March 2, 2021

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 Used equipment and technology may be outdated and in need of a little sweat equity to get the office up and running in terms of software and even aesthetics.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.

February 5, 2021

associateship Archives – Page 2 of 4 – Professional Transition Strategies

man holding up glasses

Selling a practice takes approximately 150 hours, which is why you’ll want to hire Professional Transition Strategies (PTS) to do the heavy lifting rather than attempting to add that task to your already-full plate. 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 PTS to handle one of the largest financial transactions in your life will help you get the most out of your transaction in the long run. Likewise, both financially and personally, there are other considerations that can affect the outcome of selling your practice. After all, your time is money, and your time is better spent on keeping the value of your practice up.

Whether you are looking to sell your dental practice, bring on a partner or buy a dental practice, PTS makes the process easy, painless and seamless for general and pediatric dentists, endodontists, orthodontists, prosthodontists, oral surgeons and periodontists across the country.

However, not all dental practice brokers are created equal, which is why you’ll want to hire PTS to focus on the bottom line and vet potential buyers while alleviating stress for you.

As an aside, we’re also here to help you answer these questions along the way:

How do I find a dental practice to buy?
What should I look for in a dental practice?
How do I set up my own dental practice?
What is a dental practice broker?

Know the difference in dental practice broker services

Buyer representation

By having a dental practice broker act as your fiduciary, you can feel confident your best interests are being represented rather than just the interests of the group. PTS isn’t compensated by any group. While being your advocate in the transaction, we don’t have any other skin in the game.

PTS helps you answer all the important questions, such as: Should I take out a loan? How much will the loan cost me? Is this fair market value? We have the expertise to answer these questions and more. We even have a calculator to estimate what the monthly cost of a purchase would be.

Seller representation

Whether you want to sell a practice and leave, partner with another dentist to help carry the load, sell but stay on as an associate, or simply merge or affiliate with a larger practice or dental service organization (DSO) in your area, PTS will provide the dental practice broker services you need to make your transition successful.

The steps to selling a dental practice or merging a dental or medical practice are intricate. It includes not only the financial and physical challenges, but emotional ones, as well. We realize that every situation is unique, and we will help you decipher which option is best for you. And while it’s important to know the difference between buyer and seller representation, a dual-representation broker could never truly have the best interest in mind for both parties.

Single agency versus transaction broker

Brokers who are single representatives can act on behalf of either the buyer or seller. A single agency broker tends to have fewer qualified buyers in their arsenal since they only work with one party. Unlike a transaction broker that acts as a referee throughout the process, a single agency broker has fiduciary toward the buyer or seller. Along with disclosure, confidentiality, accounting and reasonable care, a single agency broker also owes the client obedience and loyalty.

A transaction broker who represents both parties owes each party the promise of disclosure, confidentiality, accounting and reasonable care while having no fiduciary in the game. Acting as a mediator between both parties, a transaction broker ensures a smooth transition will take place. The transaction broker will help the seller determine a competitive list price, as well as help the buyer prepare an offer. They will help facilitate communication between both parties, including coordinating the transaction from the time the offer is accepted to the time it is closed. In addition to marketing the practice, finding qualified buyers, writing the contract to buy and sell, and assisting in negotiating terms, they will also assist with the closing entirely.

The PTS difference

Industry knowledge

Just like your patients come to you for your experience, dentists come to PTS for our expertise.

We are experts in the industry and have extensive market knowledge that will lead to a more seamless and possibly faster sale. When representing yourself, it can be hard to get to the bottom of each interested party while also negotiating the terms and running a successful practice at the same time.

For the buyer, our knowledge expands to medical or dental competition and patient demographics in your location of interest, along with expertise in practice appraisals to determine a fair market value. Our real estate, legal, accounting and strategic knowledge rounds out a complete transition service all in one place.

Industry experience

Along with industry knowledge comes experience. 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. The easiest route to a smooth transition is to hire PTS that is familiar with practices like yours. While we may not be in your geographic area, we have experience with the size and type of transition you are working toward.

PTS takes a proactive approach to finding the right fit for dental practices, ensuring fewer days on the market. Additionally, PTS has personal experience with the DSOs, making it easy to predict which way the transaction is heading and negotiate accordingly, whether simple or complex.

