How to Get a Return on Your Dental Practice Investment

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

Time value

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

Loan payment

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

Tax advantages

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

Cash flow

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

Sole proprietorship

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

Prospectus

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

What’s next?

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

6 Types of Dental Practice Agreements

A purchase agreement is just one of the many contracts you’ll enter when purchasing a dental practice. While the amount of paperwork may seem daunting, it’s important to make sure all aspects are covered so there are no surprises after signing on the dotted line. Here are six types of agreements (and their subsections) you can expect.

Purchase agreement

Asset purchase agreement

In a straight buy-out, it’s important to outline what assets are included in a practice—most notably, the equipment—just like you would when purchasing a house with or without the kitchen appliances.

Stock purchase agreement

When entering into a partnership, all terms and conditions related to the purchase and sale of a company will need to finalized to protect both the buyer and seller to determine what’s included and what’s not, such as the name of the practice.

Real estate agreement

Upfront purchase

Opening a new practice may mean purchasing a property from the beginning, for which the rights, obligations, and liabilities are outlined of both the buyer and seller, including defining the property that is being purchased or sold.

First right of refusal

Having a real estate agreement upfront will give the first right of refusal to a partner when selling the practice should the doctor decide to sell the building so that the buyer is not then a tenant.

Lease agreement

If not purchasing the property, a lease agreement will outline the term and scope in regards to whether or not the buyer will get everything for a flat rate or will have to pay for upgrades, such as cosmetic updates like wood floors.

Employment

When not a straight buy-out, an employment agreement will outline the terms of an associateship before and after the transition, such as how long the seller stays on to work, the terms of payment (day rate, per diem, or percentage of collection), and if the practice value is determined before or after the sale.

Operating

In the case of a partnership or merger, laying out how the practice will operate will help determine all the logistics, like who is going to pay for marketing, any staffing conflicts, and whether the doctors will be paid based off collections or a percentage of the practice.

Promissory note

Simply put, this is, in essence, an IOU to determine the terms of which a loan of a certain amount will be paid back, including how much and by when. A promissory note can be held by either or both the buyer or seller, depending on the type of agreement.

Closing statement

This is where both the buyer and the seller will dot their I’s and cross their T’s, breaking down all the terms and conditions that need to happen in order for the purchase and sale to go through, including timeframe of sale and final asking price.

What’s next?

Contact the experts at Professional Transition Strategies, who will help walk you through the paperwork process.

How to Assemble Your Team of Advisors

Whether you’re looking to purchase an existing dental practice or start your own, assembling a team of advisors to help guide you through every step of the process will ensure the success of your business is established from the beginning. 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. Here, we break down your options.

Banks

Choosing whether to work with a local, regional/national, or dental-specific bank or the Small Business Administration, even if just applying for an equipment loan, is arguably the biggest decision when financing a dental practice, whether to acquire or grow a business, so take care in choosing the best fit for your needs.

CPA, CFA, attorney, and insurance agent

To raise your rate of success, choose individuals who specialize in working with dentists, in addition to specialists from different firms within the industry as opposed to a one-stop shop. You’ll want someone who can write and review contracts, as well as someone who can run the numbers, not one firm that does both.

Headhunter

When looking for an associateship, a good headhunter—especially one who specializes in the dental industry—will present you with a variety of opportunities, including ones not yet on the open market, similar to working with a real estate agent.

Marketing agency

For your convenience, a full-service marketing agency will help you establish your practice once the sale has been made, from website development and social media management to advertising and brand development.

Equipment representative and supply company

This long-term relationship should start with interviews of potential companies and testimonials from current customers to hear about different product offerings.

Commercial real estate broker

When it comes to securing a location for a new or existing practice, PTS has a pulse on the country that puts your best interest at heart, including competitor locations and cultural or religious reasons that would affect the success of your business.

Contractor and architect

A successful start-up begins with a smart office layout, and a contractor and architect who are familiar with the dental industry, in addition to local building codes and regulations, will ensure a smooth process from the ground up.

Practice consultant

A practice consultant who focuses on your specialty will be your extra set of eyes to advise you on how to increase profits quickly by establishing a timeline and budget with trackable results that work for all parties involved.

Technology advisor

Both established practices and start-ups need dental software to make the business run, so it’s important to work with a technology advisor who implements the software and services it on the back end once it’s in operation.

Transition broker

Hiring an experienced transition broker like PTS will help you market your abilities to the places you want to go so that you can relax and focus on your day-to-day responsibilities of tending to patients and running your business.

What’s next?

Read more about assembling your advisory team based on your specific transition situation in our e-book “Recent Graduate: I Just Graduated from Dental School, Now What?” Then, contact the experts at Professional Transition Strategies for referrals and recommendations.

5 Options for Dental School Graduates

You’ve studied for the past eight years and now finally have that much coveted dental degree in hand. Now what? Even if your dreams are to own your own practice, there are other options to consider and a few steps you might want to take first.

Associateship

While taking on an associate is risky from an owner’s perspective, it makes sense for a fledgling dentist to get his or her feet on the ground. With this option, you are working for a person or a DSO as an employee without an ownership benefit or management responsibility. This allows you to relocate or move among practices with ease and little stress since there is no real commitment on your end.

