSO buyer needs will be instrumental in our success for years to come. Troy was one of my mentors in the dental industry and has vast knowledge that will help our sellers and buyers make great choices. Kim is an amazing consultant at heart whose skill in working through transitions from the team’s perspective has translated perfectly to the care she takes with our transitioning clients and to speaking engagements nationwide. Between them, they cover every base, and I couldn’t be prouder to have them represent PTS and, more importantly, to call them friends!”

All three new team members say that the company’s growth potential and the unique value proposition it offers to clients drew them to the opportunity, citing the organization’s commitment to create win-win situations for both sellers and buyers. PTS conducts extensive practice evaluations without charging customers, doesn’t lock sellers into long-term listing agreements and takes a positive and collaborative approach to service delivery. All three new hires also cited the company’s focus on community and culture.

“Kyle understands how important relationships are in driving successful practice transitions,” Anderson noted. “The aspect I value most in my work with practices and DSOs is the lifetime friendships I’ve made while helping people define what’s most important to them in their work and navigate the options that are in the market today to find the right solution. Whether on the buyer or seller side, clients need the right representation as they make critical career decisions, and PTS truly values those relationships.”

“The industry is changing rapidly, and Kyle has built a company that is truly different in this space,” said Jones. “The culture at PTS is exceptional, with a laser-like focus on client success whether the customer is a buyer or seller. With buyers in the pipeline, PTS gives dentists who are looking to sell their business an opportunity to reach their goals, and we have the skills onboard to find the perfect fit for buyers too. Given PTS’s commitment to making a social impact, the community wins also. Everybody wins.”

“There’s a massive transition within the industry as Baby Boomer-era dentists retire and the DSO landscape evolves,” McCleskey observed. “Dental practices need a transition service that focuses on creating success on dental professionals’ terms, whether they’re buying, selling, relocating or expanding. PTS offers the support and expertise needed to ensure a successful practice transition, and I am thrilled to be a part of a team that is focused on making the right moves for the right reasons.”

About Professional Transition Strategies
Founded in 2006 and headquartered in Colorado Springs, Professional Transition Strategies helps dentists buy, sell or start practices, move to new offices or expand at a current location. The company is committed to client success and provides expert consulting services to help dental professionals improve operations, marketing, accounting and other facets of practice management. PTS donates a percentage of its profits to Give Back a Smile, a cosmetic dentistry charitable foundation that restores the smiles of victims of violence. Find out more about PTS at www.professionaltransition.com.

“Transition services business gets displaced Colorado Springs dentists into new, better office quickly”

Recently, The Gazette, a Colorado Springs publication, wrote an article about how we helped Mike Lovato and Bob Nykaza find a new dental office after a May 2015 fire did extensive damage to the one they shared. The article says,

“[Stanton] Kensinger came up with five or six options for the two dentists, who visited three before agreeing to lease long-vacant space previous occupied by an orthodontics practice a half-mile west of their previous office that could be quickly renovated to get Lovato and Nykaza back into operation. Other dentists allowed Lovato and Nykaza to see patients in their offices so they didn’t lose patients, and they were able to move into their new space five days before their business interruption coverage payments would have stopped, [Kyle] Francis said.

‘Absolutely, hands down, the work Kyle and Stanton did was key to the survival of our practices. They just don’t teach you how to do this in dental school,’ Nykaza said. ‘The new space was like getting a brand-new beautiful car; it was a monster upgrade from the space we had before.’”

The article goes on to address how Stanton Kensinger, who is now an integral part of Professional Transition Strategies, became part of our team.

“The deal prompted Francis to bring Kensinger into his company, Professional Transition Strategies, that since 2006 has helped about 200 dentists in Colorado and surrounding states buy, sell or start practices, move or stay and expand at their current location and help them with operations, marketing, accounting and other details of practice management.

‘In nearly every single transaction I did there was a significant real estate component. My expertise was more in dentistry and the real estate part was difficult to figure out, so I needed an expert to handle that part of the transaction,’ Francis said. ‘This is a needed service because there are no practice brokers in Kansas, New Mexico or Wyoming, just two in Utah and seven in Colorado. In a typical transaction, you need to find a buyer and seller that match up, negotiate a contract, determine a price, come up with asset purchase and employment agreements and renegotiate a lease.’

The two have completed seven transactions in six months with another 20 in process. Francis expects the company’s revenue, about $1 million this year, to double every year for at least the next three years.”

Lastly, the article mentions our work with Mending Kids International, and our plans for involvement with the charity in the future.

