November 8, 2024

How DSOs Are Changing the Dental Industry

dentist in office

Exciting changes are sweeping through the dental industry, thanks to the rise of dental service organizations (DSOs). With over 375 DSOs now operating in the U.S., this transformative era is creating new opportunities for dentists and elevating the standards of patient care (1). DSOs are not just reshaping practice ownership; they’re transforming the landscape entirely by fostering a culture of innovation and forward-thinking strategies and opportunities for practice growth and development.

The Rise of DSOs: A New Era in Dental Care

Fueled by private equity investments, dental service organizations (DSOs) are rapidly acquiring individual practices, leading to a trend of consolidation that’s allowing dentists to sell their practices for better financial returns and less administrative burdens (2).

Factors like the skills gap among baby boomers and changing demographics have created a favorable environment for DSOs. As many baby boomer dentists approach retirement, there’s a growing demand for successors to take over their practices. However, younger dentists face challenges such as high student loan debt and limited resources, making solo practice ownership less appealing. DSOs are an attractive option, offering established support systems and financial backing that ease the burdens of practice ownership.

The demographic shift in the dental workforce also means that a new generation of practitioners is looking for flexibility and work-life balance, which DSOs can provide through centralized management and operational support.

In addition, private practitioners are struggling to navigate macroeconomic challenges that affect many industries today, especially workforce stability. Traditionally, dentists followed a predictable career path, but many are now prioritizing the job security and structured benefits that DSOs offer over the autonomy of owning a private practice.

This alignment between the needs of new dentists and the resources and stability that DSOs offer is fueling the trend of consolidation. According to the ADA, 13% of U.S. dentists are now affiliated with DSOs, with the number rising to 27% among younger practitioners who graduated five or less years ago (3).

This trend will continue as DSOs acquire more practices. Our experts predict that the dental industry could see up to 70% consolidation in the next five years, permanently and significantly altering how dental care is delivered (4).

Why More Dentists Are Choosing to Partner With DSOs

New Opportunities and Options

Dentists now have a wealth of new options and flexible paths that were previously unavailable. Today, they can choose from a variety of partnership models when they work with DSOs, which allow them to maintain a level of control while benefiting from the extensive resources these organizations provide.

For example, two great deal structures for dentists contemplating a sale are equity rolls and joint ventures. Equity rolls involve dental entrepreneurs exchanging a portion of their practice equity for a financial stake in the DSO. This arrangement allows them to participate in the DSO’s growth and success while still retaining some ownership in their practice. It not only provides immediate financial benefits but also aligns the doctor’s interests with those of the DSO, creating a partnership that fosters mutual success.

Joint ventures (JVs) allow dentists to retain a stake in their practice while also receiving a substantial lump sum at the time of the sale. This structure enables them to benefit from the ongoing success of their practice while having immediate access to capital, which they can use for personal investments, such as funding their children’s education or pursuing other financial endeavors.

An increasingly attractive model is the sub-DSO. In this arrangement, practice owners exit debt-free with a significant upfront payment and typically retain a 40% ownership stake and profit share in the sub-DSO portfolio. Unlike traditional models, sub-DSOs allow for equity to be held separately, facilitating growth and expansion. This approach offers multiple return avenues, including equity gains and profit sharing, making it a lucrative option for dentists looking to enhance their overall wealth.

Options like these provide dentists with flexibility in structuring their financial future, whether they want to scale their practices or transition smoothly into retirement.

Benefits of Partnering with a DSO

By joining a DSO, dentists gain access to centralized support in areas like marketing, billing and human resources, allowing them to focus on clinical care rather than the complexities of practice management.

Many dentists are drawn to DSOs for the opportunity to offload these managerial responsibilities and concentrate on what they do best: patient care. DSOs relieve dentists from the burdens of running a business, including managing payroll, hiring staff and navigating regulatory issues. In addition to operational support, DSOs often provide higher financial returns when selling practices compared to individual buyers, mainly due to their private equity backing.

For some dentists, the decision to partner with a DSO is driven by the flexibility and growth opportunities they provide. Rather than shouldering the financial and operational risks of owning a practice, they can enter a DSO partnership that enables them to focus on clinical work and even pursue executive leadership roles within the organization if they choose (5).

Evolution of Patient Care

One of the most significant changes DSOs have brought is in the area of patient care. Traditionally, solo practitioners managed every aspect of their practice, and it can be difficult to keep up with technological advancements. DSOs, however, have the resources to invest in cutting-edge technology, improving diagnostic tools, treatment options and overall patient experience.

This means better care through more accurate diagnoses, less invasive treatments and faster, more efficient procedures. Additionally, DSOs can offer extended office hours, flexible payment plans and a wider range of services under one roof, making dental care more accessible and convenient.

Moreover, DSOs are increasingly fostering “whole-person” care by integrating dental and medical services. This holistic approach benefits patients, ensuring that their oral health is not treated in isolation but as part of their overall well-being (6). By partnering with medical professionals and leveraging their scale, DSOs can help lead the charge in transforming how dental care is delivered.

