Avoid These 5 Major Mistakes When Buying a Dental Practice

Purchasing a dental practice requires careful thought and consideration. Once you’ve acquired the funds to make the purchase, there are some critical questions to ask yourself before you sign on the dotted line.

  • Is the practice the right one for you?
  • How are you going to manage the practice after purchase?
  • Which operational aspects should you be more invested in?
  • What financial figures and patient numbers should you work toward?
  • What are the most efficient systems you can implement to market and manage your practice?
  • What will you do to improve your practice’s profitability?

Answering these questions thoroughly can help you avoid some of the most common mistakes that other practice owners have made when purchasing a dental practice.

  1. Don’t Ignore Earnings Normalization

When you are in negotiations to buy a dental practice, you will be provided with the current owner’s records to give you an idea of the financial health of the practice. Don’t take the financials at face value. Review all operational expenses with your CPA.

  1. Misinterpreting The Seller’s Utilization

Remember that all dentists work differently, and there may be a major difference between the seller’s ability or areas of expertise when compared to the purchaser.

All staff hours should be considered for how efficiently they are filled, and the role of the doctor should be to spend the minimal amount of time with each patient required for each treatment or procedure. This helps the practice move efficiently, which means your patients don’t spend as much time in the waiting room.

  1. Forgetting to Generate Revenue

It may sound obvious, but there are many dentists who do not have a plan to increase their revenue. There are many creative options for increasing revenue, and they should be a focal point of your strategy from day one. Online advertising, direct marketing, and patient retention marketing need to be adopted as early as possible.

  1. Not Performing Due Diligence on Patient Files

Your average patient file should range between $400 to $525 per annum, but of course, you will have patients with larger and smaller fees. In the event that your patients do not fit into this range, their files should be reviewed. If their fees are lower, consider working on your own sales skills.

  1. Not Optimizing Your Working Capital

Buying for the right price leaves you with more free capital to get your new practice off the ground. You may have access to a lump sum right now, but if you buy for that price, how much running capital does that leave? Work on your deal closing ability, or partner with an experienced broker that can help you optimize your working capital.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
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Why You Should Sell Your Dental Practice?

As you probably already know… timing is crucial when selling your practice. But, how do you know when it’s the right time? Let’s take a look at the reasons why selling your practice is a good idea to make sure you’re totally on board.

You No Longer Want to Practice Dentistry

After years of commitment to the profession, some dentists find their interests are distracted by other avenues. If dentistry is no longer your passion and you do not have the desire to help people anymore, your efforts may be better directed to other pursuits. When you realize your heart is no longer in your work, it may be time to sell your practice.

You Are Ready to Retire

When you reach retirement age and no longer have the steam to take you through long days, it may be time to part with your practice. This should only happen when you have achieved real financial freedom and have a comfortable pension that can take care of your financial needs.

You Are Emotionally Comfortable Leaving the Practice

Selling your practice will certainly affect your daily life. You will no longer be able to chat with six different people every day. You will not have the management and financial pressures that go along with it. The bottom line is that a major change in your routine requires careful planning in order to make your transition as stress-free as possible.

Ask yourself: what will you do once you sell your practice? How will you motivate yourself everyday? What will you do with your free time?

You Have a Physical or Mental Impairment

In the event that you become physically or mentally impaired, selling your practice is a responsible choice that could benefit you and your patients. Some dentists decide it’s the right time when some kind of impairment affects their ability to perform their work to their existing standards.

You Want to Leave the Profession

You may not like your industry and its players. You may feel jaded by dealing with the same kinds of issues over a long period of time. Some dentists become demotivated with their profession, in which case, the responsible choice is to sell their practice and pursue other interests.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


Why Buy a Dental Practice?

Running your own dental practice can be extremely gratifying and profitable. But just how do you know if it’s the right move, and if you’re the right candidate to run it? Being a great dental practitioner doesn’t necessarily make you a good business owner. We’ve put some tips together to help you navigate these tricky questions and more.

