Tips for Using A Dental Practice Broker: Comprehensive Guide
You’ve made the correct decision to hire a dental practice broker to transition the ownership of your business. But, if this is uncharted territory for you, how do you approach this relationship? Before choosing which dental practice broker you want to trust with one of the largest financial transactions in your life, you’ll want to make sure you get off on the right foot. After all, a solid advisory team will make for a smooth transition. Here, we lay out a checklist to help guide you through the process.
We’ll also point you in the right direction to answer these questions along the way:
- How much money should a dental practice invest in marketing?
- What percentage of gross revenue should a dental practice invest in marketing?
- What is the average overhead for a dental practice?
- How do you evaluate the value of a dental practice?
- What is a good EBITDA for a dental practice?
Make sure you communicate
As your most valuable asset, your dental practice is worthy of the time and investment to get all parties on the same page. Starting with an appraisal is one of the best ways to break down any barriers and assess the true value of your dental practice since valuations are performed on a case-by-case basis. Getting a dental practice appraisal means you’ll be able to work with facts specific to you and your practice rather than hypotheticals from anecdotal stories from publications, blogs and other doctors. Only then will the seller and dental practice broker be able to work together to find the right types of buyers on the line.
Build a relationship
Your dental practice broker is just one piece of your transition puzzle. Consider Professional Transition Strategies (PTS) part of your transition team, making sure all the agreements are in place and identifying ahead of time any issues that may arise. Avoiding a direct negotiation, we remove 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. And because each transition is different, we deliver a tailor-made approach and work with you to understand your goals so we can source buyers that fit the results you want.
Use a broker’s website before calling them
The best way to vet a dental practice broker before hiring is to evaluate their website. Just like your patients assessed your website before picking up the phone, you should already know a good dental practice broker’s expertise based on their online presence. Better yet, does the broker have a blog that shows firsthand they stay on top of industry news and trends? Are they actively posting to industry forums? Do they offer e-books that show their range of knowledge and expertise? Most importantly, look at what practices they have on the market — do they tend to only work with smaller, local practices, or do they work with a variety of sizes, specialties and locations?
Types of dental practice acquisitions
Buy-out: Purchasers buy a practice within a relatively short time period. On average, this takes about three to six months and is the quickest transition route.
Buy-in: A specific buyer purchases a defined portion of the dental practice. This is a longer-term approach that can expand the value of your practice over time.
Affiliation: You sell a percentage of your business to another entity, typically a DSO, with the intent to slowly transition out of the practice and give up clinical control to the group. This is an excellent way to maximize the practice’s value.
Associate to buy-in: A group of associates will court a potential buyer to purchase over a period of time. This process ensures compatibility and a smooth transition to map out the future of the practice. Division of power is the biggest decision that needs to be made with this method. While this is the longest approach — taking at least five years — it’s also the most flexible.
Associateship: Yes, you can sell to associates while maintaining full control, but in this method, not everything is agreed upon upfront, leading to a mere 20% success rate.
Merger: Two existing dental practices combine into one entity, and owners often stay on as equal partners after merging. Mergers offer great benefits, like the net income remaining constant or even increasing because there is no loss of business.
Roll-up: You purchase multiple dental practices and combine them under one entity to maximize economies of scale. This can boost the value of your practice when it’s time to sell. A roll-up transition is the most lucrative if you have the time and capital to dedicate to this plan.
Remember who the broker is working for
As the seller, it’s important to know the difference between a single-agency and transaction broker. A single-agency broker who acts on behalf of either the buyer or seller tends to have fewer qualified buyers in their arsenal since they only work with one party. Along with disclosure, confidentiality, accounting, and reasonable care, a single-agency broker also owes the client obedience and loyalty. Alternatively, a transaction broker, like PTS, who represents both parties acts as a mediator to ensure a smooth transition will take place by helping the seller determine a competitive list price preparing an offer for the buyer, while facilitating communication between both parties. What’s more, we are transaction brokers when it is an individual sale and solely represent the seller when the buyer is a group, like a DSO.
Tips for a successful dental practice acquisition
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 us for our experience with practices like yours. Contrary to most firms who simply post about a practice and wait for the phone to ring, we take a proactive approach to marketing your practice and the opportunity available, therefore, ensuring fewer days on the market. Additionally, we have personal experience with more than 300 (out of the 350) different dental service organizations (DSOs), making it easy to predict which way the transaction is heading and negotiate accordingly. In addition, we know who the players are, not just in terms of their offers, but also how they work, who does what they say they will, who is truly clinically autonomous, and more.
Preparing to sell a dental practice
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 decline in production. But, just like you would make curb appeal or structural updates to your house before putting it on the market, you might want to consider the same for your dental practice before selling to make it more appealing to a potential buyer and easier to show.
Selling a practice takes approximately 150 hours, which is why you’ll want to hire a broker to 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. You don’t have to go it alone. Let us decide if that DSO is trying to take advantage of the situation so you don’t leave money on the table.
Top tips for selling a dental practice
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. 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. Rather than just using a generic percent of the practice’s collections, 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, including breaking down earnings before interest, taxes, depreciation, and amortization (EBITDA) and seller’s discretionary earnings (SDE). Best of all, we can perform these services at no charge with no commitment obligation.
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. By having a practice broker act as your fiduciary, you can feel confident your best interests are being represented rather than just the interests of the group. At PTS, we realize every situation is unique, and we will help you decipher which option is best for you.