The Role of Technology in the Growth of DSOs

Technology plays a critical role in the success and expansion of DSOs. These organizations are often quick to adopt innovative technologies, ranging from digital X-rays and electronic health records to teledentistry platforms. This ability to invest in cutting-edge innovations gives DSOs a significant advantage over independent practices, many of which struggle to keep pace with the high costs of technology upgrades.

In addition to foundational tools, DSOs can advance practices with new technologies such as artificial intelligence (AI) to support dentists and front-office staff (7). AI enhances workflow efficiency, improves patient communication and optimizes appointment scheduling. 3D printing is revolutionizing restorative dentistry with the rapid production of crowns, bridges and other dental appliances, significantly reducing turnaround times and improving fit (8). In cosmetic dentistry and orthodontics, augmented reality (AR) is emerging as a powerful tool for treatment planning and patient education, helping patients to visualize potential outcomes and understand their procedures better (9).

Finally, by centralizing data management and integrating electronic systems, DSOs can ensure consistent quality of care across all affiliated practices. It’s a technological edge that not only differentiates DSOs from independent practices but also enhances their ability to provide high-quality, patient-centered treatment. Overall, the strategic use of technology is pivotal to the ongoing growth and success of DSOs in the evolving dental landscape.

How DSOs are Refining the Business of Dentistry

DSOs are refining the “business side” of dentistry. By consolidating administrative functions and optimizing cost structures, DSOs have made dental practices more profitable. Their financial success allows them to reinvest in their practices, further enhancing the services they offer to patients.

These organizations streamline operations by centralizing administrative tasks, resulting in more efficient, standardized workflows across their affiliated practices. This model not only enhances operational efficiency but also improves profitability for dentists, since DSOs can leverage economies of scale.

For example, DSOs negotiate better rates on supplies and services, reducing operational costs. They also offer marketing support, helping practices attract more patients through targeted advertising and online presence management. By refining business practices and offering comprehensive management solutions, DSOs allow dentists to maximize their earnings while maintaining clinical autonomy.

The Cultural Shift: How DSOs Are Transforming Dental Practice Environments

Traditionally, dental practices were small, family-owned businesses that operated independently. Increasingly, DSOs are recognizing the importance of maintaining the unique culture of each practice they acquire to help both staff and patients feel comfortable with the transition.

As more practices join DSOs, a culture of collaboration and growth is also emerging. For example, some DSOs provide various opportunities for professional development beyond clinical work, such as pathways into executive leadership roles and participation in clinical advisory boards (5). These roles may come with performance-based bonuses and the chance to mentor new dentists, creating a rewarding environment where experienced practitioners can share their knowledge and skills. Certain DSOs may offer training, and career development pathways, making them an attractive option for the next generation of dental professionals.
By focusing on growth and development opportunities, DSOs can foster a sense of community within their organizations. This collaborative environment helps dentists achieve professional fulfillment, personal satisfaction and meaningful connection to their work.

Common Questions

Are DSOs leading to the consolidation of the dental industry?

Yes, DSOs are at the forefront of the consolidation trend in the dental industry. This wave of consolidation is not merely a shift in ownership; it reflects a broader transformation in how dental care is structured, managed and delivered. With their capacity for scalability and resource allocation, DSOs are redefining the competitive landscape, ensuring that practices can thrive in a rapidly evolving environment.

What regulatory changes are being driven by the rise of DSOs?

The rise of DSOs has prompted regulatory changes across the dental industry. As these organizations continue to expand, they attract increased scrutiny from regulatory bodies to ensure quality of care, patient safety and fair competition.

In Becker’s Dental Review, Ronald Perry, DDS, emphasizes that, “regulatory scrutiny may increase to ensure quality of care and patient safety within the dental industry” (10). This heightened oversight is intended to address concerns about the corporate practice of dentistry and its implications on patient-provider relationships.

Scott Pope, DDS, notes in Becker’s Dental Review that DSOs face regulatory challenges related to “patient privacy and billing practices,” highlighting the complexities of navigating compliance standards across various jurisdictions (10). The evolving regulatory landscape means that DSOs must continuously adapt to meet the requirements of the regions in which they operate.

DSOs are also subject to scrutiny regarding their impact on clinical autonomy. To address concerns, many DSOs have adopted policies that preserve dentists’ decision-making authority when it comes to patient care. This balance between clinical independence and operational support has become a key factor in their success.

Ultimately, the influence of DSOs on the dental industry will be shaped by ongoing healthcare policy developments, patient preferences and the ability to uphold high standards of care amidst these regulatory changes.

How do DSOs affect the way dental practices are managed?

DSOs have shifted towards more collaborative management structures, offering growth opportunities beyond clinical work. Dentists can focus on patient care while DSOs handle administrative tasks, allowing for more efficient and profitable practice management.

