What to Consider Before Selling Your Dental Practice

Deciding to sell your dental practice can arguably be the most challenging step in the transition process. With the right team of advisors in place, it can be a financially and emotionally fulfilling experience. But where do you start, and how is the value of your dental practice determined? Whether you’re ready to begin planning your transition strategy or you want to learn more about your options, it’s important to understand what impacts the sale of your dental practice. Here are the top five considerations before selling your dental practice.

Know the facts

It’s easy to talk in hypotheticals when thinking of selling your dental practice, but there are a lot of considerations to get on your radar sooner rather than later. You’ll want all the information available to make the best decision for your dental practice. 

Before entertaining offers, you’ll need to have a prospectus in place for both an individual buyer and a group to assess the fair market value of your dental practice as this can vary based on a range of factors. A prospectus includes practice and patient demographics, practice location, staff, insurance, facility, equipment, production summary by category, financial analysis, practice valuation and return on investment

This will help determine if your practice is healthy enough to bring on a partner, whether you should consider affiliating with a dental service organization (DSO), or if you need to make some drastic changes so your practice is more appealing to potential buyers. The most common transitions include:

  • Buy-out: Purchasers buy a practice within a relatively short time period. On average, this takes about three to six months and is the quickest transition route.
  • Buy-in: A specific buyer purchases a defined portion of the dental practice. This is a longer-term approach that can expand the value of your practice over time.
  • Affiliation: You sell a percentage of your business to another entity, typically a DSO, with the intent to slowly transition out of the practice and give up clinical control to the group. This is an excellent way to maximize the practice’s value.
  • Associate to buy-in: A group of associates will court a potential buyer to purchase over a period of time. This process ensures compatibility and a smooth transition to map out the future of the practice. Division of power is the biggest decision that needs to be made with this method. While this is the longest approach — taking at least five years — it’s also the most flexible.
  • Associateship: Yes, you can sell to associates while maintaining full control, but in this method, not everything is agreed upon upfront, leading to a mere 20% success rate.  
  • Merger: Two existing dental practices combine into one entity, and owners often stay on as equal partners after merging. Mergers offer great benefits, like the net income remaining constant or even increasing because there is no loss of business.
  • Roll-up: You purchase multiple dental practices and combine them under one entity to maximize economies of scale. This can boost the value of your practice when it’s time to sell. A roll-up transition is the most lucrative if you have the time and capital to dedicate to this plan.

Make a plan

No matter the reason for your transition, starting the process as early as five years out will give you ample time to identify and make changes to your dental practice to improve the valuation. A good broker will make suggestions on how to amplify your marketing efforts, increase production, and streamline costs and efficiency, including dental supplies, lab costs and even payroll in an effort to increase profitability

Starting the transition process early also gives you the flexibility to be more discerning with the offers you receive. If you’re in a pinch to sell your practice, you may be forced to take one of the first offers and leave money on the table. Being in the driver’s seat of the sale affords you the time to evaluate offers and choose the best one for you, your staff, and your practice, as well as making your practice more attractive to DSOs looking for an affiliation.  

Stay the course

Maintaining your production is one of the best things you can do to obtain the highest valuation possible for your practice because the financials from the most recent years will weigh the heaviest when determining the practice’s value. Slowing down your production can have a massive impact on the price you can get for the practice.

The same holds true for your practice’s specialty. Gearing up for a transition is not the time to focus on a new niche specialty or even make the move toward a multispecialty practice. By opening the practice up to a new specialty — like going from a general practice to a periodontics practice — you decrease the potential buyer pool, which can negatively impact your sale options.

Keep an open mind

Thirty years ago, one of the only transition options was taking on an associate who would hopefully buy your dental practice one day, but today, there are so many more possibilities. Working with a qualified broker will only open your eyes to a dental practice transition you might not have otherwise considered. 

Your options are really only limited by your imagination. Do you want to start the process early so you can affiliate with a DSO before you retire? Or are you ready to get out of the business with a buy-out option so you can move into the next phase of your life? Asking yourself these questions and more will help you narrow down your choices so you can better prepare for the next steps. 

What’s next?

Contact the experts at Professional Transition Strategies to get the ball rolling on the sale of your dental practice.

