Omni Practice Group Dental Practice Brokers Oregon Washington

Top 5 Dental Practice Transition Strategies

By Rod Johnston, MBA, CMA of Omni Practice Group

Dentists are often so caught up in their day to day grind of running a dental practice that there’s no time to figure out an exit strategy. You do everything from manage the staff to negotiate the lease and, oh yeah, you also do dentistry in between. You’re just too busy to even think about your dental practice transition.

Until, one day, your back blows out, your spouse tells you to retire, or you just plain get tired of the responsibilities and stress. You decide, it’s time! Maybe you want to continue doing dentistry at some level, either part time, or full time. Maybe you want to be completely done. Here are the top five dental practice transition strategies you can think about before that time happens.

SELL AND DON’T LOOK BACK

This is the option for those who are completely done and ready to either find another career, a good fishing hole, or favorite golf course. You can either attempt to do it yourself, or hire a dental practice broker to help you out. The pros are that you are done, you get your equity out of the practice and you do not have to worry about staff, insurance companies or other problems again. The cons are that you do not know how your patients and staff will be cared for by the buying doctor.

SELL AND TRANSITION

This approach allows you to sell your dental practice and stay on for a short or long term practice. The “staying on” part can be a two-hour drop in once per week for a couple of months, working back one or two days per week, or a more extensive two to four days per week for a year. It’s all negotiable and depends on the amount of production in your practice. This strategy is great for those who are closely tied to their patients and staff and want to see them well cared for after the sale. It also helps ensure patients will stay on with the buying doctor. The pros are that it allows for a very smooth dental transition. The cons can be that the staff is still allegiant to you and the patients still want to see you. You need to be an impartial observer and let the buyer be the owner and do his/her work.

SELL AND WORK BACK

If you decide that you still enjoy dentistry, but just don’t want to manage the practice anymore, this is the strategy for you. This can be done at an early age and does not mean you are retiring. I have several case studies where a 50-year-old dentist was tired of managing staff and getting his reimbursements cut. We sold the practice to someone who wanted a satellite practice. The buyer implemented marketing and other services to increase production and the seller is working back full time making more money than he ever made. Pros are that you no longer manage your practice and you may even make more money. Cons are that you may be selling your dental practice to an entity that requires you to implement systems and procedures you may not like. Be selective who you sell to. I have found that smaller groups tend to allow more freedom.

PARTIAL SALE – PARTNERSHIP

If your practice has enough production, you can sell a partnership in your practice and continue to work. There are numerous ways of structuring these deals. And, anytime you enter a partnership, I advise strongly you put everything in writing and have an attorney make it legal and fool proof. You sell a portion of your practice, say 1/3, to a buyer. You continue to work and grow the practice. You can then either sell another 1/3 to another buyer or continue to grow, or sell out completely. The pros of this is that you harvest some of your equity while continuing to grow your practice. You then grow the practice some more and then you sell another portion. The cons are that it is like a marriage. You will probably have disagreements with your partner. Be sure and structure it right up front to reduce disagreements and to remedy them if they occur.

DEFERRED SALE

Also called an associate-to-own sale. This is where you bring on an associate who works in the practice with an understanding to sell to the associate at an agreed upon time. The price can either be determine up front or at the time of the sale. The way we typically do a deferred sale is do a dental practice valuation in the beginning and agree upon the price. We then do a dental practice valuation in the end and the buyer and seller split the equity to determine the final price. This can be a good way to transition as the staff and patients get to know the new doctor. It can go very smoothly, but according to the ADA, these fail about 50% of the time. I typically see them fail when either party changes the deal in the middle of the process, one party gets jealous of the other, or personalities conflict. We structure these so there’s a “dating” period before we lock in the associate with a deposit.

EVERYTHING IN BETWEEN

We often get asked about how creative a dental practice transition can be. You can really be as creative as you want to be. The only challenge is finding a buyer who will be creative with you.

So, think about where you are today and what your end goals are. Speak to an NAPB dental practice broker to help determine which strategy is best for you. You can trust that we will come up with a plan that will work for both you and a prospective buyer to make your dental transition as smooth for everyone as possible.

 


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

> MORE

NAPB Florida Dental Practice Broker - Doctor's Choice

Selling Your Practice Soon? Tips for Planning Ahead

By Greg Jones of Doctor’s Choice

Getting close to retirement? Here are a few tips that will help make your dental practice more desirable, and more importantly, more valuable.

Stay on the Throttle!

The most common problem we see in selling a dental practice is that doctors start working less and taking more vacations towards the end of their career. Dental practice values are typically based on your last three years of collections. Don’t let your last few years working hurt your practice value. It’s tempting, but stay focused and keep chugging along at 100%! If you don’t do any of the other tips below, make sure you at least do this and maintain your practice.

Control Your Overhead

This tip applies to everyone, whether you are starting out or close to retirement – get your overhead down! Overpaid staff members can kill net income. You may have a front desk or office manager that is making way too much. Reach out to few friends that practice in nearby areas to get an idea of what is a fair wage. Supplies and lab have gotten very competitive. If your lab fees are in the ball park of 6% or 7%, and your supplies in the range of 6% to 8% of your collections then I would not bother fooling with this. Saving a little money by sending all your lab to China is NOT the thing to do.

Renegotiate Your Lease

Landlords drool when a dentist is interested in leasing from them. Why? It’s well known that doctors don’t like to relocate, and many stay in the same space for 15+ years. On top of that, dentists have the lowest default rate of any business (less than 2% nationally – 2012). After 15 years, you have already paid for their investment in their building with your money. We see dentists that have been in the same space for 10 years and have never renegotiated their lease! Rent is the most negotiable expense in your business. Make the landlord think you have other options down the street. Besides what you pay to the landlord, there may be other things you could approach them about, such as renovations. Does your space need new carpet or flooring? What about lighting or ceiling tiles with stains? These are all things that your landlord could cover. Approach your landlord when your lease is about 12 months from expiring. You can also hire a Dental Transition professional to do this for you.

Another thing to keep in mind is that banks generally require buyers to have at least a five year lease remaining, and may not lend the money if that is not the case. Getting a five year lease with multiple five year options should be no problem.

Staying Modern with New Technology

Should you buy updated equipment? You may be perfectly happy with your 1970 ADEC chairs, but I hate to break it to you, BUYERS are not. Having an outdated office is the number one turn off to buyers in my opinion. My advice – buy some updated equipment if you need it. At the absolute least, I recommend that docotors selling a dental practice get digital radiography. If you are not going to sell your practice for a few years you will benefit from it, get a tax write off, and get your money back through selling your dental practice. Your practice may have good cash flow great but it may not be appealing. We see it every day where a practice is profitable but because it is “ugly,” buyers don’t pull the trigger. Buying some updated equipment will make your practice more valuable and more desirable.

Appearances Count

You and your staff are in the office almost every day and yet you probably don’t walk through the front door. My advice is to have a trusted friend do a walkthrough of your office and point out anything that looks out of place or needs updating. You can then decide if it would be a good investment and worthwhile to get these items fixed or replaced. Remember, your landlord may pay for it. Don’t get more than three opinions, however, or you will be updating your whole office!

 


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

> MORE