Leave the dental practice details to us

Appraisal process

Arguably, one of the most important steps during the beginning of a dental practice transition is to have a practice appraisal to determine where you are most valuable and where there is room for improvement in areas that are not as highly profitable. This includes the practice’s location, visibility, and population of city or town; type of medicine or dentistry, revenue sources and active patient base; growth potential; patient attrition and retention rates; reason for sale of practice; long-term trends of the practice’s revenue and profit margin; condition and age of medical and dental equipment based on wear and tear, as well as technical advancement; and even office decor and condition.

The extensive practice appraisal offered by PTS breaks down the current value of the practice and where the practice needs to go before the sale. The appraisal uses the most effective method of calculating your practice’s worth by looking at both attributes and challenges and how they have impacted the success of the practice. Best of all, PTS can perform these services at no charge with no commitment obligation.

Prospectus process

Whether you’re planning to put your investments toward retirement or another investment, you’ll want to ensure a smooth and lucrative transition. A prospectus breaks down the facts to ensure business owners are making an educated decision on their largest asset, which is when the work has just begun.

PTS offers a complimentary prospectus to assess the true value of your practice and which options are available. While many brokers say practice value is as simple as 70% of collections, it also includes applying a multiplier (including location of the practice, type of building practice is in, office itself, longevity of doctor and staff, and procedures performed) to a three-year weighted average of collections, seller’s discretionary earnings (SDE), and earnings before interest, taxes, depreciation, and amortization (EBITDA). And unlike other dental practice brokers, PTS doesn’t just sign with dentists to get the necessary information for you to make the right decision.

Contracts in place

PTS already has the contracts in place rather than hiring an attorney to draft documents for you, saving thousands of dollars, whether you’re planning a location, new startup, quarterly performance review or legal services. Our complete counseling starts from evaluating your practice to implementing the necessary changes through evaluation, strategic planning, implementation and consulting. PTS will be by your side through the entire real estate transaction process, managing the process with landlords, banks, general contractors, architects, city building and planning departments.

And speaking of contracts, don’t hire someone with a long-term contract, allowing the broker to be passive and wait for leads to come to them and limiting the number of offers you receive. Six months to one year is standard, but PTS has a 30-day contract with no penalty to cancel. Add this to the list of questions you’ll want to ask your broker before hiring.

Enlist the professionals at PTS

Dream team

Consider PTS part of your transition dream team, making sure all the agreements are in place and identifying ahead of time any issues that may arise. Avoiding a direct negotiation, PTS removes any emotions from the situation by providing a buffer between the two parties, ensuring the buyer-seller relationship doesn’t become strained during the process.

The rest of your dream team consists of an attorney who specializes in dental practices, a certified public accountant (CPA), investment and insurance advisors, and practice consultant to identify your current assets and perform a gap analysis before the sale goes through.

While many CPAs, real estate agents, and attorneys think they can sell a practice, only trust a professional transition broker, such as PTS, just like you won’t ask your chiropractor to perform a full arch fixed dental implant bridge.

Focus on your bottom line

Your primary focus during the selling process is to maintain the success of your practice. Both you and your buyer will suffer consequences if the value of your practice decreases with a decrease in production. Your time is better spent focusing on the well-being of your practice and its employees and patients before hanging up your proverbial hat.

Don’t go it alone!

January 28, 2021

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

December 27, 2020

3 M&A Predictions for Dental Practices in 2021

It would be an understatement to say dental practices were hit hard during the pandemic. While the American Dental Association (ADA) reports revenue is down in total, many practices have managed to turn a profit in the five months since they have been allowed to open up again. However, practice expenses are up as patient visits need to be spaced out and the need for extra cleaning costs and personal protective equipment (PPE) continues to rise. All signs point toward an increased interest in selling dental practices or joining dental service organizations (DSOs), as Professional Transition Strategies Founder and President Kyle Francis offered in a recent article for Dentistry Today. Here are some key takeaways.

Industry resilience

Private equity groups have turned toward dental practices as an attractive investment opportunity, particularly specialty practices, such as endodontists and oral surgery groups, since they were deemed essential services. As a result, Francis says, “Revenue and practice valuations for many specialty practices actually increased this year.” Likewise, investors know dental care can’t be postponed over the long haul, and the longer care is put off, the more expensive treatment is.

Valuation methodologies

Investors are looking for new ways to determine the value of a dental practice during these unprecedented times. Typically, investors would analyze the past 12 months of earnings with interest, taxes, depreciation, and amortization, but investors are now either writing off 2020 or looking at the past 15 months to make up for the three months when practices had to close their doors. “Some investors are restructuring deals to decrease the amount paid at closing to offset risks,” Francis says. “Others are aiming for longer-term employment contracts with dentists or structuring deals to ensure the selling dentist still has a performance incentive.”