Why Start Planning Your Retirement Now

Just because you aren’t ready to hang up your proverbial hat doesn’t mean you should wait to plan retirement from your dental practice. Even if you aren’t ready to make an immediate change, envisioning your post-transition life starts with years of pre-planning. Here’s how to plan ahead, even if you aren’t sure you want to.

Act the part

Even if you never actually intend to sell your dental practice in the not-so-distant future, it makes perfect business sense to act as if you are as to stay on a healthy trajectory and hold you and your staff accountable along the way. Starting with a practice valuation will help set your sights on where you are and need to be in order to eventually transition your dental practice and your life.

Consider your options

Planning a buy-out or buy-in allows you to bring in a partner for a period of time and have a plan in place for the partner to eventually buy the practice in full or bring on another associate or partner to fill the place of the retiring doctor. Alternatively, options exist to become an associate and work for the buying doctor to help ease the transition for both parties, while allowing the retiring doctor to release managerial responsibilities.

Plan your time

While there is no “right” time to sell, a well-laid plan starts at the peak of the practice’s value. A dental practice transition can take anywhere from six months to three years, depending on the area in which you practice, starting with a practice appraisal to determine ways to make your practice more valuable and profitable, including location, growth potential, reason for selling, and long-term trends of the revenue and profit margin. By starting early rather than under a personal deadline, you will be in a better place to make an educated decision rather than under a time constraint with fewer options.

Map your goals

Throughout this process, it’s important not to lose sight of what you want retirement life to look like, specifically financially when it comes to investments and exit strategies. How much longer you want to work is directly related to how you can maximize practice productivity and efficiency while defining benefit pension plans and saving for your proper nest egg. Creating a personal budget at the onset can help plan for post-retirement expenses.

What’s next?

Contact the experts at Professional Transition Strategies for more guidance on how to navigate retirement matters.

When Should You Start Your Own Dental Practice?

dental tools

When should you start your own dental practice or join an existing practice? That is the literal million-dollar question — and, luckily for you, one that the experts at Professional Transition Strategies (PTS) can answer.

Perhaps you have a desire for independence as a dental practitioner, maybe you’re ready to take on a challenge physically, financially and emotionally, or you simply have the startup capital to get a dental practice off the ground. No matter your reason, it can cost upward of $250,000 to start a dental practice from scratch, so you’ll want to have a solid business plan in place.

But where to start? You’ve come to the right place!

While it will be harder to start a dental practice from essentially nothing, it will certainly be more rewarding.

You’ll also want to learn the answers to:
• How do I start my own dental practice?
• How long does it take to buy a dental practice?
• Is it hard to start your own dental practice?
• How much does it cost to start up a dental practice?

Buying a dental practice versus starting from scratch

Timeline

While weighing the pros and cons specific to your financial and personal situation, PTS walks you through the steps of each option.

Starting any business from the ground up will ultimately take more time than taking on a previously existing practice. But if time allows, with the help of PTS you can design and customize the practice to represent you personally and professionally based on your vision. That vision could include a floor plan that allows for increased productivity and efficiency, as well as determining rather than inheriting the culture within the practice.

If making money is your first priority, then a dentist who purchases an established practice will make more money within the first few years than one who starts a dental practice from scratch.

New versus used dental office equipment

While it may seem fun to pick out all new dental office equipment, it will, of course, come with a price tag. Used equipment can also prove to be costly. Used equipment and technology may be outdated and in need of a little sweat equity to get the office up and running in terms of software and even aesthetics. With a new practice, time must be spent negotiating pricing for equipment and construction based on national pricing.

Be sure to crunch the numbers

Any new business venture requires a significant amount of number crunching. With a new business, debt commonly ranges from $500,000 to $1 million with profitability projected between six and nine months. There is also an attrition rate of between 15% and 20%, compared to an existing practice in which you can expect a profit from day one but an expected 7% to 10% of the existing patient base to leave after the transition.

Location and demographics are important

Just because you opened the practice of your dreams, doesn’t mean patients will automatically come in the doors. When you choose the location of your practice based on precise demographic data, the right location will expedite that growth. Starting a dental practice from scratch in the location of your choice will ensure pre-chosen patient demographics are in your favor, while having an established patient base with proven market potential means you won’t need to spend much on bringing new patients in the door.

Teamwork

With a new dental practice, factor in the time spent implementing and executing training for all employees, as well as interviewing and assembling a complete list of vendors. Along the same lines, a new practice requires time and money to market yourself and the practice, as well as a forecast and plan for your growth strategy.