When considering a partnership, it’s important to evaluate the DSO’s support systems and their dedication to maintaining clinical autonomy. While some older DSOs gained a reputation for enforcing strict policies, like treatment quotas, many newer organizations recognize the importance of preserving the unique qualities and successful practices of their affiliates. They understand that the satisfaction of dental providers is one of the most important elements for the success of their investment.

However, some less reputable DSOs still operate. A knowledgeable broker can help you spot potential red flags and direct you toward more reputable DSOs that focus on clinical independence and shared success.

Bottom Line

The dental industry is undergoing a significant transformation as DSOs reshape practice operations and patient care. By providing centralized support and access to advanced technology, DSOs enable dentists to focus on high-quality care while alleviating the burdens of practice management. This shift fosters a culture of innovation and forward-thinking strategies among dental professionals, making it an exciting time to be in the field.

With DSOs rapidly acquiring practices, the current wave of consolidation is predicted to result in up to 70% of the industry being consolidated within the next five years. Now is the time to act; the window for the most lucrative partnership opportunities is closing fast.

Contact the experts at Professional Transition Strategies today to discover how partnering with a DSO can enhance your practice and support your future plans in this evolving landscape.

References

DrBicuspid. Mythbusters: Separating DSO fact from fiction, https://www.drbicuspid.com/dental-business/dso/article/15664821/mythbusters-separating-dso-fact-from-fiction
Inc. Private equity and the dental industry’s consolidation curveball, https://www.inc.com/inc-masters/private-equity-and-the-dental-industrys-consolidation-curveball.html
American Dental Association. Practice modality by the numbers, https://adanews.ada.org/new-dentist/2024/web-exclusives/practice-modality-by-the-numbers/
DrBicuspid. Halfway through the dental consolidation wave: Here’s what entrepreneurs need to know, https://www.drbicuspid.com/dental-business/dso/article/15667122/halfway-through-the-dental-consolidation-wave-heres-what-entrepreneurs-need-to-know.
DrBicuspid. 4 key financial considerations when selling to a DSO, https://www.drbicuspid.com/dental-business/practice-sales/article/15678019/4-key-financial-considerations-when-selling-to-a-dso
American Dental Association. Practice modality by the numbers, https://adanews.ada.org/new-dentist/2024/web-exclusives/practice-modality-by-the-numbers/

November 6, 2024

What’s Your Dental Practice Really Worth? The Power of Enterprise Value in Practice Transitions

When it comes to selling a dental practice, determining the enterprise value (EV) is one of the most critical steps you can take. This figure doesn’t just show a snapshot of what your practice might be worth; it’s a comprehensive look at its total value, from income-generating assets to any debt or liabilities that come with the deal. Here’s how EV is calculated and why it plays such a vital role in understanding, evaluating, and maximizing your practice’s potential in a sale.

What is Enterprise Value?

Enterprise Value is the total value of a business a dental entrepreneur receives at the sale of their practice, calculated by adding the market value of equity and any outstanding debt, while subtracting cash and cash equivalents. Unlike standalone profit metrics, EV considers all aspects of the business — making it a key measure for practice owners aiming to maximize value in a transition.

In other words, EV helps provide an answer to: “What’s the true value of everything my practice encompasses?”

Calculating Enterprise Value

Enterprise value represents the total worth of a dental practice and reflects the buyer’s willingness to pay, payment terms, and the type of capital used (cash, debt, or equity). This value is often simplified into the practice’s EBITDA (earnings before interest, taxes, depreciation, and amortization) and a multiple applied to that cash flow.

Together, these components create a number that represents the total value of the transaction.

Why Enterprise Value Matters in Your Transition

When groups make an offer, their goal is like yours when buying a car or house: to pay the lowest price for the asset. There’s nothing misleading here, as long as they’re transparent, because they’re responsible to their investors to secure the best deal.

For dental entrepreneurs, this means dental service organizations (DSOs) often calculate an adjusted EBITDA that considers factors impacting profitability. We explain to clients that EBITDA can be “squishy” or adjusted to create the impression of a higher multiple, even if the actual enterprise value remains unchanged.

Here’s an example. An investor may calculate EBITDA by factoring in costs the current owner doesn’t have — such as adjusted management expenses, doctor pay or rent if the seller owns the building. Then, they may offer a higher multiple based on the adjusted EBITDA.

So, a practice with $400,000 EBITDA might receive a 6X offer of $2.4 million, while the same practice adjusted to $280,000 EBITDA might get an 8X offer of $2.24 million. Although the 8X multiple may sound more impressive, the true enterprise value was higher in the first case — proving that enterprise value is the most accurate determinant of a practice’s value.

When doctor’s understand that EV is the most important metrics to key in on when assessing offers, they’re then able to make the best decision for their practice.

