Going Solo or Becoming Part of a Practice: Considerations for a Dental Practice Transition

When thinking about retirement, a primary concern for the seller dentist is about when and how to sell their dental practice while ensuring that they reap the most return from the sale. The potential buyer dentist (usually another doctor who is a bit earlier on the trajectory of their career) is facing the sometimes overwhelming decision of how to get into the best practice for the long term—whether to buy the practice outright or to work as an associate in the existing practice for a few years before the sale.

I am a big proponent of the buyer dentist becoming a part of a dental practice before purchasing it. The following are advantages of this tactic for both the buyer dentist and the seller dentist:

1) Minimize Risk: First of foremost, you minimize the possibility of endangering the existing practice if the buyer dentist works as a partner in the practice with the seller dentist a few years before the dental practice transition. Two to three years provides a suitable amount of time for both the seller dentist and buyer dentist to acclimate to the sale plan. Also, if the buyer dentist is working in the practice for a few years prior to the dental practice transition, they get a chance to get to know both the staff and patients, laying the foundation for the ease of transition.

2) Continuing Education: By being involved in a practice with a more established and experienced dentist, the newer dentist can benefit from growing accustomed to the rhythm of an established practice.  The seller dentist can share their “tricks of the trade,” if you will, so the buyer dentist gains another phase of education before they go out on their own.

3) Flexibility of Schedule: The seller (who is most likely entering a phase of life when they are ramping down can work fewer hours and soften the blow of retirement if they have a new dentist to pick up the slack. Since cash flow and revenue have the greatest weight during a dental practice valuation, it’s a good way for the seller dentist to keep the practice profitable even if they’re not working as many hours. A buyer dentist coming on board provides a win-win for both the seller and buyer.

4) Improve Overall Practice Valuation: Having another dentist in the mix may actually increase cash flow and revenue. It makes sense that if the buyer dentist is ultimately planning to make this their practice, they will be invested in improvements such as cultivating patients, streamlining processes, unifying staff and even upgrading equipment. Also, even if the seller dentist works fewer hours, the addition of the buyer dentist means the total hours worked may increase, thus making the practice more valuable. In this case, the fresh perspective is mutually beneficial to both the seller dentist’s and buyer dentist’s separate and shared objectives.

5) Perfect Match: Finally, working at a practice before buying it affords everyone the opportunity to assess whether the buyer dentist is an appropriate replacement for the seller dentist. It lets the buyer dentist really learn about the staff, patient demographics and style of the seller dentist. Working together gives all involved a chance to see if it’s a compatible match for what the practice is now and what it will become after the dental practice transition.

Get in touch with an NAPB dental practice broker today to learn about dental practices in your area. A dental practice transition specialist can help you as you approach a potential dental practice transition. If you’re the seller dentist, a dental broker can help set and manage expectations in the interim as you head toward the sale of your dental practice. For the buyer dentist, they can help you with what to look for when considering becoming a part of a practice that you may want to eventually purchase.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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How An Accurate Appraisal Can Impact Your Dental Practice Transition

There are many factors to consider when valuing a dental practice. It is imperative that you have an accurate appraisal whether you are buying or selling a dental practice.

In order to make your dental practice transition a hassle-free one, it is a good idea to understand the importance of a dental practice valuation. There are three types of value to consider when conducting a dental practice valuation: Asset Value, Market Value, and Income Value. Each has its own specific considerations and each one is important to the final appraisal.

Let’s examine the three different methods:

  1. Asset Value: This method of valuation is primarily concerned with the tangible assets such as equipment, materials, the building itself (if owned), and any furniture or supplies that are part of the office. When valuing a dental practice by assets, the inherent worth of intangible assets is also part of the total calculation. As you can imagine, the intangible assets are much more difficult to quantify. The asset value method is most helpful if there are a number of newly-acquired, latest-technology-type recent acquisitions in the form of equipment, materials, etc. Of the three methods, the asset value usually has the littlest bearing on the final dental practice valuation.
  2. Market Value: This method is similar to a method conducting when appraising residential real estate. Comparable practices will be used to gauge the value of the practice for sale. Again, like residential real estate, this is when an NAPB practice broker is invaluable—literally. Your broker has access to applicable comps and they know what to look for when comparing practices. While it may seem that market value is the ultimate deciding factor, it’s only second in the line of importance when appraising a dental practice.
  3. Income Value: Income value is the most important means of measurement for dental practice valuation. Income value is a measurement of exactly what it sounds like—the dentist’s income. When examining the income value, the appraiser will measure the dentist’s personal income from the practice (above and beyond what they would earn as a partner or participant in a similar practice). The appraiser will also look at total net cash flow coming into the practice after paying the salaries of the dentist(s), salaries of the staff, and any and all other expenses to keep the practice up-and-running. This value carries the most weight when assessing the value of a dental practice.

It’s never too soon to consider the factors in a dental practice appraisal. If you are selling, being proactive provides you with time to ensure that you make choices that increase the practice’s value. If you are buying, starting sooner rather than later gives you time to form a relationship with a dental practice broker Being proactive also ensures that you are ahead of the game as far as what to look for when you do a formal dental practice valuation.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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

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A New Curriculum: Learn about Purchasing a Dental Practice

Upon graduation, you may feel like you’re finished with your education. Also, you may be in a hurry to purchase a dental practice and get your career underway. Before rushing right into a dental practice purchase, here’s a “syllabus” outlining the recommended steps.

Chapter One: First and foremost, as I alluded to in the previous paragraph—slow down. Every year, there are up to two hundred dentists anxious to become buyers. Do not rush into a purchase. Most likely, it will be one of the biggest purchases of your lifetime so I recommend that you wait at least two to three years post-graduation before you seriously consider purchasing a dental practice. That doesn’t mean you can’t take steps in the meantime. Waiting simply gives you time to be involved in a practice. You can learn as much from a poorly run practice as you can from a highly successful practice (but without the personal financial risk). It also provides time for you to do the research necessary and then make an informed decision once you are ready to buy a dental practice.

Chapter Two: Decide where you want to live. This isn’t as simple as desert or mountains? Make sure you like the area, but also go the extra mile and investigate the vitality of a dental practice in these areas. What is the competition like in the area? There are studies conducted on dental practice demographics. An NAPB dental practice broker can provide you with details about specific locations and the viability of taking over a practice there.

Chapter Three: While we’re on the subject, once you’ve decided on a location, introduce yourself to and develop a relationship with a local dental practice broker. The more informed you are as a buyer, the higher the chances of making a good decision when it comes time to purchase, and a dental practice broker is equipped with years of knowledge and experience.

Chapter Four: Round out your advisory committee. Find an attorney, make sure you’re finances are squared away, and begin the process today. You may ask, “Is this necessary two to three years before I’m even planning to buy?” Absolutely. Too often, I see a doctor purchase a practice right out of school and then suffer for the next three years, learning everything about owning and running a practice that they could have learned with much less pain and frustration, (not to mention personal financial strain).

Chapter Five: Educate yourself about dental practice valuation. There is a bit of a science to valuing a dental practice. Consult with your dental practice broker to learn about particulars to look out for when buying a dental practice. What may appear to be a good buy may have other (less visible) negatives to consider before a purchase. It’s helpful to have a practice broker advising you along the way.

Chapter Six: Get your finances in order and introduce yourself to a bank associate at a bank that specializes in dental practice sales and purchases. Make sure you’ve got some capital socked away, a stellar credit score, and current employment. Finally, when you’re ready to apply for a loan—I don’t recommend small business loans; they can appear attractive, but can quickly become overpriced (especially with early payment penalties). You don’t want to be penalized later for doing well.

Chapter Seven: Become knowledgeable about practice metrics. What percentage of profit does a healthy practice allocate for staff? What about management? Lab fees? You should have a good idea of what makes sense so when you are looking into a purchase, you know when the numbers are spot-on. At the end of the day, it’s your practice. Make sure you’ve done due diligence.

Having help from an NAPB dental practice broker ensures you’ll be an educated buyer when you’re ready to purchase your dental practice. Call to set up a free consultation today.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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

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