Who can start a new dental practice?

Dental school graduates

You’ve studied for the past eight years and finally have a much-coveted dental degree in hand. Now what? With so many established dental practice transition options, it’s a natural inclination to take that route. You can find a dental service organization (DSO) or individual practice that wants to take on an associate to get your feet wet without an ownership benefit or management responsibility to relocate or move among practices with ease and little stress since there is no real commitment on your end. But with a 20% success rate, PTS does not recommend this route.

New dental school graduates are in a good position to establish a startup. Instead of taking on an existing client base, you would start your own practice from the ground up. Although this is 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. This may not be an issue for you since the success rate for a dental practice is so high. Start by assessing your debt load and making sure you aren’t overextending yourself.

Be sure to explore your other options, too, like a buy-out, buy-in, or even military, school or government.

PTS has a an e-book dedicated to dental school graduates.

Get a plan in place

Build an advisory team

As with any team, you’re only as strong as your weakest link.

PTS can help you assemble a team of advisors to help guide you through every step of the process to ensure the success of your business from the beginning. It’s important to choose advisors who have experience in the dental industry, such as a consultant, technology advisor, real estate broker, equipment and supply representatives, certified public accountant (CPA), and attorney.

Consider location

Make sure that your lifestyle works with the location you are considering, whether it’s in a metro or rural area. Also remember that the old real estate adage of “location, location, location” also applies to your dental practice. Evaluate whether you want to lease or buy, your timeframe, and size requirements, as well as how much sweat equity you are willing to put in.

Acquire license

Arguably most importantly, get licensed in your desired area, if you are not already. If you are not currently licensed in the state in which you want to practice, learn the process. Do you need to take an exam? How much will it cost? Do you have the correct insurances? How long will it take?

Follow a timeline to establish a dental practice

9–12 months before opening

PTS breaks down the steps to dental practice ownership with a timetable to make it more manageable.  As with any major life purchase, start by evaluating your personal financial situation and develop a budget. Then, finalize the city or community in which you want to practice, evaluate alternative locations in the area, conduct a preliminary appraisal and demographic analysis, and review leases with an attorney, as well as confirm that the location meets all zoning requirements. Our experienced team can help you with these steps.

Think big picture by identifying your personal goals and preferences for a practice, developing a philosophy of practice, and evaluating practice alternatives.

8 months before opening

Start by assembling your team of advisors, including PTS, an attorney and a certified public accountant, all of whom should ideally have experience with dental practices. After signing a lease, develop a list of major equipment needed and necessary remodeling upgrades, in addition to determining a desired delivery system.

7 months before opening

Perhaps most importantly, you’ll need to apply for a loan. Start by developing a preliminary loan package with the help of your lender. Be sure to shop around to get the best rates. Get estimates from contractors on pricing and options for office improvements.

6 months before opening

You’re in the home stretch! You’ve made your list and checked it twice. Now it’s time to buckle down as your dream becomes a reality by finalizing the loan package, approving office improvements, developing an office policy and procedure manual, and determining the hours of operation for your practice.

5 months before opening

It’s selection process time as you select your dental equipment, including an instrument management system, record-keeping and business management software, interior finishes and issue drawing for bidding, and bids on leasehold improvements from contractors with completion dates.

4 months before opening

Contingent on passing boards and obtaining finances, sign the contract for leasehold improvements and place an order for all major equipment and dental supplies. After getting a telephone listing and starting a website, evaluate telephone and answering systems. Review patient management software options, state dental act and codes of ethics, and personnel needs. Lastly, obtain provider numbers for Medicaid, Delta, or other service corporations.

3 months before opening

Now is the time to apply for a narcotics license, professional or occupational license, business permit, tax numbers, dental society memberships, and staff privileges. Confirm the timeline of construction and equipment and supply orders to make sure everything is on track. Then, arrange for a telephone number and phone book listing, as well as installation of utilities. You’ll also need to order a computer system, patient management software, stationery, business cards, prescription pads, and other office supplies.

2 months before opening

Explore laboratory, pharmacy and even janitorial options, and arrange for maintenance and uniform and linen service as it all winds down. Complete your fee schedule and payment policies, as well as an application for membership with your state’s insurance provider plans. Join a local credit bureau, make credit card arrangements, and decide which specialists you will refer to patients.