Making Enterprise Value Work for You

As you prepare to transition your dental practice, remember that enterprise value is more than just a number; it’s a tool that allows you to represent your practice’s full worth accurately. An experienced broker or advisor can help you calculate and understand EV, empowering you to enter negotiations with a clear view of your practice’s strengths and value.

Whether you’re aiming to sell to another dentist, a DSO, or private equity, understanding EV will help you recognize the true potential in every offer. It’s the number that tells the full story — use it to unlock your practice’s worth and secure the future you’ve worked so hard to build.

October 1, 2024

Common Mistakes When Selling Your Dental Practice

Selling your dental practice is one of the most significant decisions in your professional life. However, many dentists make costly mistakes that can reduce their practice’s value or make the transition more difficult. Understanding these pitfalls is crucial to maximizing your practice’s value and ensuring a smooth transition. Here, we’ll discuss some common mistakes to avoid when selling your dental practice.

Pricing Errors: Getting the Valuation Right

One of the biggest mistakes dentists make is not getting an accurate valuation of their practice. Overpricing can deter potential buyers, while underpricing can result in lost revenue. It’s essential to hire a professional valuator who understands the nuances of dental practices to determine a fair and accurate valuation.

Consequences of Overpricing or Underpricing

Overpricing your practice can lead to it sitting on the market for an extended period, making it less attractive over time. On the other hand, underpricing can lead to a quick sale but at the cost of potentially losing tens or even hundreds of thousands of dollars.

Tips for Obtaining a Reliable Valuation

To ensure you’re getting a reliable valuation:
– Use a professional valuator with experience in dental practices
– Review financial records and adjust for non-recurring expenses
– Consider market conditions and recent sales of similar practices

Overlooking Potential Interest: Reaching More Qualified Buyers

Another common mistake is not marketing the practice to a broad enough audience. Limiting your buyer pool can reduce competition and result in a lower sale price.

It’s crucial to cast a wide net and market your practice to various potential buyers, including DSOs, private buyers and dental groups. That’s why it’s imperative to partner with a brokerage firm when selling your practice who will proactively market the practice and place it in a competitive environment.

Underestimating the Time Required: Start Early

Selling a dental practice is not a quick process. It can take months or even years to find the right buyer and complete the transaction. Starting the process early and being patient is key to ensuring a successful sale. In addition, starting early allows the seller to be more discerning with offers that come in as well as allows them to have the time to make necessary changes so their practice is more desirable or valued higher.

Planning Your Timeline

To avoid rushing the sale:
– Begin planning at least five years before you intend to sell
– Regularly review and update your financials
– Stay informed about market conditions

Neglecting Proper Documentation: Keep Your Records in Order

Incomplete or disorganized documentation can delay the sale process and scare off potential buyers. Proper documentation includes but is not limited to: financial records, patient data and legal agreements. Ensuring that all your records are up-to-date and accurate is essential for a smooth transaction.

Essential Documents to Prepare

Before listing your practice for sale, ensure you have the following documents ready:
– Financials for the last 3-5 years: P&L’s, balance sheets, income Statements, tax returns, credit card statements, bank statements, production list by provider/code
– HR/employee matters: employee handbook, benefit plan documents, bonus/incentive plans, employer retirement contributions, employee contracts/associate agreements, employee list (including: name, date of hire, age, salary, position)
– Insurance: current insurance policies (malpractice, workers comp, business owners, cyber, fiduciary) and insurance carrier list and contracts
– Real Estate Matters: Leases, mortgages, any real estate that is used by the company but is not subject to a written lease
– Corporation docs: Articles of incorporation, bylaws, operating agreement, equity holder agreements and certificate of incorporation good Standing or Formation (just one is needed)
– Equipment: leases, equipment list (which can be found in the depreciation section of tax returns with additional physical condition)
– Vendors: list of vendors used at the practice

Failing to Address Outstanding Liabilities: Clean Up Your Finances

Unresolved liabilities can complicate the sale process and reduce the practice’s value. These can include unpaid taxes, outstanding loans or unresolved legal issues. It’s essential to address these liabilities before listing your practice for sale.

How to Address Outstanding Liabilities

To address outstanding liabilities:
– Pay off any outstanding debts
– Resolve any legal issues
– Ensure all taxes are paid up-to-date

Not Preparing the Practice for Sale: First Impressions Matter

A poorly presented practice can turn off potential buyers. Ensuring your practice is well-maintained and aesthetically pleasing can significantly impact its perceived value. This helps with tours, but does not factor into the value.

Steps to Prepare Your Practice for Sale

– Ensure all equipment is in good working order
– Clean and declutter the office

Ignoring Transition Planning: Preparing for a Smooth Handover

Failing to plan for the transition can lead to a loss of patients and staff, reducing the practice’s value. A well-thought-out transition plan ensures continuity of care and a smooth handover to the new owner.

