3 Reasons to Start Your Dental Practice Transition Early

Dental practice transitions don’t happen overnight. In fact, a well-laid plan can take as long as five years if done properly. Even if you aren’t ready to hang up the proverbial hat, it doesn’t hurt to take a few steps in the right direction. Here are some suggestions to make sure your dental practice lands in the right hands. 

More transition options

Once upon a time, the only options for transitioning out of a dental practice were to sell to another dentist or close its doors. But today, the options are seemingly endless. You can choose to sell your practice in whole or a portion to a partner for a longer-term transition plan, sell your practice but continue to work as an associate, merge with another successful dental practice, affiliate with a dental service organization, among others.

More offers

Your options aren’t limited to the type of transition but also the offers you receive. If you wait until the last minute to transition out of your practice, you may be stuck in a situation where you have to take the first offer you receive. By starting early, you can be more discerning on offers that come in and truly only move forward with the one with which you feel most comfortable.

Increase value

The necessary step of valuating your dental practice not only helps determine which type of transition would be best, but also tells you what upgrades need to be made before selling your business. If the value of your practice isn’t enough to clear your debts, you can decide if you need a few more years to build up the value of your practice before taking that next step.

What’s next?

Learn more about your transition options with the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to begin the process.

Dental Practice Transition Due Diligence Checklist

Once the seller and buyer agree to the terms, the due diligence process begins, which can take anywhere from 30 to 45 days. In the case of a successful dental practice merger and even affiliation, careful due diligence is imperative. But no matter the type of transition, practicing due diligence will leave little room for error in the long run among your team of advisers. While the documents required may vary depending on the specifics of your transaction and lending requirements, here’s a checklist to help get everything in place.

Seller’s Side

Practice Corporation: Is there a legal corporation to which sales proceeds should be paid, including family trust, corporation, personal funds, and 1031 exchange?

Will buyer get a Doing Business As (DBA)?

Does the existing entity need to be closed?

In the case of a merger or buy-in, what is the Tax ID (EIN) for the practice?

Is there a license needed for the business?

For the selling doctor, what is the existing and new work schedule, and what is the compensation?

If the value of accounts receivable will be determined on the day of closing, what will the standard schedule for accounts receivable valuation look like in terms of percentages? This includes real estate, insurance, and licensing.

Buyer’s Side

What documents are required for the bank? This includes a loan application with preapproval letter, the bank’s personal financial statement, tax returns for the previous three years, a credit report, verification of funds, bank statements, final loan offer from the bank, closing instructions from the bank, and articles of incorporation with IRS documents.

What’s next?

Contact the experts at Professional Transition Strategies for a complete due diligence checklist and to get the dental transition process started.

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

Every so often, Professional Transition Strategies hosts a webinar for sellers to learn more about the transition process. In April, 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 or not you would consider selling to a dental service organization, 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 cetain 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 percent 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 percent.

Clean up your books

In addition to charging yourself market rent if you own the building, if you employ your spouse, consider replacing him or her or at least start paying him or her 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, 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 road map 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 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 Professional Transition Strategies to learn about the next steps.

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 his or her 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 percent.

Buy-in: 1–4 years

A buy-in is essentially a short-term and defined associateship period that is approached from an owner time set, not employee. 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 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.

5 Considerations when Entering into a Dental Practice Merger

Many scenarios exist under the merger umbrella when joining dental practices. Most notably, are you merging with a practice so that you and the existing dentist partner together? Or are you merging with an established practice where the selling dentist is leaving? Either way, to ensure a successful dental practice merger, careful due diligence is imperative. Here are some considerations to take into account.

Consider the pros

When combining two dental practices, it’s expected that you’ll expand your patient base and reduce your competition, all while increasing your production numbers and growing your bottom line.

Accept the challenges

With two personalities to consider, it’s only natural that disagreements and disputes can occur. If not resolved correctly, it can create a contentious environment that will ultimately affect the arrangement. If dentists don’t agree on deadlocks, it is advised to seek legal counsel to create a way to resolve disputes.