“Francis plans to operate the company as a social enterprise, giving 10% of revenue to Mending Kids International, a Burbank, Calif.-based charity that provides surgeries in 57 countries to correct congenital heart defects, orthopedic abnormalities, severe scoliosis, urological defects, and facial deformities.”

What’s next?

Read the entire article here, then contact the experts at Professional Transition Strategies to find out what services are applicable to you.

January 28, 2021

5 Steps to Selling a Dental Practice

dentist office

Are you thinking of selling a dental practice? If so, you’re likely wondering how long it will take. You have put a lot of time, sweat and tears into building a successful practice. The fact that you are considering selling it can take a mental and physical toll. To prepare for your upcoming transition, here are five things you should know.

Start planning your dental practice transition early

One of the best pieces of advice is to start planning early. Planning early allows you more options than if you wait until the year you are ready to move on. These options are not only the type of transition you go with, but also which offers you consider. If you wait until the last minute to transition out of your practice, you may be stuck taking the first offer you receive. By starting early, you can be more discerning about offers that come in and move forward with the one with which you feel most comfortable.

Starting early gives you time to consider different transition styles. If your practice is large enough, you can sell half of your practice to a partner and continue to work for a few more years. When you determine the time is right, you can then sell the other half to either your current partner or someone else.

Getting a head start also allows you to consider affiliating with a dental service organization (DSO), which you most likely wouldn’t be able to if you needed to get out immediately. The reason for this is that DSOs tend to request the current doctor stay on for about two years.

By starting early, you can determine if you are happy with the value of the practice or if you need to get more out of it to clear any debts. This knowledge can help guide you when determining if you need a few more years to build up the value of your practice before taking that next step.

A transition period is a period between two transition periods. – George Stigler

Know the facts

Instead of living in the hypothetical, know your reality. Too many times, one can plan for a transition without knowing the facts. “Ignoring facts does not make them go away,” as businessman and Hall of Fame quarterback Fran Tarkenton once said. (1) It’s important to have a prospectus in place when determining the right transition type for you and your practice. By understanding the fair market value of your practice, you will know if your practice is healthy enough to bring on a partner, whether you should consider affiliating with a DSO or if you need to make some drastic changes so your practice is more appealing to a potential buyer.

To take this deep dive into your practice, look to a professional to create a prospectus. The knowledgeable experts at Professional Transition Strategies (PTS) will create a prospectus for you at no cost or obligation to work with us. We do this because we believe it is important to practice what we preach: Know the facts before you make any decisions.

The prospectus includes but is not limited to:

Practice demographics
Practice location
Patient demographics
Staff
Insurance
Facility
Equipment
Production summary by category
Financial analysis
Practice valuation
Return on investment

Don’t let the value of your dental practice drop

A common mistake made by dentists and dental specialists throughout the country is to let the value of their practice drop leading up to a transition. This honest mistake happens when doctors decide they are ready to scale back but they aren’t ready to “hang up their hat” just yet. By cutting back their schedules, only taking certain cases, reducing their hygienists’ hours, etc., they inevitably see their production and collections decrease.

Considering a practice’s value heavily depends on the average of the last three years. With the most recent year receiving the most weight, this reduction will result in a significant drop in value. As investor Warren Buffett once said, “Price is what you pay. Value is what you get.” (2) As much as one would like the practice’s value to be based on the “potential,” the truth is that a bank won’t lend on the hypothetical. Therefore, it is imperative to consider your plans before cutting back, because “cutting back” can dramatically cut the value of your practice.

Know your transition options

Without knowing all your options, how can you possibly choose the right one? One size does not fit all when you’re selling a dental practice. You cannot know you made the right decision without knowing the available options. Once upon a time, a dentist’s only options when transitioning a practice was to either sell to another doctor or close the doors. Times have changed. A dentist or dental specialist now has several options.

The most common transition types include:

Speak with a dental transition expert to determine the best plan for you and your practice.

How long will it take to sell my dental practice?

The most common question leading up to a transition is, “How long will it take to sell my dental practice?” Many factors can help gauge how long your practice will be on the market. One that will play a major role is the location of your practice. Is your practice in a metropolitan area? Is it in a rural community? Is your practice in a desirable area of the city? While it can’t be said for all practices, the offices positioned in “hot spots” of the country — such as Austin, San Diego or Denver — will move faster than those based in a smaller, more rural area. Sales can be as short as 22 days from the day your practice goes on the market to the day it closes or as long as two to five years.

Another variable that will play a part in how long it takes to sell your practice is your practice size. Practices valued between $750,000 and $1.2 million tend to be a sweet spot for most buyers. Practices collecting less tend to sit on the market longer. The reason is that smaller practices mean less revenue for the incoming doctor. This is especially true if the buyer is still paying off student debt.