Steps for Effective Transition Planning

Effective transition planning involves:
– Introducing the new owner to staff and patients gradually after the sale is done. Sharing this news too soon may induce fear in some employees and they may leave, which can negatively impact the practice
– Setting a timeline for your departure
– Offering to stay on temporarily to assist with the transition

Overlooking the Importance of Professional Advice: Get Expert Help

Trying to sell your practice without professional help can lead to costly mistakes. Selling a practice can take anywhere between 150-200 hours, which can add more stress and responsibilities on your already full plate. Hiring a professional dental broker, attorney and accountant can help you navigate the complexities of the sale process and ensure you get the best possible outcome.

How to Choose the Right Professionals

When selecting professionals to assist with your sale:
– Choose a broker with experience in dental practice sales
– Partner with a broker who has a nationwide presence to reach an even larger audience of prospective buyers
– Select a broker who prioritizes your goal first, such as receiving payment after your practice is sold and you are paid
– Choose a broker who leverages a proactive marketing approach to source more buyers instead of only listing the practice online and waits for the phone to ring
– Enlist a broker who’s dedicated to finding the right buyer for you, not just pressuring you to choose a buyer they receive kickbacks from
– Hire an attorney specializing in dental practice transactions
– Work with an accountant who understands the financial nuances of dental practices

Bottom Line

Avoiding these common mistakes can significantly impact the success of your dental practice sale. By getting an accurate valuation, marketing to a broad audience, ensuring proper documentation, planning for the transition, addressing outstanding liabilities, preparing your practice, seeking professional advice and giving yourself enough time, you can maximize the value of your practice and ensure a smooth transition.

For more information and professional guidance, contact us today.

October 1, 2024

How to Build a Dental Practice Transition Plan

Building a successful dental practice transition plan involves careful planning. The experts at Professional Transition Strategies can help navigate the complex process.

The Importance of a Well-Structured Transition Plan

Transitioning a dental practice is a significant milestone in a dentist’s career. Whether you’re planning to retire, sell or bring in a new partner, having a well-structured dental practice transition plan is crucial. A detailed plan ensures a smooth handover, maintains the practice’s value and secures the future for both the departing and incoming professionals. Without a clear direction, the transition process can become chaotic, leading to potential financial losses, patient attrition and a decline in staff morale.

This article will guide you through the essential steps in creating a successful dental practice transition plan, ensuring a seamless transfer of ownership and continued success for your practice.

Essential Components of a Transition Plan

A comprehensive dental practice transition plan involves several key components, each playing a vital role in ensuring that the transition is successful and that the practice continues to thrive.

1. Complete a Practice Valuation

The first step in any transition plan is to assess the value of your dental practice. Understanding your practice’s worth is crucial not only for setting a fair price but also for establishing realistic expectations during the transition process.

Understanding Your Practice’s Worth

This involves analyzing financial records, patient demographics and the overall market environment. Engaging a dental-specific professional valuator can also provide an unbiased valuation, which is often necessary for negotiations with potential buyers.

– An accurate valuation includes assets like:
– 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

2. Clear Goals and Objectives

Defining your goals is a critical component of a successful transition. What do you want to achieve through this transition? Your objectives will guide the entire process.

Defining Your Transition Goals

Whether your goal is to sell the practice outright, bring in a partner or gradually reduce your involvement, clear goals will help shape the transition plan. It’s essential to consider your personal and financial goals and how they align with the future of the practice.

Aligning with Future Owners

It’s crucial that your goals align with those of the incoming buying party, whether it be a DSO or an individual doctor. Misaligned goals can lead to conflicts and complications, jeopardizing the success of the transition.

3. Legal and Financial Considerations

Legal and financial considerations are at the heart of any transition plan. Properly addressing these areas will help you avoid pitfalls and ensure a smooth transition.

Legal Documentation

Ensure all legal documentation is in place, including contracts, non-compete clauses, and any agreements concerning the sale or transition. It’s advisable to work with a lawyer who specializes in dental practice transitions to ensure all documents are airtight.

Tax Implications

Understanding the tax implications of your transition is crucial. Selling a practice can have significant tax consequences, and it’s important to work with a financial advisor to optimize your tax situation. This may involve strategies such as installment sales, tax-deferred exchanges or other tax planning techniques to minimize your liability.

4. Timeline for a Smooth Transition

A well-planned timeline is essential for a smooth transition. Rushing the process can lead to mistakes, while dragging it out can create uncertainty for staff and patients. That’s why we always recommend beginning the transition process at five years prior to selling a practice.

Setting a Realistic Timeline

Transitioning a dental practice doesn’t happen overnight. Depending on the complexity of the transition, it can take anywhere from several months to a few years. A well-structured timeline allows for a gradual handover, ensuring continuity of care for patients and minimizing disruptions to the practice.

Milestones and Deadlines

Establishing key milestones and deadlines is crucial for tracking progress and ensuring the transition stays on course. This includes deadlines for finalizing legal documents, transferring patient records, and notifying staff and patients.

