May 29, 2019

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.

April 23, 2019

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

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.

March 8, 2019

Transition Timeframes and Factors that Contribute to Them

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.

January 30, 2019

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

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.

September 11, 2018

10 Steps to Buying a Dental Practice

You’re ready to start the dental practice buying process. But how? Before getting the keys turned over to you, there are a few steps you’ll need to follow first. Here’s what you can expect from the transition process.

Get pre-qualified

Providing your net income, stress and how much debt you can handle to your bank will help gauge your debt-to-equity ratio, debt-to-income ratio and credit score.

Make an offer

While approval by the bank will be dependent upon the type of practice you are considering, getting pre-qualified before making an offer will give you a ballpark for what you can be backed for financially.

Perform a practice analysis

Allowing adequate time for a practice analysis — sometimes as long as a year — can lead to a better understanding of the type of fit for your qualifications, both personal and financial.

Work with a broker

A good broker should be a part of your transition dream team, making sure all the agreements are in place and identifying ahead of time any issues that may arise.

Present letter of intent

The official offer letter is not actually a legally binding document but rather expresses your intent to follow through with the transaction.

Negotiate

As with any private sale, price, terms and closing date are all on the table between the two parties.

Initiate due-diligence process

Getting all your advisers in one place to review the financials and various aspects of the transition will leave little room for error in the long run.

Outline asset purchase agreement

In a straight buy-out, it’s important to outline what assets are included in a practice — most notably, the equipment.

Assess operating agreement

In the case of a partnership or merger, it’s important to determine 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.

Complete practice loan

This is 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?

Read more about the steps of a transition in the e-book “Transitions: Your Next Adventure Awaits,” then contact the experts at Professional Transition Strategies to streamline the buying process.

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

20+ Questions to Ask Your Buyer to Ensure a Successful Dental Practice Transition

After so many years of owning a private dental practice, you’ve become invested both financially and emotionally. Once you’ve decided it’s time to sell, it is to your advantage to concern yourself with the buyer‘s intentions to ensure a successful transition for all parties involved. Here is a comprehensive list of questions to ask potential buyers to get one step closer to the completion of the sale.

Professional background

What is your dental philosophy?

What type of dentistry have you done in the past? What do you like to practice and prefer not to, such as restoring versus replacing implants?

Is there a type of dentistry that you would like to get into, such as orthodontics, endodontics, etcetera?

What do you like and dislike about your current situation, including specialties that are done in-house versus outsourced?

Are you certified or plan to be certified in Invisalign?

Finances

How many lenders have you talked with?

Are you prequalified? If so, for how much?

Do you have enough credit and cash in your bank?

Have you ever been delinquent on payments, filed for bankruptcy or been sued by a patient?

Are you able to prepare a balance statement and show the past two years of tax returns?

Real estate

Do you plan to keep the current location of the practice?

Do you want to lease or buy a space?

Do you have a preference on a five- or 10-year lease?

Updates

Do you plan to make any updates or improvements to the practice, its equipment or software?

Are you willing to pay for any upgrades out of pocket after the sale, or do you prefer upgrades to be made before the sale?

Do you plan to keep the existing staff or bring in your own?

Corporate buyer

How do you plan to grow practice profitability?

What are the company’s overall economic goals compared to earnings expectations and financial statements and tax returns?

Do you have references from dentists who previously sold their practices to your company? Were these dentists’ commitments fulfilled in the transaction?

Does the company have a track record of successfully purchasing practices and selling off the new combined entity?

Future plans

What are your goals for the practice after the sale?

Do you plan to bring on any specialists?

Would you ever sell to a dental service organization (DSO) or another corporate buyer?

How can we be sure to protect ourselves and our interests to ensure a smooth transition for patients and staff?

What’s next?

Start the process of selling your practice or look for practices for sale, then contact the experts at Professional Transition Strategies to take the next steps.

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.

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.