November 6, 2018

Dental Practice Transitions, by the Numbers

You’ve kept up with the “Insights” blog; you’ve taken the dental practice transition quiz. Now it’s time to learn even more about the process by way of a cheat sheet broken down by the numbers.

1,500

Number of active patients considered full capacity for a single dentist. Any more, and it may be time to consider taking on an associate or partner.

680

Credit score that is favorable to getting a better business loan.

80

Percent of goodwill that contributes toward the overall value of your practice.

150

Hours it takes to sell a dental practice, which is one of many reasons to hire a professional broker.

15

Minimum number of days patients and staff should be notified about the sale of a dental practice.

30

Percent of dental practices that will belong to a dental service organization (DSO) by 2021, as predicted by the American Dental Association.

5

Years out you should start thinking about a retirement plan.

20

Pages that make up a prospectus, broken down into different categories of interest to the buyer identifying the areas that potentially need attention.

99

Percent success rate of a buy-out, versus 60 percent for a partnership and 20 percent for an associateship.

What’s next?

Read the e-book “Strategies for Transition” to learn more about the different dental practice transition options, then contact the experts at Professional Transition Strategies to learn more.

October 30, 2018

Associateship versus Partnership: Which Is Right For You?

Bringing on an associate or partner to your dental practice should be done when the patient demand warrants it. But which is right for your dental practice? Here’s how to figure that out.

Know your numbers

The number of active patients who visit the practice at least every 18 months is a clear indicator it’s time to take on an associate. While 1,500 active patients is considered full capacity for a single dentist, if the practice has more than 2,500 active patients, then the practice should be able to accommodate a full-time associate. The math goes: Every 200 to 250 active patients should be able to support one associate day per week. Along the same lines, if you are booked 80% of the time with a six-month advance, it may be time to bring on another doctor or look at your schedule.

Establish your practice

No matter which route you choose to go, taking on an associate or partner shouldn’t be done to build up your practice. Rather, there needs to be enough work for them from day one to make the deal worthwhile. If deciding on a partnership, the practice will need to be big enough both in terms of active patients and also collections and physical size. In general practices, that means collecting at least $1.2 million and $1.4 million to $1.6 million in specialty practices.

Assess your situation

The biggest consideration to note is associateships are only successful 20% of the time, while partnerships see a 60% success rate. Associates typically only last two years at most because of unset expectations in regard to patient assignment, salary, and timeframe for branching out and buy-in related to value, purchase price, and buy-in/buy-out terms.

What’s next?

Learn more about the different options for expanding your practice on the “Insights” blog and in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to get the ball rolling.

September 25, 2018

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 (ROI). 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 of working as an associate or for a dental service organization (DSO) 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 (PTS), 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.

September 12, 2018

Quiz: How Well Do You Know the Dental Practice Transition Process?

You’ve kept up with our blog; now it’s time to put your dental practice transition knowledge to the test. We’ve put together a 10-question quiz that covers everything from the different types of transitions to the factors that contribute to the “goodwill” of your practice. The prize for a perfect score? Priceless information to help guide you through the dental practice transition process.

1.) Which of the following is a top reason to sell your dental practice?

a.) Retirement

b.) Maximize management responsibilities

c.) Marriage or divorce

d.) None of the above

2.) What is one way to increase the value of your practice before you sell?

a.) Limit services

b.) Sell equipment

c.) Lower expenses

d.) Increase expenses

3.) Who is buying dental practices?

a.) Dentists looking for an additional location

b.) Dental service organizations (DSOs)

c.) Associates

d.) All the above

4.) What is one consideration you should make when relocating your dental practice?

a.) Smaller square footage

b.) Proximity to competition

c.) Overhauling equipment and building

d.) Maximizing downtime

5.) When should you start thinking about a pre-retirement plan?

a.) 3–5 years

b.) 5–10 years

c.) 10–20 years

d.) Never

6.) How should you notify your patients of a dental practice transition?

a.) When they show up for their next appointment

b.) Joint letter to patients and newspaper announcement

c.) Changing the name of the practice

d.) None of the above

7.) What changes could you make after a dental practice transition?

a.) Discontinue supplies

b.) Bring more specialty work in-house

c.) Lay off employees

d.) Sell patient list

8.) What is one factor that does not contribute to the valuation of a dental practice?