1 month before opening

It’s crunch time to hire and train personnel, inspect and test all equipment and work, place and send office opening announcements in online and print publications, arrange for the inspection of the office required by city or county officials, and plan an open house. Then, let the patients roll in!

Make a plan

Stick to your plan

It takes a go-getter to get a startup off the ground. Whether you are an entrepreneur who wants to forgo your own path or you simply couldn’t find an existing practice that suited your needs and dreams, an actionable plan will help get you where you want to go.

Here’s where to begin:

1. Meet with a bank to get pre-qualified and go through the preapproval process to create a budget. Meanwhile, decided on a business entity type, which you will need for the loan: limited liability company, professional limited liability company, professional association, or S-corporation.

2. Work with a commercial real estate agent who has experience with dental and medical offices to find two or three potential locations to start the negotiation process. Prior to signing a lease, meet with potential dental contractors to help understand construction costs and design options for each site, including equipment needs and layout.

3. Start assembling your dream team!

4. Decide which type of financial institution you want to work with: local banks, regional/national banks, dental-specific banks, Small Business Administration, and equipment loans. While the right bank is not always the bank with the lowest interest rate, interest rate is only one part of the overall loan package, which includes terms, fees, security, convenience, knowledge base, and references.

5. Consider how the location you choose will affect your financing. The average cost for a startup ranges from $350,000 to $550,000, which includes, equipment, leasehold improvements, working capital and external factors, such as the difference between building in a low-cost area compared to a high cost-of-living region. When it comes to square footage of the office space, a smaller space could save money upfront but prevent your ability for growth down the road.

6. Look at all ways to minimize the debt load you’re taking on, including equipment options and leasehold improvements.

7. Along the way, ask yourself: What are your production goals and cash flow projections? Will you be able to service your debt? What services do you want to offer in your practice? How many operatories will you need to accomplish your goals? What is your long-term goal financially and personally?

8. When finalizing a location, determine if it is centrally located and easily accessible near major intersections or busy streets with good parking. Additionally, if you have a non-compete with your previous clinic, check the terms of your agreement to say within any legal constraints, then look at a map to see if you are located near any other competition, as well as if you are in a position to reach your target market.

9. Develop your own unique value proposition that gives you a competitive advantage, like office design and equipment types or insurance and payment options.

10. Finally, create a business plan to blueprint how your practice will become successful. Most lenders will want to see lending plans, growth strategy, profit and loss projections, demographics strategy, mission and vision statements, plan for hiring administrative and clinical staff, and a marketing plan.

Weigh the pros and cons

Pros of starting from scratch

You can start from scratch, with full control over the design and aesthetics of your practice to the types of patients and procedures you attract, as well as the scale of your practice based on your skill set. Yes, your debt rate will be high, but so is the success rate.

Cons

Along the same lines, you can be in debt anywhere between $700,000 to $1 million before you see your first patient, and that’s on top of dental school debt. You should expect a couple of lean years since it can take a while to get the same revenue as if you bought an existing practice.

Still can’t decide?

Good news: PTS has free e-books on the transaction process, other transition options and a guide for recent graduates.

5 Steps to Selling a Dental Practice

dentist office

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

Start planning your dental practice transition early

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

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

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

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

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

Know the facts

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

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

The prospectus includes but is not limited to:

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

Don’t let the value of your dental practice drop

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

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

Know your transition options

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

The most common transition types include:

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

How long will it take to sell my dental practice?

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

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

What is a dental practice broker?

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

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

What’s next?

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

Resources

How Long Will It Take to Sell My Dental Practice?

men shaking hands

The most common question leading up to a dental practice transition is, “How long will it take to sell my practice?” While the answer isn’t cut and dry, there are a number of factors that contribute to how long your dental practice will be on the market. Here’s how to know what to expect.

Type of transition

From a buy-out to private equity investments, a dental practice transition can take anywhere from less than a year to more than five. Predictability, dependability and marketability all contribute to the type of transition and the timeframe associated with it. Whether the doctor stays on to practice during the transition also contributes to the success rate.

Location

From a metropolitan area to a rural community, having your practice located in a desirable area of a city rather than a smaller, more rural area will work to your advantage when selling your dental practice, ranging from 22 days to five years from the day your practice is on the market to the day it closes. Today, “hot spots” of the country include Austin, Texas; San Diego, California; and Denver, Colorado.