What is a dental practice broker?

A dental practice broker has undergone training that makes them an expert in taking you through a dental practice transition. A factor in how long a practice takes to sell is the experience and knowledge of your broker. To ensure you are in the best hands, you should hire a broker who is familiar with practices like yours. This does not mean practices in your city, town or even state. It is more important that your broker has worked with practices of your size and in the transition capacity you are looking for — affiliating with a DSO, partnerships, straight buy-outs or even partnering with a private equity firm.

It’s also important to make sure your broker “pounds the pavement” on your behalf and be active when it comes to finding the right buyer. All too often, practice transition brokers post a marketing description on a few websites, sit back and wait for calls to come in. Work with someone like PTS that takes a proactive approach to finding the right fit for your practice.

What’s next?

If you are considering the possibility of selling a dental practice, contact the team at PTS. We will answer any questions and help prepare you in this exciting new stage of your life.

Resources

January 28, 2021

Who Makes Up an Advisory Team for Your Dental Practice Transition

The first and possibly the most important step for every buyer, especially first-time buyers, is to build your advisory team. It is important not to choose the first person you meet in each category; talk to a few to determine what each company or individual can offer. Decide with whom you feel most comfortable, not necessarily who offers the lowest price for their services. We offer a list of advisors to help get the process of your dental practice transition started.

Banks

There are several types of banks to work with; therefore, do your research and determine which bank is right for you.

Local banks

Regional/national banks
Dental-specific banks

Small Business Association (SBA)

Equipment loans

Certified public accountant (CPA)/chartered financial analyst (CFA)/attorney/insurance agents

All of these individuals are necessary members of your advisory team. It is recommended to choose people who are dental specific as it will raise your rate of success. It is also advised to use specialists from each industry normally, not from the same firm.

Marketing agency

It is also advised to work with a full-service marketing agency so you only have one single point of contact as they take full responsibility for the success of the project. A full-service agency will be able to offer service bundles that include website development, social media management, digital and print advertising, TV and radio exposure, logo and collateral development, signage, brand analysis, demographic and audience targeting. Of course, while it is possible to find an expert for each job, we only recommend finding a firm that can handle all responsibilities for your convenience.

Equipment representatives and supply companies

There are multiple options when it comes to supplies and equipment; therefore, it is advised to interview and receive testimonials from current customers to ensure you are making the right decision. Most suppliers’ reps cannot sell every brand of equipment. This interview process will allow you to see the various products each offers.

It is important to note supply reps will be a long-term relationship for you within your career; therefore, make sure they can bring more value than only the supplies you order.

Should you consider an expansion or a new build, equipment reps can streamline the process as well as save you money as most equipment companies have in-house design teams.

Commercial real estate broker

It is important your commercial real estate broker has at least seven years of dental and medical experience. This will not only ensure they are familiar with standard industry needs, but also they are well versed in the area, knows the landlords and can define your value proposition by your location.

Make sure your broker is with a reputable firm — local, regional or national. A good agent will walk you through all your options and discuss what is right for you, be it buying, leasing, expanding, developing or investing.

Above all, it is crucial to find someone who will be your advocate and have your best interest at heart. By having someone on board who has all these traits, you will not only save money, but also time so you can focus on your passion.

Contractor/architect

It is smart to hire an architect and/or contractor that has dental office experience, especially the architect, since hiring an inexperienced one can cost you thousands of dollars. Many choose to go with a team that works together (contractor, architect and engineer) and knows the ins and outs of the real estate market. Be sure to review their portfolio, receive references from their previous clients, confirm they are familiar with local building code and regulations, and have a good construction team they’ve worked with prior to ensure a smooth process throughout.

Of course, as with most people in the industry, review local business journals and their Better Business Bureau (BBB) rating to read more about them.

Practice consultant

There are many different types of practice consultants, ranging from operational to startup specific to full-service consulting. Essentially, it all comes down to looking at your practice through someone else’s eyes. To ensure you aren’t missing anything, it is key to have a different perspective on your practice.

When you are choosing your consultant, make sure their specialty aligns with the project you need completed. To stay on track and not go outside your financial limit, it is imperative to make sure that results are trackable, and the timeline and budget are understood by everyone involved.

Technology advisor

Make sure your technology advisor is certified with the various dental software and hardware systems you are interested in using. It is common for them to place blame elsewhere if they are not certified with the programs and equipment used. While implementation is important, it is not nearly as important as the servicing on the back end. It is always better to find someone who will implement and service, rather than using two different people.

As always, it is recommended to look at BBB ratings for any advisers you are considering.