Wildcards

Dental practices need to continue to rebuild their staff and patient bases in the year ahead, which will inevitably turn up in a valuation down the road. What’s more, while dental practices don’t have the option to work from home, if the owner has invested in the real estate, this may impact the value of the commercial property. Along the same lines, capital gains taxes are likely to increase, cutting into profits when it comes time to sell. “But DSOs have capital, and private equity groups see the dental industry as an attractive investment opportunity,” Francis says. “No one can predict the future, but the 2021 M&A landscape looks positive.”

What’s next?

Contact the experts at Professional Transition Strategies to learn the best steps for moving forward with your dental practice.

December 21, 2020

5 Transformative Dental Industry Trends Shaping This Year

In a recent article for DrBicuspid.com, Professional Transition Strategies Founder and President Kyle Francis dusted off his crystal ball to offer the best-educated guesses about what the year ahead will hold. While 2020 was anything but a typical year, he says “there are plenty of reasons for optimism in the dental sector.” Here are five reasons he thinks this turbulent year still holds a light at the end of the tunnel.

Teledentistry and AI

While teledentistry filled in the proverbial gaps when COVID-19 forced dental practices to shut their doors, it is not a long-term solution sustainable for this highly specialized and tactile field. It is not feasible to expect dentists to gauge the depths of caries with an iPad right now, but artificial intelligence (AI) is poised to change the industry significantly. Companies are using algorithms to help dentists interpret X-rays more effectively, and dental tech companies are pioneering 3D-printed implants to replicate teeth.

DSOs

If anything, the strength of dental service organizations (DSOs) was only solidified in 2020 since independent practices have treaded water navigating the storm of business ownership during a pandemic. Analysts on staff to help dentists make data-driven decisions, bulk purchasing power to secure personal protective equipment (PPE), and human resources professionals to handle staffing issues have all become attractive solutions available through DSOs.

Capital gains tax

Massive government spending programs during the pandemic will come at a cost, even after helping to keep the economy afloat. A capital gains tax is most likely the solution, which may drive dentists to seek an affiliation or exit sooner than later. Financial advisers are advising dentists to hang up their proverbial hats in anticipation of an increase in capital gains tax.

Essential workers status

“This year proved that dentistry is, in fact, an essential service,” Francis said. “Delayed preventive care led to restorative care. Delayed restorative care led to endodontic care. Delayed endodontic care led to replacement procedures.” However, while it’s gratifying to recognize that dental services are vital to overall patient health and well-being, essential medical services are subject to health care reforms.

Commercial real estate

The value of commercial real estate is likely to drop in 2021 with partially or fully remote workforces. Since dentists can’t do house calls or work remotely due to diagnostic equipment, leasing professional office space is a necessity, which gives dental practices the upper hand when it comes to renegotiating a lease, rental rates or other concessions.

What’s next?

Contact the experts at Professional Transition Strategies to help determine the fate of your dental practice in years to come.

December 7, 2020

What Is the Value of Your Dental Practice?

In an article for DentistryIQ, Professional Transition Strategies Founder and President Kyle Francis says “it’s surprising that many dentists don’t even know the value of their practices.” As your most valuable asset, your dental practice is worthy of the time and investment to seek an appraisal. Here’s what to consider.

Keep your options open

“Retirement and career planning are the two main reasons dentists need to know the value of their practices,” Francis says. This gives practice owners the opportunity to leverage the values they’ve created to get a bigger payday with enough time to work with current or future dental partners to make necessary improvements over the course of time. In the long term, they can build value in a number of other ways, including an equity relationship with a dental service organization (DSO), which can take up to seven years.

Factors affecting practice value

An appraisal is really the only way to assess the true value of your dental practice since they are performed on a case-by-case basis. Practice type, location, practice visibility within the community, regional growth, standalone building versus retail center and even signage all contribute to the overall value of your dental practice. Other factors include revenue trends and forecasts, the number of active patients, patient attrition and retention rates, and new patients in the last month and year, as well as value of the dental equipment and its resale rate.

Assessment and documentation

Getting a dental practice appraisal is no small task on the part of the owner but well worth it in the end. It will require three years of profit-and-loss statements and tax returns, current balance sheet, production broken down by provider and procedure type, active patient roster and list of employees (with wage or salary information), new patients during the past 12 months, accounts receivable aging report, copy of lease (if applicable), dentist biography, photo documentation of office and equipment, office hours, and insurance plans accepted. “The sooner you know how much your practice is worth, the earlier you can start enhancing its value,” Francis says.

