Unlocking Your Practice’s Untapped Potential: The Power of PTS’ Proprietary ROI Calculator

Navigating the complex financial landscape of dental practice transitions can be daunting. Dentists often find themselves overwhelmed by the many variables influencing their financial outcomes. At Professional Transition Strategies, we recognized the need for a tool that could demystify this process, providing clear and accurate financial projections. Enter our proprietary ROI calculator — a game-changer in dental practice valuations. In this guest blog, our VP of Valuations Mark Frazzini describes what makes PTS’s ROI calculator unique and how it helps practice owners uncover their practice’s untapped financial potential.

Painting a Clearer Picture of Financial Projections

As a dental practice owner, imagine having a detailed projection of every buyer offer with a complete financial picture, from immediate cash at close to the long-term effects of recapitalization events, tax implications and overall financial strategy, and how it will benefit you in the long term. That’s exactly what PTS’s ROI calculator offers. 

After completing an initial valuation, we use our proprietary tool to help dentists visualize their potential financial outcomes from each offer. Whether you’re dealing with substantial debt or looking for immediate cash flow, our calculator delivers precise projections to inform your decisions.

Why Do You Need This?

The inspiration for our ROI calculator stemmed from the need to help dental entrepreneurs compare various buyer offers and their financial outcomes while also weighing the option of not taking any deal, comparing that option with the practice’s projected growth rate. With so many variables at play — deal structure, tenure, debt, real estate, opportunity costs — it was crucial to develop a tool that could provide a comprehensive analysis. 

Oftentimes, this is a situation where you’ve outgrown your regular advisors, such as your accountant and financial planner. They may not be able to project your practice’s results accurately given the unique environment of the consolidation wave or understand the variables and nuances of dental industry transitions. Our calculator can shine a light on these complexities, providing precise projections and insights that traditional advisors might miss.

Embracing the Consolidation Wave

In today’s market, the consolidation wave is transforming the dental industry, with the majority of practices being acquired by larger dental groups. Currently, about 35% of the dental industry is already consolidated, and experts predict this will reach the full 60% to 70% in the next five years.

In a consolidation wave, your equity will act differently. Holding onto equity in a single practice can be risky, much like investing in a single stock. By partnering with a dental service organization (DSO), dentists can benefit from faster equity growth and reduced risk. Our ROI calculator demonstrates this by showing how your equity can grow and stabilize when affiliated with a larger group, illustrating the opportunities for major financial security and growth. 

Equity arbitrage, the concept of optimizing the value of your practice’s equity during consolidation, is a key consideration. This arbitrage opportunity arises because DSOs are typically backed by private equity and can provide higher offers due to their access to capital and different financial structures. The calculator provides clarity on how your equity can grow in this environment, surpassing what you might achieve through traditional practice updates alone.

This tool also offers insight on the power of time, showing how the longer your equity participates in private equity, the greater its growth potential, often surpassing the average growth seen in public markets like the stock market.

Importantly, you need to start planning for a transition now before the consolidation wave closes in the next five years to seize these equity-growing opportunities.

Benefits of Using the ROI Calculator

The calculator contextualizes how much better you could perform by partnering with a group. While it’s easy to project that big changes or updates to your practice will lead to substantial growth, even a high-performing practice typically won’t match the equity returns achievable in this consolidation wave. Our tool can demonstrate how partnering with a group could potentially surpass these projections, offering superior returns in this unique period.

The feedback from doctors has been overwhelmingly positive, with many appreciating the detailed insights and clarity provided by the calculator.

What Makes the Calculator Different?

Other brokers and consultants often speak in generalities and rely on rule-of-thumbs when discussing deals with DSOs. For instance, a common rule of thumb is that private equity investments typically grow about 4x over a four-year cycle. While this can give a rough idea of potential returns, it doesn’t account for the specific details of your situation.

Our calculator is much more robust, allowing for discussions and scenario playing with our experts, using the tool to present a side-by-side comparison of all the options. 

This apples-to-apples view includes short-, medium-, and long-term projections, giving a complete picture of how different deals stack up against one another. It considers every dollar and cent, including the complexity of how your equity is structured — whether as a joint venture, holdco, or sub-DSO equity. It also accounts for factors such as taxes, practice management and existing debt.

What’s truly unique is the calculator’s flexibility regarding timing. It can project your equity’s performance based on where you are in the private equity cycle, whether you’re already two years in or just starting. It provides insights into what your equity will look like in the next cycle, typically three to five years out, helping you plan for the future with precision.

It’s not just about the immediate cash at close; it’s about understanding how each deal affects your financial future in the long term.

Variables Factored into the Calculator

Our ROI calculator considers a wide range of variables, including collections, EBITDA, SDE, tax implications (both state-specific and deal-structure specific), the doctor’s desired practice timeline, go-forward compensation style, opportunity costs, synergies from partnerships, deal structure details (such as cash versus equity, earn-outs, holdbacks), private equity styles, real estate ownership, and debt analysis. Each variable is meticulously considered to provide a comprehensive financial picture.

Remember, you don’t need to worry about managing all these factors yourself; the calculator handles them for you. Our experts at PTS are here to walk you through the results and help you understand how they fit with your goals.

Final Thoughts

The PTS proprietary ROI calculator is more than just a financial tool; it’s a resource designed to help dentists understand the untapped potential of selling their practice. 

The true value of our ROI calculator lies in its ability to compare different deals and end results, showing how each aligns with your overall goals. By visualizing the benefits of capitalizing on the consolidation wave before it’s too late, dentists can make well-informed decisions that align with their long-term financial objectives. 

Contact the experts at PTS to see how our ROI calculator can help you unlock your practice’s full financial potential.