You could buy a dental practice if …

… You are moving to a new area

 If you are relocating, starting a practice from scratch will be a huge step backwards. That means, the fast-paced working style you are used to will probably shift down a few gears.

Buying a dental practice that is already established can help you keep a similar momentum to what you are used to. It can be more fulfilling financially and emotionally than starting from square one.

… You want to be your own boss

Not everyone is a good follower; some of us have leadership traits that are extremely well defined, making it difficult to work for someone else. If you are an independent person who has a clear path in front of you, owning your own dental practice might be for you.

… You do not want to start from scratch

Buying an existing practice that has a staff contingent means you don’t have to start training people while canvassing for new clients, and that can make the world of difference to your working life.

… You want more business

Another common reason why a dentist might buy an existing dental practice is because their current operation is quiet. Buying an established practice gives you access to new patients, but there are some questions that should be considered.

Why is your current practice slow? Is it because your location is not ideal, your marketing is too flat, or your staff are not supportive enough to help you build and grow the business? If your current practice is experiencing set backs, sit back and take stock of why, before committing yourself to more financial debt. You may very well be treating a symptom and not the root cause of the problem. Identify and address the problem before embarking on an adventure with another practice.

If you are doing something wrong, there is a big chance you will transfer this error to your new endeavor.

… You want to find a better practice location

Renovating and redecorating can be expensive. In some instances, it makes better business sense to buy a newer practice than to fix an old one. Is your upgrade attached to a rebrand? Do you want to introduce new services? If so, buying a practice could be for you.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


3 Tips to Keep In Mind To Maintain Longevity Throughout A Dental Career

Starting in the field of dentistry it can be a new and exciting challenge.

Sometimes, however, as time goes by, obstacles may arise that sway our capacities and our motivation. As human beings we crave novelty, and doing the same job day in day out for many years can become challenging.

To make sure you maintain a long and profitable practice you will want to keep a few things in mind. These are equally relevant for young dentists who may be passing through the honeymoon phase of their new career and older ones who are looking to reignite their interest.

Here are 3 tips to consider in order to maintain longevity throughout a dental career:

  1. Keep yourself in good physical health.

One problem with healthcare professionals is that they often don’t practice what they preach. For example, I’ve known a large number of dentists and doctors who smoke cigarettes – despite knowing better than anyone the health risks. But this doesn’t mean they are immune to the laws of nature.

The health of a dentist is incredibly important when it comes to career longevity. Being stuck in the same static positions all day for years can do a lot of damage to your neck and back – typically resulting in a poor posture.

It’s important that dentists take up some form of physical exercise, whether it is simply running or swimming, or a practice that improves flexibility and stability such as Yoga or Pilates can help make a difference in their health.

You may also want to consider periodically visiting a chiropractor if you’re experiencing any kind of pain.

  1. Stay interested in the practice of dentistry

Generally, the more you know about a topic; the more it interests you. Unfortunately, as dentists who have worked in the industry for many years will attest, at a certain point everything starts to get a little repetitive. There are only so many filings, root canals and check ups you can do before you start to lose the spark you once had.

Keep on top of industry news, such as updates in technology and legislation, so you’re coming across some of the more fluid and interesting aspects of dentistry.

  1. Find new challenges

When something becomes too easy for us, it is inevitable that we will eventually find it boring. Try to find new ways to challenge yourself whether that is in the procedures or the practice itself.

You can always experiment with marketing and other areas of running your business. If you’re doing well financially but are relatively bored, you may want to hire new staff or try utilizing social media to increase your presence in the community.  This may also help to maximize the value of your practice by bringing in new patients.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


NAPB Dental Practice Broker 3 Important Points to Keep In Mind When Rebranding Your Dental Office - Source Flickr CC, Credit Wurlitzer Heart

3 Important Points to Keep In Mind When Rebranding Your Dental Office

Markets and trends change, and eventually, there comes a time when your dental practice may need to be rebranded.

If you have an established practice, you may just want to update your image. For example, maybe your logo needs a redesign, perhaps you’ve recently purchased a practice, or maybe you have a partner that has moved on. In these scenarios, you may want to let your community know of the changes that have been made to your practice.