Size

Practices valued between $750,000 to $1.2 million tend to move more quickly than those collecting less that tend to sit on the market longer. Simply put, smaller practices mean less revenue for the incoming doctor. This is especially true if the buyer is still paying off student debt. It might be worth considering a few easy steps to grow your practice before selling.

Broker experience

The easiest route to a smooth transition is to hire a broker that is familiar with practices like yours. That does not necessarily mean one in your geographic area but rather one that has experience with the size and type of transition you are working toward. Working with a broker that takes a proactive approach to find the right fit for your practice will ensure fewer days on the market.

What’s next?

Contact the experts at Professional Transition Strategies to get the ball rolling on the sale of your dental practice.

Do I Need a Dental Practice Broker to Sell My Practice?

dentists working on patient

As a business owner, it may be instinctual to want to take the sale of your practice into your own hands rather than hiring a professional. But hiring a professional dental broker to handle the sale of your practice will help you get the most out of your transaction in the long run in terms of both time and money. After all, your job during this transition is to focus on keeping the value of your practice up in order to get the most out of your sale. Here’s how.

Future plans

Whether you’re planning to put your investments toward retirement or another investment, you’ll want to ensure a smooth and lucrative transition. Take advantage of a complimentary prospectus offered by a dental broker to know the true value of your practice and which options are available.

Timing

Selling a dental practice takes approximately 150 hours, time that could be better spent maintaining a successful business. A qualified broker will already have contracts in place rather than hiring an attorney to draft documents for you, saving thousands of dollars. The broker will also save you time by already having a list of potential buyers in the area or at least an active marketing approach. 

Maximum value

A qualified broker will present all possible options to you so that you can look at and compare all sides. This not only means selling to an individual, bringing on an associate or affiliating with a dental service organization (DSO), but also considering all options within each vertical. Considering various strategic approaches will help maximize the value of the transaction.

Process details

The work has only just begun after receiving a prospectus from a dental broker and presenting your practice to qualified buyers. 80% of the transaction includes the contracts, negotiations and final sale. A qualified broker guides the transition of ownership, from negotiating the sale and finding fair market value to providing the asset purchase or stock agreement and assisting with the real estate needs. 

Due diligence

Having the money to purchase your practice does not mean it’s the right dentist for the job. A dental broker will go through the due diligence process to find the best match for your practice, whether that’s an individual or a group, to help you, your staff and your patients feel comfortable with the transition. 

Confidentiality

Knowledge of a potential sale can hurt your business and increase your attrition rate significantly. What’s more, your staff may take the opportunity to look for employment elsewhere. Confidence is key with a professional dental broker so as to not impact the value of your practice. 

Emotional baggage

Starting and putting your own sweat equity into your dental practice can be an emotional process when the time comes to move on. Strong emotional ties to your practice can make it more difficult when it comes to making business decisions, which is why hiring a broker can help make the transaction more efficient and smoother. 

What’s next?

Professional Transition Strategies not only offers a free valuation at the beginning of the process with no signed contract in place, but also 30-day listing agreements where most other brokers require a yearlong contract with penalties. Contact the experts to start the seamless selling process.

You’ve Graduated from Dental School; Now What?

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 dental practice, there are other options to consider and a few steps you might want to take first. Here, we break down some options for dental school graduates to add to their list of considerations.

Build an advisory team

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, such as a consultant, technology advisor, real estate broker, equipment and supply representatives, certified public accountant (CPA), and attorney.

Consider location

Make sure that your lifestyle works with the location you are considering, whether in a metro or rural area. Also consider the old real estate adage of “location, location, location” also applies to your dental practice when examining a purchase. Evaluate whether you want to lease or buy, your timeframe and size requirements, as well as how much sweat equity you are willing to put in.

Acquire license

Arguably most importantly, get licensed in your desired area, if you are not already. If you are not currently licensed in the state in which you want to practice, learn the process. Do you need to take an exam? How much will it cost? Do you have the correct insurances? How long will it take?

Determine options

Purchasing a dental practice isn’t a cut-and-dry process. There are seemingly endless transition options, from buy-outs and buy-ins to associateships and affiliations, as well as options tailored specifically toward dental school graduates, such as establishing a startup or working for the military, school, or government.