a.) Office hours

b.) Return on investment

c.) Accounts payable

d.) Equipment

9.) What factors contribute to the “goodwill” of a dental practice?

a.) Community status

b.) Patient relationships

c.) Staff loyalty and longevity

d.) All the above

10.) Which of the following is NOT a type of dental practice transition?

a.) Buy-in

b.) Associateship

c.) Distribution

d.) Merger

Answer key:

(1.) A. Retirement; (2.) C. Lower expenses; (3.) D. All the above; (4.) B. Proximity to competition; (5.) A. 3–5 years; (6.) B. Joint letter to patients and newspaper announcement; (7.) B. Bring more specialty work in-house; (8.) A. Office hours; (9.) D. All the above; (10.) C. Distribution

To learn more about the transition process, check out a few of our previous blog posts:

Why should you sell to a dental service organization?

How can you lower your dental practice overhead?

What are the sections of a dental practice prospectus?

What types of dental practice agreements will you enter?

Who should you have on your team of advisors?

How should you choose a lender?

What questions should you be asking yourself before selling your dental practice?

What considerations should you make before starting a multispecialist dental practice?

What questions should you be asking your buyer?

How can you ensure a successful dental practice transition?

What options are available for dental school graduates?

July 17, 2018

6 Types of Dental Practice Agreements

A purchase agreement is just one of the many contracts you’ll enter when buying 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 be 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 by both the buyer and seller, including defining the property that is being purchased or sold.

First right of refusal

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 the buyer is not a tenant.

Lease agreement

If not purchasing the property, a lease agreement will outline the term and scope in regard to whether the buyer will get everything for a flat rate or 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 on 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 and seller, depending on the type of agreement.

Closing statement

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

June 12, 2018

How to Assemble a Team of Advisors for Your Dental Practice Transition

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 with 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, Professional Transition Strategies (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 startup 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 startups 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 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 PTS for referrals and recommendations.

May 11, 2018

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 their feet on the ground. With this option, you are working for a person or a dental service organization (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 the 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% 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% success rate for the completion of the note. Compared with a startup, an existing practice comes with its own staff, location, equipment and patient base.

Startup

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.

May 4, 2018

5 Types of Dental Practice Buyers

When looking to sell your practice, it’s helpful to know who your potential buyers are. In any case, Professional Transition Strategies (PTS) recommends buying an established practice rather than starting from the ground up due to a higher return on investment. Read on to figure out who would be a good fit for your practice.

Dental school graduate

Though highly unlikely since the average dental school graduate leaves with $500,000 in student loan debt, it is not unheard of for an aspiring professional to look to purchase their own practice straight out of school. In this case, it is more likely that a graduate would look to purchase an established practice rather than starting from scratch because of the existing staff and client base, not to mention the average $500,000 in startup costs.

Corporate dentist

More often than not, a dentist’s first job out of school will be working in a corporate environment, such as a dental service organization (DSO). These highly reputable establishments allow dentists to focus on patient care while contributing no ancillary costs toward the practice, therefore being able to save to buy their own practice in the future.

Dental service organization

A DSO is a likely buyer when the seller is looking to stay on with the practice but wants to release managerial responsibilities, such as in a retirement situation or anyone who is looking to maintain a work-life balance. Selling to a DSO allows you to focus on the clinical side and patient care without contributing time and money associated with running a business.

Associate

Who better to sell to than someone you’re already working with? Most dentists take on an associate in hopes of potentially selling the practice in the future, so keep that in mind when looking for an associateship, while also taking into account the cost of acquiring a practice and the overhead of running a business.

Previous practice owner

A buyer isn’t always necessarily going to be a first-time buyer. A dentist who once owned their own practice could have sold to change specialties and geographic regions or was simply looking for a new opportunity and a fresh start, making this new owner one who is already versed in running a business.

What’s next?

Read more about the different types of buyers and the buying process in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at Professional Transition Strategies to start the conversation.

April 13, 2018

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 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% 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% 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% 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% 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.

April 6, 2018

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

A buy-in is 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, a professional dental practice broker 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 by 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% 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 option hands over the majority of the practice to a larger entity, typically a dental service organization (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.