Embrace change

It’s important that all aspects of the new identity, including new logos and possible name change, be considered upfront. What’s more, assess whether or not a larger location will be needed to accommodate the merger. From there, decide if all current staff positions will be retained (including spouses) or if there are duplicate positions.

Assess compatibility

Do both practices currently accept insurance and the same plans? If not, decide what you are going to keep and what you are going to stop taking. Keep in mind that patients may switch providers should you stop accepting their insurance. Are your fees similar? Patients don’t want to feel as though they are now being overcharged after the merger and may ultimately leave the practice.

Share revenue and expenses

How will assets be divided? Will expenses be shared based on productivity or ownership? Will revenue be shared based on productivity, ownership, or a combo of both? All these questions and more should be answered prior to engaging in a merger.

What’s next?

Read up on more dental practice transition options in the e-book “Strategies for Change,” then contact the experts at Professional Transition Strategies to plot your next steps.

How to Manage Multiple Locations

You’ve been bitten by the entrepreneurship bug and have started to wonder if purchasing additional dental practices is your next move. But first, you’ll need to understand what’s involved in owning multiple locations. Here’s how to get your gears moving.

Ask the right questions

Start thinking: Do you have an admin who will oversee and manage the business aspects of each location? Will you work at both locations? If so, how will your time be split up? Are you going to bring on an associate or partner (understanding that associateships are only successful 20 percent of the time, while partnerships see a 60-percent success rate)? What are the costs associated with improvements to keep both locations upgraded?

Crunch the numbers

The first consideration that should be made is the amount of operating capital you would need and to make sure you have a good banking partner. From there, you’ll need to clarify options about keeping the two practices completely separate versus centralizing the front office functions, including billing, accounting, and scheduling. Determine how you will increase effective cash flow, by focusing on new patients, efficient equipment, better technology and software, and minimize outflow. Additionally, don’t forget the additional cost of advertising and having an online presence.

Assess the location

The success of a second location hinges on just that: its location. Assess the area growth and population, as well as the competition around you. By placing an additional location in a separate socioeconomic area other than that of your primary practice, you may see that while one practice is slow, the other is booming.

Staff accordingly

Simply put, you can’t run two or more offices by yourself, even if you plan to practice at multiple locations. The staff can travel with you, but depending on your growth plan, it may make more sense to have certain staff members exclusively at the different locations, such as admin personnel, other dentists, hygienists, and dental assistants.

Count your inventory

Creating an inventory system that keeps all office supplies in one location and extra medical supplies in another will only make everyone’s lives easier. What’s more, investing in technology at the same time will ensure you can manage multiple locations from a central location or database. Consider automating your billing and digital staff scheduling systems at the same time so everyone is on the same page.

Consider all options

Starting from scratch isn’t the only way to grow your practice. Consider strategies that involve either an acquisition or de novo startup, both of which have their perks, but understanding the consequences of either will ensure more pros than cons. Alternatively, consider merging your practice with an existing practice to get an influx of patients without the overhead of another office.

What’s next?

Ready to take the next steps? Contact the experts at Professional Transition Strategies to figure out which path is right for you.

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 off collections or a percentage of the practice.

Complete practice loan

This is where all the terms and conditions that need to happen in order for the purchase and sale to go through, including timeframe of sale and final asking price.

What’s next?

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.

6 Types of Dental Practice Agreements

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

Purchase agreement

Asset purchase agreement

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

Stock purchase agreement

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

Real estate agreement

Upfront purchase

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

First right of refusal

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

Lease agreement

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

Employment

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

Operating

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

Promissory note

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

Closing statement

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

What’s next?

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

6 Considerations when Starting a Multispecialist Dental Practice

One of the most efficient and profitable ways to grow your general practice is to bring on a specialist or multiple specialists. But before you call every periodontist, orthodontist, and pediatric dentist in the phone book, you’ll want to consider the following.