Broker

When you are looking to hire a transition broker, it is smart to find someone who will market your abilities to the places you are looking to go. You will want to choose a group that is most knowledgeable about various opportunities available in your desired area. To ensure a smooth process, look for a broker with a good amount of resources and will hold your hand throughout the entire process.

What’s next?

Contact the experts at Professional Transition Strategies, a full-service broker with more than 10 years of experience working coast to coast.

January 28, 2021

Dental Practice Leasing vs Buying

man in front of computer

To buy or lease dental space, that is the question. What is your long-term plan? Do you intend on doing a startup? Staying in your existing space? Or relocate in the future? Are you in the position to buy the dental practice, along with the real estate? Do you have an existing exit strategy or retirement plan? Deciding to own a dental practice rather than associate is a big decision. You’ve decided to take the leap and be an owner. Now the question remains: Do I buy the property, or do I lease the space? There are advantages to both, and we present both sides.

The experts at Healthcare Business Today offer this advice: “When making the decision to purchase or lease, don’t decide to purchase simply for the sake of owning real estate. Consider purchasing a space or property only if you would be prepared to lease that same location anyway – if you wouldn’t lease it, why buy it?” (1)

To help ensure you make the right decision, speak with a dental practice consultant who has seen it all. The team at Professional Transition Strategies (PTS) will not only guide you in determining the right path, but with an in-house real estate division, we can also assist with lease negotiations, renegotiations,or with the purchase of the real estate.

Advantages to buying dental office space

There are many “pros” when it comes to building your dental practice.

When you own the real estate, you have a significant amount of flexibility in how you want to use your space. You can also manage and control it as you wish. You can control what happens inside and outside the building — not only the landscaping, but the signage, as well. By investing in effective signage, you can capture not only a passerby’s attention, but also make your office easier to find. This results in increasing your patient base.
Another perk of buying the real estate is you can determine who your tenants are. Therefore, instead of being next door to the competition, you can lease to businesses that share a similar patient base. For instance, if you are a pediatric dentist, you can lease a space to a martial arts program for children, pediatrician or toy store.
A primary benefit of owning the real estate is you are building equity. By acquiring such an asset, this equity tends to appreciate over time. It allows you the ability to borrow against the property if needed. You can also use other tenants’ income to help pay down debt on the property, as well as become another revenue stream. If you’re lucky enough to purchase the property in a flourishing area or during a down market, if would be worth more if or when you decide to sell the property.
Can you say triple net leases? While there are variations to triple net leases, the general concept is that as a landlord for a commercial property, you do not have to pay any expenses on your property, as you would with residential real estate. Therefore, in many cases, the lessee will be the one to handle all property expenses, including real estate taxes.
You can also expect tax breaks. By owning the real estate for your practice, you can deduct interest, depreciation and non-mortgage-related expenses from your property. Remember you can only deduct the interest portion of your mortgage payment and not expenses associated with your mortgage, such as closing costs or origination fees.

Disadvantages to buying dental office space

While there are many pros when it comes to buying the real estate of your office, there are also several cons, as well.

If you own the real estate, it is significantly harder to pick up and move to a different location if needed. If the part of town you are in is declining and your tenants leave, or you need a larger or smaller space, it is easier to relocate if you lease and not the owner. It is also possible for the property to lose value due to market changes, tax increases, interest rate fluctuations and deteriorating location.
When you buy both the real estate and dental practice, be prepared to make a larger upfront financial investment. Therefore, it is important to know if you are prequalified to make this sort of commitment. Because you will be tying up significant capital with the purchase of the space, you may not have the finances needed to put toward your practice, such as the purchase of new dental equipment, additional marketing efforts, hiring new staff or building out your practice.
Another downfall of owning the real estate of your dental practice is the capital needed to make improvements to the property. While when you are leasing space, you can work it into your lease to have the landlord make the necessary improvements. However, as the landlord yourself, those dollars come out of your pocket.
If you decide to buy a larger building and become a landlord to other tenants, be sure to familiarize yourself with your duties and responsibilities. While some may seem obvious, such as collecting rent, marketing available space and making repairs to the building, it is also important to remember a lot more goes in to becoming a landlord. One thing to understand is the time commitment you are making. To truly maximize your return on investment, you cannot be an absentee landlord. With commercial real estate, you are not only dealing with multiple leases, but also annual area maintenance costs that your tenants are typically responsible for. Other considerations are standard maintenance issues and public safety concerns.