5. Risk Management and Contingency Plans

No plan is without risks, and being prepared for potential obstacles is crucial for a successful transition.

Identifying Potential Risks

Consider factors such as a new landlord and a lease transfer, if a doctor was to slow down their involvement at the practice as they get older, etc. that could impact the transition. Identifying these risks early allows you to develop strategies to mitigate them.

Developing Contingency Plans

Having contingency plans in place will allow you to navigate unforeseen challenges without derailing the transition process. This could include having backup financing options, alternative buyers, or temporary staffing solutions.

6. Expert Guidance and Support

Transitioning a dental practice is complex, and seeking professional guidance can make all the difference. Professional advisors can provide invaluable insights and support, ensuring that every aspect of your plan is executed flawlessly.

Engaging a Seasoned Dental Transition Broker

Consider hiring experts who specialize in dental practice transitions because they know the industry landscape better than a white-labeled business broker or even other advisors who think they can do it all like an attorney, CPA, real estate agent, etc..

An experienced broker with a national presence will also be more beneficial than a regional broker, as they likely have relationships with more qualified DSOs and can help better place your practice in a competitive environment. Seek the guidance of a broker who maintains strong relationships with hundreds of DSOs – not just the largest regional groups or groups that provide a kickback to the broker for referrals.

They can help you with everything from valuing your practice to finding the right buyer and negotiating the sale. Experienced brokers can also brainstorm and propose creative transition solutions that are custom to the doctor’s needs and goals Their expertise ensures that the transition is smooth and successful.

Bottom Line

Building a successful dental practice transition plan requires careful planning, clear communication, and professional support. By addressing each of these key components, you can ensure a smooth and profitable transition, securing the future of your practice and its continued success.

Transitioning a dental practice is a major step, but with the right plan in place, it can be a positive and rewarding experience for everyone involved. If you’re considering a transition, contact the experts at Professional Transition Strategies to get started on your custom plan today.

August 27, 2024

Unlocking Your Practice’s Untapped Potential: The Power of PTS’ Proprietary ROI Calculator

Navigating the complex financial landscape of dental practice transitions can be daunting. Dentists often find themselves overwhelmed by the many variables influencing their financial outcomes. At Professional Transition Strategies, we recognized the need for a tool that could demystify this process, providing clear and accurate financial projections. Enter our proprietary ROI calculator — a game-changer in dental practice valuations. In this guest blog, our VP of Valuations Mark Frazzini describes what makes PTS’s ROI calculator unique and how it helps practice owners uncover their practice’s untapped financial potential.

Painting a Clearer Picture of Financial Projections

As a dental practice owner, imagine having a detailed projection of every buyer offer with a complete financial picture, from immediate cash at close to the long-term effects of recapitalization events, tax implications and overall financial strategy, and how it will benefit you in the long term. That’s exactly what PTS’s ROI calculator offers.

After completing an initial valuation, we use our proprietary tool to help dentists visualize their potential financial outcomes from each offer. Whether you’re dealing with substantial debt or looking for immediate cash flow, our calculator delivers precise projections to inform your decisions.

Why Do You Need This?

The inspiration for our ROI calculator stemmed from the need to help dental entrepreneurs compare various buyer offers and their financial outcomes while also weighing the option of not taking any deal, comparing that option with the practice’s projected growth rate. With so many variables at play — deal structure, tenure, debt, real estate, opportunity costs — it was crucial to develop a tool that could provide a comprehensive analysis.

Oftentimes, this is a situation where you’ve outgrown your regular advisors, such as your accountant and financial planner. They may not be able to project your practice’s results accurately given the unique environment of the consolidation wave or understand the variables and nuances of dental industry transitions. Our calculator can shine a light on these complexities, providing precise projections and insights that traditional advisors might miss.

Embracing the Consolidation Wave

In today’s market, the consolidation wave is transforming the dental industry, with the majority of practices being acquired by larger dental groups. Currently, about 35% of the dental industry is already consolidated, and experts predict this will reach the full 60% to 70% in the next five years.

In a consolidation wave, your equity will act differently. Holding onto equity in a single practice can be risky, much like investing in a single stock. By partnering with a dental service organization (DSO), dentists can benefit from faster equity growth and reduced risk. Our ROI calculator demonstrates this by showing how your equity can grow and stabilize when affiliated with a larger group, illustrating the opportunities for major financial security and growth.

Equity arbitrage, the concept of optimizing the value of your practice’s equity during consolidation, is a key consideration. This arbitrage opportunity arises because DSOs are typically backed by private equity and can provide higher offers due to their access to capital and different financial structures. The calculator provides clarity on how your equity can grow in this environment, surpassing what you might achieve through traditional practice updates alone.

This tool also offers insight on the power of time, showing how the longer your equity participates in private equity, the greater its growth potential, often surpassing the average growth seen in public markets like the stock market.

Importantly, you need to start planning for a transition now before the consolidation wave closes in the next five years to seize these equity-growing opportunities.