What’s next?

Contact the experts at Professional Transition Strategies to start the process of appraising your dental practice, whether you plan to sell, retire or practice for 20 more years.

November 30, 2020

5 Key Reasons to Use Brokers for DSO Dental Practice Sales

With an estimated 600 dental service organizations (DSOs) across the country, the number of possible offers for your dental practice can seem exhilarating. However, not all DSOs are created equal, and more importantly, neither are all dental practice transitions. Here’s why to use a broker to sell your dental practice to a DSO rather than trying to navigate the transition on your own.

Experience

Brokers will have personal experience with the DSOs. It’s easy for a broker to predict which way the transaction is heading and negotiate accordingly. This is all to say you should use a broker that has experience with dental practices, specifically one that knows and has experience with the different groups.

Knowledge

Brokers will have inside knowledge of the groups that actually practice clinical autonomy. When representing yourself, it can be hard to get to the bottom of each interested party while also negotiating the terms and running a successful practice at the same time.

Representation

By having someone act as your fiduciary, you can feel confident your best interests are being represented rather than just the interests of the group. The broker shouldn’t be compensated by any group. While being your advocate in the transaction, the broker shouldn’t have any other skin in the game.

Demand

A broker has the ability (and obligation!) to bring your opportunity to several groups that share your values. By creating more demand, you tend to have better negotiating power so that you can expect to receive higher offers and betters terms by the end of the transaction.

Bottom line

Houses are commodities; dental practices are not. Therefore, while you can sell your own house, you need an intermediary to sell your dental practice. Your time is better spent focusing on the well-being of your practice and its employees and patients before hanging up your proverbial hat.

What’s next?

Contact the experts at Professional Transition Strategies for help selling your dental practice to a DSO.

September 15, 2020

PTS Launches Innovative New Dental Practice Real Estate Cooperative

Co-op concept groups single-tenant dental practice properties for dentists who join dental service organizations (DSOs), allowing dentists to retain part ownership and lower capitalization rate with private equity backing

Professional Transition Strategies (PTS), a company that represents dental practice buyers and sellers and offers brokerage and practice consulting services, today announced the launch of a new real estate concept that will improve property value for dentists who own a single-tenant building where they practice when they join a dental service organization (DSO). By joining PTS’s dental practice real estate cooperative (co-op), dentists can retain part ownership in their building while significantly improving the property’s capitalization (cap rate).

“DSOs are the fastest-growing sector in dentistry right now, especially among younger dentists, who are three times as likely as older peers to be affiliated with a DSO, according to the American Dental Association (ADA),” PTS Founder and President Kyle Francis said. “When DSOs purchase a practice, private equity groups typically purchase the buildings that DSO group affiliates practice from, but when a dentist joining a DSO owns a single-tenant building, that property falls through the cracks. The co-op groups those properties together, backing leases with a portfolio worth hundreds of millions of dollars, increasing security and value.”

Dentists who sell to the co-op and retain part ownership benefit from the arrangement by lowering the cap rate, a formula used in real estate investing that divides the annual income of the property by its cost or value. The cap rate is a measure of risk in an investment, and lower cap rates are more attractive to investors. Dentists who sell a portion of their practice to PTS’s new dental practice real estate co-op can expect a lower cap rate on the same principle that makes any other type of business’s property more attractive to investors if it’s occupied by a chain rather than a mom-and-pop shop: lower risk.

The co-op bundles properties for dental practices similarly to how DSOs bundle the dental practices, with the selling dentist retaining part ownership in a joint venture (JV) agreement and selling over time. A property that is part of a co-op portfolio of strong leases with many long-term tenants generating hundreds of millions annually is more attractive to investors than a single-tenant practice generating half a million dollars per year, so it can sell at a lower cap rate and secure a stronger return.

“For dentists who own the property where they practice, that property is typically their second-most valuable asset after the practice itself,” PTS Lead Broker Stanton Kensinger noted. “If there’s a way they can lower the cap rate from the 8.5 to 10 range to 6.5 to 7 by selling to the co-op, that’s a win-win situation for everyone. PTS is in a unique position to put this co-op together since we already work with numerous DSOs across the US. As far as we know, this co-op concept has not been done before in the dental industry, but we have an opportunity to create additional value with the co-op, so we’re pleased to offer this new option.”