Tips when buying office space

Before deciding whether to invest in the real estate for your dental office, make sure to weigh the benefits of owning the space, as well as the downside. One of the most important things when it comes to this large investment is to choose the right team. Most advisors will suggest you keep dental practice and real estate as independent entities. Make sure to consult your real estate professional and accountant to create a lease for yourself.

Advantages to leasing dental office space

Just like owning real estate, there are several pros and cons to leasing, as well.

Leasing allows for more flexibility in being able to pick and choose an area you want to start or relocate your practice. You do give up a lot of the freedom of owning real estate, but leasing allows you to move to a property you might not be able to afford in a high-trafficked location. This allows you, the medical professional, to gain retail or office visibility you might not be able to afford otherwise. Leasing also gives you the flexibility to be able to move the location of your practice if the rental rate becomes too expensive or the location deteriorates over time.
Depending on the term of your lease, landlords will grant “buy your tenancy” with what is called tenant improvement packages. These packages will give tenants an allowance to help build out their space. This, in effect, will allow you to put those monies toward marketing, equipment or hiring additional staff. Depending on vacancy in the space, the landlord can allow you grow your practice in adjacent space or you can give up space if you don’t need all the square footage.
One of the biggest perks to leasing is you’re not responsible for managing the property. Landlords will either manage the property themselves or hire out the services to a third party. These services include, landscaping, snow removal, janitorial, constant maintenance of the building including HVAC, plumbing, roof, elevator, windows cleaning and parking lot repair. If something goes wrong within your space, it is the management companies’ job to fix the problem. This relieves you of the responsibility of repairing ceiling tiles, fixing water leaks or replacing lightbulbs.
Another thing to remember is cash is king in the beginning stages of owning a practice. Not only is it significantly less expensive to lease a space than it is to purchase, but it also dramatically decreases your overall business risk. By freeing up this working capital, you can invest in additional marketing, equipment and, ultimately, a prime location for your practice. Compared to buying the real estate, the amount of upfront costs are one-sixth when leasing.
While there are tax benefits to buying the property, there are also many advantages when leasing. You can deduct lease payments, property taxes, property insurance, utilities and maintenance. Similarly, unlike when you purchase the real estate, you may deduct the entire amount of your lease payment.

Disadvantages to leasing dental office space

When you lease commercial space, you personally guarantee the terms within lease you signed. When you negotiate your lease, make sure the annual rent increases are at market rates. As time goes, the rent will continue to increase. This may bring additional pressure on you, the clinician, to produce more to afford the monthly rental payment.
Ultimately, you may realize you cannot stay in the space forever and may eventually need to relocate. While the reason for your move may be an exciting one — your practice is thriving and expanding — it can also hurt your business. You not only risk a high attrition rate for patients and potentially staff members who may determine they won’t make the commute, but it is also possible equipment can break during the move.
When you are in a space that is not truly yours, you don’t have the ability to make improvements and updates when desired. Depending on your lease and the landlord, changing your space to meet your needs is not always an option.
If you decide to lease and give up being a decision-maker, you’re at the mercy of the landlord, property manager and commercial leasing agent. You hope the owner of the property is willing to work with you, but your needs may become the landlord’s second or third priority if there is a larger/national tenant in the property that gets preferred status. And if you don’t have exclusivity on the property, the landlord can put a competitor or unattractive use in the property without your input.
The biggest disadvantage to leasing is that you are helping to pay down someone else’s mortgage and not building equity for yourself. Many retiring clinicians we work with at PTS complain they could have owned their property two to three times over again after paying rent in the same property for 30 years.
You can’t take advantage of the tax benefits in owning commercial real estate. When owning commercial real estate, you’re can reduce your tax bill by depreciating the property over a set period. Commercial real estate owners can depreciate their properties over 39 years. Consult your financial advisor or tax consultant to learn more about the tax advantages.

Tips when leasing dental office space

As with most things in business, remember many leases are negotiable. It is advised to not only evaluate your business needs from the beginning, but to also understand your costs, lease options and termination conditions. Make sure to negotiate your leasehold improvements and check market rates before signing. More importantly, don’t be too quick to sign. Consult your attorney first.

What’s next?

As the leader in dental practice transitions, we not only serve as a dental practice consultant, but we also have an in-house real estate department. The experts at PTS will help you throughout the entire dental transitions process.

We recognize that every individual and every practice is different. We will provide an in-depth analysis and dental practice valuation of your current situation to see if it is in your best interest to lease or purchase a property. While we can provide facts and tips for each side of the coin, it is always advised to speak with your tax attorney for advice on which direction is right for you.

At PTS, we recognize every individual and every practice is different. We will provide an in-depth analysis of your current situation to see if it is in your best interest to lease or purchase a property. Contact us to get the process started.

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