Benefits of Using the ROI Calculator

The calculator contextualizes how much better you could perform by partnering with a group. While it’s easy to project that big changes or updates to your practice will lead to substantial growth, even a high-performing practice typically won’t match the equity returns achievable in this consolidation wave. Our tool can demonstrate how partnering with a group could potentially surpass these projections, offering superior returns in this unique period.

The feedback from doctors has been overwhelmingly positive, with many appreciating the detailed insights and clarity provided by the calculator.

What Makes the Calculator Different?

Other brokers and consultants often speak in generalities and rely on rule-of-thumbs when discussing deals with DSOs. For instance, a common rule of thumb is that private equity investments typically grow about 4x over a four-year cycle. While this can give a rough idea of potential returns, it doesn’t account for the specific details of your situation.

Our calculator is much more robust, allowing for discussions and scenario playing with our experts, using the tool to present a side-by-side comparison of all the options.

This apples-to-apples view includes short-, medium-, and long-term projections, giving a complete picture of how different deals stack up against one another. It considers every dollar and cent, including the complexity of how your equity is structured — whether as a joint venture, holdco, or sub-DSO equity. It also accounts for factors such as taxes, practice management and existing debt.

What’s truly unique is the calculator’s flexibility regarding timing. It can project your equity’s performance based on where you are in the private equity cycle, whether you’re already two years in or just starting. It provides insights into what your equity will look like in the next cycle, typically three to five years out, helping you plan for the future with precision.

It’s not just about the immediate cash at close; it’s about understanding how each deal affects your financial future in the long term.

Variables Factored into the Calculator

Our ROI calculator considers a wide range of variables, including collections, EBITDA, SDE, tax implications (both state-specific and deal-structure specific), the doctor’s desired practice timeline, go-forward compensation style, opportunity costs, synergies from partnerships, deal structure details (such as cash versus equity, earn-outs, holdbacks), private equity styles, real estate ownership, and debt analysis. Each variable is meticulously considered to provide a comprehensive financial picture.

Remember, you don’t need to worry about managing all these factors yourself; the calculator handles them for you. Our experts at PTS are here to walk you through the results and help you understand how they fit with your goals.

Final Thoughts

The PTS proprietary ROI calculator is more than just a financial tool; it’s a resource designed to help dentists understand the untapped potential of selling their practice.

The true value of our ROI calculator lies in its ability to compare different deals and end results, showing how each aligns with your overall goals. By visualizing the benefits of capitalizing on the consolidation wave before it’s too late, dentists can make well-informed decisions that align with their long-term financial objectives.

Contact the experts at PTS to see how our ROI calculator can help you unlock your practice’s full financial potential.

August 15, 2024

The Emotional Side of Transitioning Your Dental Practice

Painting a Clearer Picture of Financial Projections

Why Do You Need This?

Embracing the Consolidation Wave

Importantly, you need to start planning for a transition now before the consolidation wave closes in the next five years to seize these equity-growing opportunities.

Benefits of Using the ROI Calculator

The feedback from doctors has been overwhelmingly positive, with many appreciating the detailed insights and clarity provided by the calculator.

What Makes the Calculator Different?

Our calculator is much more robust, allowing for discussions and scenario playing with our experts, using the tool to present a side-by-side comparison of all the options.

It’s not just about the immediate cash at close; it’s about understanding how each deal affects your financial future in the long term.

Variables Factored into the Calculator

Final Thoughts

The PTS proprietary ROI calculator is more than just a financial tool; it’s a resource designed to help dentists understand the untapped potential of selling their practice.

Contact the experts at PTS to see how our ROI calculator can help you unlock your practice’s full financial potential.

July 10, 2024

More Reasons To Sell Your Dental Practice to a DSO

Painting a Clearer Picture of Financial Projections

Why Do You Need This?

Embracing the Consolidation Wave

Importantly, you need to start planning for a transition now before the consolidation wave closes in the next five years to seize these equity-growing opportunities.

Benefits of Using the ROI Calculator

The feedback from doctors has been overwhelmingly positive, with many appreciating the detailed insights and clarity provided by the calculator.

What Makes the Calculator Different?

Our calculator is much more robust, allowing for discussions and scenario playing with our experts, using the tool to present a side-by-side comparison of all the options.

It’s not just about the immediate cash at close; it’s about understanding how each deal affects your financial future in the long term.

Variables Factored into the Calculator

Final Thoughts

The PTS proprietary ROI calculator is more than just a financial tool; it’s a resource designed to help dentists understand the untapped potential of selling their practice.

Contact the experts at PTS to see how our ROI calculator can help you unlock your practice’s full financial potential.

June 18, 2024

Is Now the Time to Sell Your Dental Practice? Insights from Kim McCleskey on The DrBicuspid.com Podcast

Professional Transition Strategies Consultant Kim McCleskey recently joined The DrBicuspid.com Podcast to discuss the current economic climate and its implications for dentists interested in selling their practices now or in the future. With 30 years of experience in the industry, McCleskey provided valuable insights into the evolving landscape of dental practice ownership. Here’s a summary of the podcast conversation.