What’s next?

Read more about the options for dental school graduates in the e-book “Recent Graduate,” then contact the experts at Professional Transition Strategies to get started on the right path.

Webinar: “10 Ways to Prep Your Practice for Transition”

Every so often, Professional Transition Strategies (PTS) hosts a webinar for sellers to learn more about the transition process. In April 2019, a webinar geared toward sellers detailed the steps and options when considering buying a dental practice. Here are the key takeaways.

Think about your strategy

A seller should begin with the end in mind. Think about your long-term needs, how much time is needed to implement the plan and what your ideal strategy looks like, including a buy-out, partnership or associateship, as well as whether you would consider selling to a dental service organization (DSO), private equity for extensive growth, or merger with another local practice.

Start or keep growing your practice

The biggest failure of owners is letting the practice start to decline when thinking of selling. In turn, the value of the practice drops significantly and can cause a bank to decide not to finance the acquisition. What’s more, it lowers the total options that a broker can deploy. It is worthwhile to market your practice right up until the point of transition to ensure the value won’t decline over the course of time.

Focus on core details

Other than financials, it’s important to take a wholesale look at your practice to assess what has made your practice successful. Do you provide certain treatments that set you apart? What niches do you work in? Do you serve a certain community very well? Are you engrained in the business sector? Is your management style unique in that it allows you to keep employees for a long time?

Run an equipment evaluation

Most practices are valued using a weighted system that takes into account how old the equipment is. If time allows, it may make sense to purchase upgraded equipment, use that equipment, depreciate it over five years, and achieve a much higher sales price, even though you won’t get a 100% return on your investment. Consider going digital if you haven’t already, then upgrade cone beam computed tomography, digital impressions, computer-aided design and manufacturing system, and new chairs and units.

Consider the real estate

If you don’t own the building, notify your landlord that a transition will happen. If possible, sign a new lease or an addendum that allows the lease to be assignable to a dentist who qualifies for bank financing. If you do own the building, which can be sold as an asset to help pay for retirement, start paying yourself market rent. Alternatively, consider relocating your practice to a more desirable location, which can raise your practice valuation by as much as 5%.

Clean up your books

In addition to charging yourself market rent if you own the building, if you employ your spouse, consider replacing them or at least start paying them what market value for the position would be. What’s more, don’t stop writing off items through your practice; keep track of personal travel, depreciation, etcetera.

Know your “why”

One of the biggest worries for a buyer is that they will have to compete with you over time so it’s important to be able to articulate a real and communicable reason to a buyer at least a broker so that they can tell the story for you.

Build an advisory team

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, such as a consultant, technology advisor, real estate broker, equipment and supply representatives, certified public accountant (CPA), and attorney.

Know your practice’s worth

Creating a practice prospectus that breaks down the profitability of the practice helps to understand the value of the practice and can help determine the best strategy to use, as well as give you a roadmap for what you need to do before the sale occurs, which could alter your expectations in terms of horizons. Factors such as revenue, net income, seller’s discretionary earnings and value of hard assets will all be taken into consideration.

Execute strategy

After determining which strategy to implement and how long it will take to get there, you can start getting the work done that needs to happen before the transition takes place. Now is the time to start working with an advisor to take the next steps toward implementing your strategy over the set period of time.

What’s next?

Learn more about the dental transition process in an upcoming webinar, then contact the experts at PTS to learn about the next steps.

Transition Timeframes and Factors that Contribute to Them

dentists working on patient

One of the contributing factors and most commonly asked questions when it comes to dental practice transitions is “How long will this take?” As with any business transaction, the answers are not cut-and-dry. Here are some transition timeframes and the factors that contribute to them to help guide your decision.

Buy-out: 0–365 days

A buy-out is the quickest and most predictable transaction with the search being dependent upon marketability and location of practice. In a buy-out, the senior doctor is looking for someone to take over the entirety of their practice but can choose to stay on as a long-term associate, contributing to the transition period. Once a buyer is found, the success rate is close to 100%.

Buy-in: 1–4 years

A buy-in is essentially a short-term and defined associateship period that is approached from an owner’s time set, not employee’s. While the majority of the time is spent finding the right fit, the buy-in should occur within one year after the getting-to-know-you period. A roadmap is established upfront with all the material facts about the transition to make the process more predictable and the time horizon to be more defined.