Military, school, or government

Working for the military, a school, or the government won’t give you the option of buying in to a practice. It will, however, earn you the notoriety to perhaps one day publish scientific work, if that’s what your goals include. This low-risk opportunity affords a relaxed schedule, long-term potential, and option to pursue a passion that the private sector might not offer.

Buy-in

The next best thing to owning your own practice, a buy-in grants you an ownership stake in the practice with the potential to become a partner. While not typically obtained right out of dental school, a buy-in is achievable within three to five years, making it a reasonable and beneficial long-term option, whether with a single practitioner, group practice, or corporate environment.

Buy-out

With a buy-out, you gain 100 percent interest within an existing practice while having the sole freedom to practice exclusively. Not to mention, purchasing an existing practice outright holds a 99.7 percent success rate for the completion of note. Compared with a start-up, an existing practice comes with its own staff, location, equipment, and patient base.

Start-up

Rather than taking on an existing client base, you would start your own practice from the ground up. Although the ultimate dream for most, it’s worth mentioning that between dental school and bank loans, you have the potential to be $1 million in debt before seeing your first patient, which may not be an issue for you since the success rate for a dental practice is so high.

What’s next?

Read up on our e-book for dental graduates, then contact the experts at Professional Transition Strategies to start the conversation.

Associateship, Partnership, or Buy-Out: Which Is Right for You?

There comes a time in the life of a dentist’s practice when a second set of hands would be helpful to grow or to pass the torch to another professional. A natural first thought is to bring on an associate with plans to buy out at a later date, but the numbers prove otherwise. Here, we break down the nuances of an associateship, partnership, and buy-out to help point you in the right direction.

Associateship

When selling to a partner with whom you’ve never worked with an arrangement to buy in at a later date, the results are predictable—a 20 percent success rate, in fact. Not to mention, after the cost of acquiring a practice and the overhead of running a business, taking on an associate is typically not an affordable option. If going this route, make sure there’s a contractual “out” should the match not be a good fit so no time or money is wasted.

Partnership

With a 60 percent success rate, a partnership offers flexibility in transitioning for a seller who is not ready to retire. Increasing costs of regulations and decreasing reimbursements from PPO plans make financial sense for taking on a partner. Planned well, and a partner could expand the offerings of your practice, adding to its value when the time comes to sell. For those working toward retirement, selling a fraction upfront could help to reduce hours and shift responsibility, eventually leading to a 100 percent buy-out. And with the growing number of dental graduates every year in an ever-stable industry, a compatible partner is likely easy to come by.

Buy-out

A full sale or purchase is the most common way to transition in or out of a practice, and for good reason—a 99 percent success rate is a good bet for both the buyer and the seller. The transition is quick, with one buyer and one transaction, so a good option for a retiree. However, most dentists struggle with the thought of quitting so abruptly and opt to ease the transition when given the choice. The emotional investment in the company is hard to deny, no matter your age.

What’s next?

Read more about associateships, partnerships, and buy-outs in our e-book “Strategies for Transition,” then talk to the experts at Professional Transition Strategies to figure out which option is best for you.

7 Types of Dental Practice Transitions

By now, you’ve probably already decided that selling your practice is the best option, whether it’s for retirement or managerial purposes. But maybe you don’t know or haven’t started exploring all your options yet. Here, we break down the types of dental practice transitions in an effort to help you figure out which is best for you and your business.

Buy-out

A buy-out is exactly what it sounds like: when a purchaser buys your practice for a negotiated price. A relatively short transition period that typically only lasts three months is ideal for a prospective retiree. The seller may agree to stay on part-time to help ease the transition for the buyer, employees, and patients.

Buy-in

The opposite of a buy-out in which a specific buyer purchases a defined portion of the practice for a negotiated amount determined at the outset. In this case, PTS will also perform a personality profile to ensure compatibility, in addition to a practice analysis.

Associate to buy-in

Here, a potential buyer is courted from a group of associates to buy-in over a defined period of time, road-mapping the ease of transition. Rather than making decisions about the future of the practice upfront, this allows time to assess compatibility; however, the division of power is the biggest consideration to make.

Associateship

A good idea in theory because associates are easy to find, and this route allows you to maintain full control over the transition. However, associateships are typically only 20 percent effective due to not everything being agreed upon from the outset and different expectations not being met by both parties.

Merger

Combining two dental practices to become one entity with equal partnership remains a tried-and-true method as long as compatibility is established upfront and responsibilities and income are equally divided and agreed upon.

Roll-up

This option is one that pays off in the future under the economies-of-scale principle: Multiple dental practices are purchased over a period of time to combine into one entity, which will then sell for a higher value at a later date.

Affiliation

The slowest of the transition options, this hands over the majority of the practice to a larger entity, typically a DSO or a group, with the purpose of slowly transitioning out of your practice to and giving up clinical control to the buyer.

What’s next?

Read more about your options in our e-book “Strategies for Transition,” then reach out to the experts at Professional Transition Strategies to figure out which makes the most sense for you and the future of your practice.