Patient care

With every decision a general practitioner makes, patient care should always be at the top of the list. After all, it’s the reason you got into dentistry and how your business continues to thrive. As the industry continues to move away from solo private-practice specialty providers toward collaborative multispecialist practices, ask yourself: Does this one-stop shop model benefit my patients as much as my staff in terms of need and affordability? While the ability for a patient to get a referral and set up an appointment is certainly convenient, there’s no one-size-fits-all answer.

Patient need

Before merging with a specialist full time, make sure the need is there first in terms of patient load. If not, there are other options. Consider bringing on a specialist a few days a week or month, one who has his or her own practice location or multiple similar arrangements, using your practice as a satellite office while splitting time between multiple practices.

Office space

Does your current practice offer the space necessary to house a specialist and the accompanying equipment, or will expanding warrant a move? Each new specialist has the potential to come with his or her own assistant and staff, not to mention the need for space to accommodate different equipment and setup. If a move is in the plans for expansion, consider an area that makes geographic sense for all the dentists under the same roof.

Compatability

As with any partnership, it’s important to seek out specialists who have the same practice philosophy so as to not recommend competing procedures that could potentially confuse the patient. Additionally, you’ll want to ensure there’s no overlap between specialists, perhaps between an oral surgeon and periodontist. It benefits the team when the general practitioner is versed in the different specialties being offered but does not take control of the procedures and recommendations. For example, while most general dentists are knowledgeable in endodontics, taking on an endodontist will allow the primary dentist to focus on general dentistry.

Collaboration

There’s much more to share than square footage in a collaborative practice model. Think shared teams, facility overhead, and peer collaboration that all help improve efficiency and productivity. An increase in production and decrease in overhead will result in optimal profitability and better clinical outcomes for all parties involved. A common collaboration is for a recent graduate to become an in-practice specialist at a dental service organization where there’s already a full patient load and the ability to work from the ground up. Additionally, choose partners who complement the work currently being offered, like a general practice with periodontist or an orthodontist with a pediatric practice.

Creativity

The decision to go into a multispecialist practice doesn’t have to be cut and dry. The specialist can bring his or her own equipment, buy new, or even consider a contractual arrangement in which equipment is shared in exchange for services. The owner dentist could supply all bookkeeping, charting materials, and reception scheduling, while the specialist could cover the cost of any treatment incidentals, supplies such as instruments, lab procedures, even cotton balls.

What’s next?

No matter the situation you arrive at, you’ll need to inform your malpractice insurance company of the addition of any specialists, consult state regulations on how to categorize a specialist, and make sure all arrangements—including a non-compete agreement, percentage of payment based on collections rather than production, and what the specialist is expected to provide—are contractually agreed upon. Let the experts at Professional Transition Strategies help guide you.

Partnerships versus Mergers: Which Is Right For You?

When looking to combine practices, the million-dollar question (literally) is whether to go with a partnership or a merger. The answer lies in what you’re working toward: retirement or expansion? Here, we break down the two options.

Partnerships

While partnerships have a 60 percent success rate, it only makes financial sense if the practice is collecting $1.2 million annually. If the practice is collecting less, each doctor wouldn’t bring home enough at the end of the day to make a stable living. A partnership could eventually lead toward retirement, but a more lucrative option is to take on a partner who could expand the offerings of the practice, adding to its value and client base.

Mergers

Though not as common, combining two existing practices into one proves to be successful in terms of equality of responsibilities and income, especially when combining a general practice with a specialty partner. The next step when working toward retirement is to then sell after five years or so to a dental service organization. Though staying on to work a reduced schedule is an option, selling a merged practice to a DSO will yield higher profits. And ultimately, the process to sell is more seamless since DSOs already have financial backing.

What’s next?

Read up more on your options to sell in our e-book “Strategies for Transition,” then reach out to the experts at Professional Transition Strategies to get the ball rolling.