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.

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.

5 Considerations when Sharing a Dental Office Space

Transitions aside, an often-overlooked option is to share an office space. Renting out under- or unutilized office space can come with its financial advantages if done correctly. In locations that are more densely populated and with greater competitive saturation, just by joining forces, consolidating operations, minimizing facility costs, bundling overall expenses, and maximizing production, an additional 14 percent can be made on the bottom line. However, like with any leasing agreement, there are factors to consider to ensure you aren’t costing your dental practice money or goodwill. Here are some considerations to take into account before signing any agreements.

Share the load

A space may be underutilized if there are multiple unused operatories or the current doctor only works a few days a week, leaving the office closed for many days. Renting out space to another doctor will also provide emergency patient coverage while one doctor is away.

Save on costs

Taking on a tenant to help reduce overhead will only help increase income, not to mention the ability to upgrade equipment through a shared cost with the leesee, while also offering additional networking and business opportunities for both parties.

Provide a test-run

A lessee is afforded the opportunity to save on business expenses in terms of equipment and office space until they build up their own practice. Along the same lines, the leasing doctor is able to test out success rates in specific geographical areas before opening their own practice doors.

Draw the line

Just because you are sharing space, does not mean that you are also sharing patients. It is important to know the difference between a spaced share versus an associateship or partnership as it can be harder to sell your practice if you already have a space share in place.

Crunch the numbers

Have an attorney with health care law experience draw up a legal contract before the commitment is made, including duration of and terms of lease, termination and renewal terms, conflict resolution, insurances accepted, outline of equipment sharing and maintenance costs, any shared staff or office number, and schedule for the shared space.

What’s next?

Contact the experts at Professional Transition Strategies to learn more about different space-sharing opportunities to find out if this option makes sense for your dental practice.

The Kids Are in College; Now What?

Becoming an empty-nester is a natural time to start thinking about your next steps, as well. While there is still tuition to be paid, a well-laid dental practice transition takes years of planning, whether that means engaging in a partnership or preparing for retirement. Here are some steps to start taking now.

Contact a broker

It takes approximately 150 hours to transition a dental practice, which is one of the many reasons to hire a professional broker. In order to get the most of your sale, both financially and personally, a professional broker will help you focus on the bottom line and create an accurate appraisal of your dental practice while vetting potential buyers and removing any emotion from the transaction.

Crunch the numbers

Determine how much you need for retirement, how much debt you have left, and how much you need to get out of the practice when you ultimately decide to sell it. The most important point is to plan for your transition while production is still high to ensure you gain a higher valuation. Because the most recent years’ collections are weighed heavier than past years, you’ll want to go out on a high note if a sale will take place in the next two or three years.

Know your options

With all the transition options available, you’ll want to have an understanding of your ideal transition and discuss with a broker what is currently possible and what you need to do to get to your ideal transition plan. Planning early will allow you the option to affiliate with a dental service organization, bring on a partner who will eventually buy the remaining share of the practice when you are ready to retire, or simply understand where the practice needs to be financially and strategize how to increase the value of the practice if needed.

What’s next?

Read up on sellers’ options in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to get the proverbial ball rolling.

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.

Dental Practice Transitions, by the Numbers

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

1,500

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

680 

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

80

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

150 

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

15

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

30

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

5

Years out you should start thinking about a retirement plan.

20

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

99

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

What’s next?

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

Associateship versus Partnership: Which Is Right For You?

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

Know your numbers

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

Establish your practice

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

Assess your situation

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

What’s next?

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

4 Steps to Selling Your Dental Practice

A successful dental practice transition doesn’t happen overnight. In fact, a well-laid plan to sell your dental practice should start as early as five years out, depending on whether you’re looking to retire or bring on a partner. Here are the steps you should take to sell your dental practice.

Hire a broker

A qualified broker will perform a complete appraisal on your practice, help you understand your options in terms of a timeframe for the sale, offer advice on how to increase the value of your practice, market your practice and reach out to potential buyers, and schedule showings of the practice, as well as ensure you are still concentrating on the health of your practice. (While most brokers charge a fee, Professional Transition Strategies can occasionally perform these services at no charge.)

Vet potential buyers

A non-disclosure agreement is signed by every potential buyer who inquires about your practice, after which time a prospectus is sent. A conversation between the potential buyer and broker then takes place to answer questions and gain a better understanding of the buyer’s intent. If the practice is deemed to be a good fit, a letter of intent is submitted, which typically takes 10 days.

Due diligence process

Once the seller and buyer agree to the terms, the due diligence process begins, which can take anywhere from 30 to 45 days. PTS can provide a checklist of the due diligence process for the seller that includes a breakdown of the practice corporation, personal funds, and treatment of accounts receivable, in addition to real estate, insurance, and licensing.

Notifying patients and staff

In order to preserve the relationship with your patients and staff, you’ll want to tread lightly when announcing the transition. Staff should be notified 15 to 30 days before the closing, whereas patients and referrals should only be notified after the closing date.

What’s next?

Read our e-book “Strategies for Transition,” then contact the experts at PTS to start the process of selling your dental practice.

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.

5 Steps to a Pre-Retirement Plan

Any business owner will tell you retirement doesn’t happen overnight. A well-planned retirement from your dental practice can start as early as five years out. Here are some suggestions to help grease the wheels in the meantime.

Valuation

You don’t need to wait until you’re ready to sell to start the valuation process. Valuating your dental practice before retirement is on the horizon will give you an idea of how much it’s worth and what you need to increase (production, collections, or otherwise) in order to pay off your loan, if you have one.

Scale back

If you’re looking to cut back leading up to retirement but can’t stop collecting or increasing services for financial reasons, consider hiring on a dentist to moonlight or even take on a partner, depending on the size and value of your practice (above or below the $1.2 million mark).

DSO affiliation

In order to get more flexibility by releasing the office management and HR of your practice, consider affiliating with a dental service organization at the peak of your production. While this isn’t an option for everyone since each DSO has its own practice profile or practice requirements (including collections, EBITA, number of ops, location, and type of dentistry), you’ll get a higher valuation and be able to completely retire in a couple of years when the time comes.

Resale

Not every dentist will make money when looking to retire the business. Smaller practices might benefit from reselling equipment and charts separately rather than as a whole entity. Selling patient records is often recommended when a dentist wants to increase production in a short amount of time.

Improvements

Hiring a real estate professional through PTS will help you evaluate the time remaining on your lease to renegotiate lease terms or sale of the building and advise on any upgrades or other improvements that would add to the value of the practice.

Equipment

It may seem counterintuitive to replace equipment when thinking about selling your practice, but upgrading or overhauling large equipment if you’re more than five years out from retirement will help get your money’s worth out of it. Similarly, equipment with technology (X-ray, intraoral cameras, etcetera) can be upgraded within three to five years before it becomes obsolete.

What’s next?

Start thinking more about retirement with the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to begin the valuation process.