About Professional Transition Strategies

Founded in 2006 and headquartered in Colorado Springs, Colorado, PTS helps dentists buy, sell or start dental practices, move to new offices or expand at a current location. The company is committed to client success and provides expert consulting services to help dental professionals improve operations, marketing, accounting and other facets of practice management. PTS donates a percentage of its profits to Give Back a Smile, a cosmetic dentistry charitable foundation that restores the smiles of victims of violence. Find out more about PTS at www.professionaltransition.com.

July 23, 2020

How Does the COVID-19 Pandemic Affect Dental Practice Valuation?

dental tools

We’ve gone through some crazy months with the COVID-19 pandemic shutdown. Those owning dental practices undoubtedly wonder how locking their doors for all procedures aside from emergencies would affect their numbers and, in turn, the value of their practice.

Unlike businesses, such as restaurants, ride-sharing services and even amusement parks, whose revenue during the shutdown is lost forever, revenue for dental practices was delayed but not lost. This is because tooth decay, impacted wisdom teeth and braces can’t be treated at home.

Most likely, you are working harder than ever before to ensure you meet the pent-up demand from the shutdown. Your numbers reflect the additional hours you are seeing patients and the accelerated hygiene program you have implemented.

While your concerns during the spring are warranted, it is still important to know where your practice currently stands. The best way to do so is with a practice appraisal so you can start working off facts instead of feelings.

When a dental practice valuation is created, your financials are incredibly important. But not only your financials are considered. In addition to your top-line and bottom-line numbers, understanding your practice in and out is imperative. To do so, reports from your practice management software are also necessary. Now is the time to dig even deeper.

Reports from your practice management software

Here are some of the reports you can get from practice management software, such as Dentrix, Eaglesoft, OMSVision, WinOMS and Open Dental:

Production summary by category: A buyer will want to know everything there is to know about your practice before making an offer. A common question is the type of procedures you do in-house. They want to know if they can replicate the type of dentistry you perform. Do you place a lot of implants? Do you refer out most surgery?
Practice statistics: Your practice statistics report will give you a statistical snapshot of your practice. A potential buyer is interested in looking at this so they can develop a strategic business plan if they decide to buy your practice. The report easily groups together statistical information about your practice, such as patient demographics, continuing care statistics, new patient stats and the number of patients per provider.
Aging reports: While your accounts receivables tend to not be included in your practice value because it is always changing, it still holds value. Aging reports help determine how your practice is collecting its accounts receivable, as well as tracking family and insurance balances. A good rule of thumb is to expect 85% of your accounts receivable total on top of the fair market value of your practice, if you are planning to sell your accounts receivable in addition to your practice.
Ratio of patients with insurance versus cash-pay patients: Most buyers have a preference of fee for service (FFS) versus insurance when buying a practice. While some may not care, almost all want to know the breakdown. Is the practice 50% insurance-based and 50% FFS? Is it mostly insurance based? This report will do the hard work for you when finding the answer.
Patient demographics report (by age or ZIP code): A buyer does not need to know exactly who your patients are (after all, that would violate U.S. Health Insurance Portability and Accountability Act (HIPAA) laws). They do, however, need to know the type of patient you see. Do they skew younger or older? Do they live near the office, or do the majority tend to travel a long distance to see you? Understanding who the patient is by demographics allows a potential buyer to understand even further what they are investing in, as well as potential attrition rates.
Production summary by American Dental Association (ADA) code and category: In addition to the breakdown of production by category, a buyer will also want to know how much of each procedure contributes to your overall revenue. They are also interested in learning what each provider is producing and collecting. This includes not only the seller, but also associates and hygienists. It is important for a potential buyer to determine at what level they will need to produce to maintain practice revenue, especially if the selling doctor is not staying onboard.

Determining the value of dental equipment

We all wish that the value of your dental equipment is close to what you paid for it. However, similar to a car, the value decreases once it leaves the lot. Of course, this is not to say that there is no value because there is. When determining the equipment value, your valuation creator will look at it as if you were to place it on eBay or Atlas Resell Management. Aspects that will make this part of your valuation to be the most valuable are if your dental practice is digital, if you own a laser, conebeam, digital pan, CAD/CAM or 3-D printer, and if you’ve recently remodeled your office.

The importance of financials

Last but certainly not least are your financials, which are very important for determining your practice value. When looking at your financials, the past three years are considered but at different levels. The most recent year is weighed the heaviest followed by last year. The year before is weighed the least.