Merger: > 2 years

The longest part of this transition is finding two clinicians who are not only compatible, but also have a similar timeframe and geographic location, both in terms of real estate. Though not always the case, in most mergers, one facility is kept while the other is relocated. However, the operational side can be as quick as a buy-in as only purchase documentation and operational agreements are required.

Affiliation: < 3 years

Similar to a merger, with an affiliation, the doctor will most likely stay on for a period of time with the buying dental service organization (DSO) or group, depending on the practice type and location. Also similar to the search process of a buy-out, the operational process for an affiliation can be even quicker even though there is more due diligence as they are familiar with the process, compared to a first-time individual buyer.

Associate: 5 years

On paper, taking on an associate is normally the fastest route as there are often a lot of prospects; however, with a one-in-five success rate, timing can be unpredictable finding the best match for your dental practice. While the search can be the quickest part at about one month, the operational part of having that person buy in can take up to a year and ultimately might not work out in the end.

Private equity investments: > 5 years

The underlying goal of this transition is to make sure the practice is big enough that a private equity group would be interested in funding it. Private equity groups are constantly searching for the right practice and can close as fast as any DSO or individual once the correct partner with a solid platform is found. However, the majority of the time is spent because the doctor would need to stay on board for at least five years since it is the business they are looking to take over.

What’s next?

Read up on the different options for dental practice transitions in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to start the conversation.

Buy-In versus Buy-Out: Which Is Right for You?

dentist working on patient

When looking to transition into a dental practice, the options are not often mutually exclusive. In fact, one type of transition can lead to another, as in the case of a buy-in to buy-out when the senior doctor is looking to hang up their proverbial hat. It’s helpful to know how each works upfront, though. Here are the similarities, differences and overlaps of a buy-in to buy-out.

Agreements

A buy-in typically refers to an associate becoming a partner (which covers more than 100 points in the agreement), while the selling doctor can stay on board as a long-term associate with a buy-out, allowing the doctor to give up autonomy but not employment (who can, in turn, be terminated). In addition to noting if the practice will be structured as a single corporation with all doctors as co-shareholders or if it would be a partnership or limited liability corporation (LLC) with the dentists as partners, the following agreements should be put into place:

Income allocation

Will revenue be allocated to the dentist who did the work, or will all or some of it be split based on ownership, fixed percentages, or a hybrid model in which doctors are paid as employees based on the percent of procedures complete and net income split on a prorata share of ownership?

Expenses

Expenses that are personal should be outlined, broken down and paid by the doctor who incurred the expense, such as meals, auto, travel and education.

Buy-sell

Agreements should be included to address what will happen if one dentist leaves the practice, including insurance policies that will help with the decision. Is it mandatory for the other doctor to buy out the departing doctor, or will they simply get the first right of refusal?

Real estate

Does the senior dentist own the real estate? If so, will the junior partner have a rental rate, or will they have the option to buy in to the real estate, as well?

Valuation

The best way to value a buy-in is to appraise the practice from day one so everyone understands the starting value and reappraising the day of the transition, then averaging the two. That way, the seller takes advantage of the risk of an associate, and the buyer doesn’t have to pay double for the growth of the practice in the interim.

Timeline

Each transition strategy comes with its own timeline. A buy-in takes place over a long period of time since the partnership isn’t set up for a year, but a buy-out can happen essentially immediately with the sale of a practice.

Success rate

While both strategies work, it’s important to note that a buy-out has a 100% success rate since there is a guaranteed sale. Even if your future isn’t guaranteed since control of the practice has been given up, you gain more flexibility by becoming an employee rather than the owner. What’s more, dental service organizations (DSOs) use this strategy to attract dentists to their groups.

Endgame

The bottom line is the best partnerships have to be built on communication to be successful, so ask yourself if the practice is big enough to have two happy partners so as to not set yourself up for failure. However, while most dentists want long-term associates to lead to buy-ins, many theories say otherwise, including one from the book “Blink” by Malcolm Gladwell, which makes the comparison that arranged marriages have a better success rate than traditional marriages. Most decisions can be made extremely quickly, and initial impressions won’t change after additional thought or data is given.

What’s next?

Read up on more buying options in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at Professional Transition Strategies to start the conversation.