Understanding the Current Economic Climate

McCleskey highlighted the current state of the dental industry, noting that it is approximately 35% consolidated, which is about halfway through the consolidation wave taking place. Consolidation is projected to reach the full 60-70% within the next 5-7 years, signifying a paradigm shift in the industry’s investment dynamics. With a growing number of practices falling under private-equity backed DSOs, the influx of investor capital will eventually slow. McCleskey emphasized the significance of this shift, as it will fundamentally alter the ownership landscape of dental practices.

Urgency in Decision-Making

With the impending wave of dental consolidation, there is a sense of urgency for dentists to consider their options. McCleskey discussed the pressure on dentists to sell now versus potentially waiting. Your options in the next three to four years following the peak of consolidation are going to decrease and change, she noted. She also stressed the importance of dentists understanding their options and making informed decisions to navigate this evolving landscape effectively.

Treating Dental Practices as Businesses

McCleskey underscored the importance of treating dental practices as businesses and understanding their profitability and value. The first step down this path is to get dialed into conversations about profitability. Working with experts like PTS to create a prospectus can help you understand your business and options, whether you’re selling to an individual or a DSO. This business-oriented approach ensures dentists make informed decisions that enhance the financial health and marketability of their practice.

Preparing Your Practice for Sale

The dental industry consolidation wave is nearing its peak, with only one to two rounds of recapitalization events likely remaining. Translated for your practice: This is a limited-time opportunity to maximize your wealth through a sale. For instance, for a practice valued at $2 million with $500,000 EBITDA (earnings before interest, taxes, depreciation and amortization), it can be a difference between selling for $2.75 million vs. $3.25 million for the same deal with two recapitalization events. Don’t miss out on the chance to capitalize on a strong seller’s market.

In preparation to sell, it’s imperative to build the profitability of your practice and its infrastructure now. McClesky advises that if you want to use your practice as an investment vehicle, now is the time to make sure your practice has the kind of value that will help with your personal and professional goals. She advises that it’s never too early to have an understanding of where your business is and to have a valuation done to understand what you can do differently to move the needle in your favor for when it comes time to sell.

Exploring Alternative Options

Selling to a DSO is a great option for many dentists, especially for those with practices that aren’t currently profitable and are considering retirement. Instead of closing up shop and walking away with nothing, DSOs offer an alternative that can help improve profitability and secure a better outcome for your practice.

McCleskey emphasized the importance of understanding the range of deal options DSOs provide. DSOs provide various deal structures tailored to meet different needs and goals. These include outright sales, equity rollovers, joint ventures, 100% buyouts and hybrid options. Each type of deal offers unique benefits, such as maintaining some level of ownership, receiving ongoing income or benefiting from the DSO’s resources and support to enhance practice profitability.

DSOs can help transform an unprofitable practice into a more valuable asset, offering a practical and profitable exit strategy for dentists close or ready to retire. By leveraging these options, dentists can find a deal structure that aligns with their personal and professional objectives.

What’s Next?

McCleskey’s insights shed light on the current economic climate of the dental industry and its implications for dentists. With the industry poised for significant consolidation in the coming years, dentists must understand their options and make strategic decisions now to secure their future success.

Listen to the recent episode of The DrBicuspid.com Podcast featuring McCleskey to gain insights on the pressing market dynamics and understand if now is the right time to consider selling.

Contact the experts at Professional Transition Strategies for guidance on practice valuations, profitability consulting, and exploring the best transition options for your unique goals.

June 14, 2024

Navigating Dental Practice Transitions: Insights from Kim McCleskey on The DrBicuspid.com Podcast

Understanding the Current Economic Climate

Urgency in Decision-Making

Treating Dental Practices as Businesses

Preparing Your Practice for Sale

Exploring Alternative Options

What’s Next?

Listen to the recent episode of The DrBicuspid.com Podcast featuring McCleskey to gain insights on the pressing market dynamics and understand if now is the right time to consider selling.

Contact the experts at Professional Transition Strategies for guidance on practice valuations, profitability consulting, and exploring the best transition options for your unique goals.

May 29, 2024

Why Dental Entrepreneurs Need to Act Now: Insights from Becker’s Webinar with PTS Founder Kyle Francis and Lead Broker Stanton Kensinger

Understanding the Current Economic Climate

Urgency in Decision-Making

Treating Dental Practices as Businesses

Preparing Your Practice for Sale

Exploring Alternative Options

What’s Next?

Listen to the recent episode of The DrBicuspid.com Podcast featuring McCleskey to gain insights on the pressing market dynamics and understand if now is the right time to consider selling.

Contact the experts at Professional Transition Strategies for guidance on practice valuations, profitability consulting, and exploring the best transition options for your unique goals.