The great news is that if your practice has been around for a few years, you don’t need to factor in your 2020 numbers when determining the value of your practice. While we can’t simply erase 2020 as much as we may desire, we can at least revel in the fact that those few months of being closed doesn’t affect your largest asset. This is only the case if you have historical data to work off of.

If you purchased your practice within the past year, 2020 numbers must be included. Yes, since you reopened, your financials look great. However, the closed months can affect your overall value significantly with such little data to consider within the valuation, therefore, becoming detrimental for your practice value.

How will COVID-19 affect your dental practice value?

The details of how you reopened your practice after the COVID-19 shutdown will not affect your practice value. If you are considering selling all or a portion of your practice, it is valuable information to the buyer. Some of the most common questions asked are:

How many weeks were you/are you closed?
When did you/do you reopen?
Were you open for emergencies?
What day did you/will you reopen at reduced capacity?
What day did you/will you reopen at full capacity?
Do you expect all staff to return upon reopening?
Did you receive a Paycheck Protection Program (PPP) loan? If yes, how much did you receive, and when did you receive the funds?
What post COVID-19 operation measures were taken? Did you require N95 masks, face shields, disposable gloves, headcovers/booties, UV lights, extraoral suction, rubber dams on all patients, implement hand scaling only, pre-procedure mouth rinse, patient questionnaires/waivers, temperature checks, social distanced reception areas, etc.?

How goodwill affects a dental practice’s value

While not tangible and maybe a bit harder to understand, the goodwill within your practice will make up a good part of your practice’s value (as much as 80%!). The goodwill makes up those non-categorized assets, such as your community status, patient relationships (shown many times through your recall systems, active appointments, patient charts and referring doctors), and staff loyalty and longevity. This goodwill, when the practice is transitioned correctly, ensures long-term income for the buyer.

What is affected by COVID-19?

While your practice value may not be affected by COVID-19, what may be affected, if you are looking to sell all or a portion of your practice, is the closing date. Many banks and institutionalized buyers, such as dental service organizations (DSOs), ask for your practice to be open anywhere between one to three months after you reopen to ensure that practice stability is not an issue. In this same regard, they will ask for your practice to be producing at least 80% of your pre-pandemic production.

While we do not know what the future holds and when 2020 numbers are factored into a valuation, you can at least gain a better sense of where you are now and your options by getting all the facts.

To understand the value of your practice, post-pandemic, and make an educated decision on the future of your practice, contact the experts at Professional Transition Strategies.

To learn more about different appraisals methods are best for dental practices, check out the July issue of Dental Economics.

June 29, 2020

The DSO Conundrum

When it comes to selling your dental practice, it’s easy to rule out the option to sell to a dental service organization (DSO) because of their negative yet false reputation of corporate interest. In fact, a DSO might be a good fit when the seller is looking to stay on with the practice but wants to release managerial responsibilities, such as in a retirement situation, anyone who is looking to maintain a work-life balance, or a dentist who wants focus on the clinical side and patient care without contributing time and money associated with running a business. Here are all the facts you need to know about selling to a DSO.

What is a DSO?

A DSO is a business organization with the sole purpose of allowing non-dentist investment into dental practice ownership. A DSO isn’t necessary if all of the owners will always be dentists. But, you are limiting the value that can be achieved as the growth is limited by the personal funds of the owning dentists and their ability to carry debt.

The backstory

Dating back to the 1990s, many DSOs started from a single office that became very successful and its owner decided either to buy or start up other offices around them to keep up with the financial growth. However, most dental boards around the country have regulations limiting practice ownership to only dentists. In the 2000s, investors began putting together structures to help these large groups thrive, and this activity has expanded dramatically in the last 10 years.

Their responsibilities

DSOs provide non-clinical functions on a continuum. Some do a little, such as financial backing or accounting services; some do a lot, such as supply and lab formularies. However, they are a consulting group, a buying group, or an outsourced business services company. But, they may offer some or all of these services as they grow.

A new approach

Whether considering a typical transition or blended approach, it’s important to note that some may approach a DSO with hesitancy. Patient interest and office culture are just a few concerns staff can manifest when going into an unknown situation. But, the incentives have been aligning investors and doctors as both have goals they want to achieve.

The pitfalls

Before entering into an agreement, have an appraisal done by an independent party that includes a range based on other comparables. Avoid dealing directly with the DSO in any cases, and be sure to consider more than one or two groups when looking to transition. Lastly, conduct an accurate return-on-investment calculator to see what the long-term result will be in any situation.

What’s next?

Contact the experts at Professional Transition Strategies to learn more about existing DSO options and investors starting DSOs.