Here are 3 important points to keep in mind when rebranding your dental practice.

  1. Invest in a high-quality logo

A modern image can bring you thousands of dollars in revenue in the long term, so it’s not unreasonable to invest in a high-quality logo. It’s important to strive for something that will be iconic and memorable.

To save money there are dozens of websites that offer professional graphic designers at affordable prices – for a crowdsourcing or freelancer networks you can look to something like Coworks. Your logo is the moniker everyone will associate with your business and reputation so consulting with a trusted experienced brand marketing agency first to at least understand your options and take advantage of their associations is most advised.

One option is to have two or three alternative logos and show them to your clients via social media or in person in the office. Ask them which they prefer and they’ll be happy to be involved in the process.

  1. Recognize the importance of oral health on the rest of the body

The world is slowly but surely becoming more accustomed to the idea of a holistic approach to medicine. Long gone are the days when dental procedures were performed by barbers.

Unfortunately, poor oral hygiene can cause problems with digestion, inflammation, and even brain function. Patients want to know about the systemic impact of their dental health on the rest of their body, so ensure all of your staff are knowledgeable enough to answer any questions they may have.

This also means working with patients to suggest when they should see a physician, should you see signs of potential illnesses such as diabetes, allergies, or sinus issues.

  1. Double check that your branding is consistent in all areas

This seems like something that would be pretty obvious, but you’d be surprised how many practices fail to make sure this is the case.

It may be a signature at the end of an email, a twitter handle or some old business cards, but typically something is forgotten in the transition. This may not seem like a big deal but can cause a lot of confusion if prospective clients come across a now defunct brand and think that your dental office is under new management or has moved.

Whether you are looking to hold on to your practice for years to come, or potentially sell in the near future, rebranding can bring your dental practice a lot of value.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


Four Vital Points to Review Before Buying a Dental Practice

One of the most important career decisions many dentists will make is how to invest in their practice. Selling a dental practice is an important matter, and buyers seeking practices that fit their buying criteria want answers with measurable value.

Serious potential buyers need concrete facts and details to review before making a purchase. Representation by a third party ensures proper procedures and standards for buyers and sellers. While the process itself is somewhat straightforward, each practice contains a set of variables unique to its business model.

We have put together a checklist of four vital points that most buyers will expect sellers to provide to advance the sales process.

  1. Three to Four Years of Tax Returns

This financial data gives buyers sufficient information to measure the performance of the practice.  Additionally, a handle on stability and sustainability may be obtained via said analysis.  By gathering several years of data, trends can be monitored and stability can be evaluated.

  1. Aged Accounts Receivables

Next to the balance of cash in your bank account, this is the most vital asset on your books. The ageing of receivables also provides insight into the practice’s administrative efficiency.

  1. Dental Practice Valuation

A qualified valuation analyst usually prepares the appraisal of a dental practice, and a business analyst or a professional accountant prepares the report. Analysts set valuation procedures in place to indicate the potential value of the practice.

  1. Cash Flow Model

The cash flow model determines the viability of a practice sale. This projection forecasts sales and the costs of running a dental practice for a five to 10 years period.

The analysis of a practice includes growth rate and all fixed and variable operating costs between five and 10 years after the acquisition. A proper analysis does not include “forward thinking”; instead, it is based strictly on a conservative history of the practice. While high hopes and positive thinking are wonderful traits, a legitimate evaluation only includes empirical data. Additionally, we recommend placing an emphasis on the first five years of the report.

In our next post, we will review specific details to optimize the cash flow model, while providing information to supplement this piece on preparing to sell a dental practice.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


A Buyer’s Best Bet: Components of the Dental Practice Appraisal

Buying a dental practice is significantly different from buying a medical practice. It’s an unexpected fact, but a medical practice in the same area with the same generation equipment and similar revenue will often sell for much less than a nearby dental practice. Why is that the case? The simple answer is: competition for patients.

In the dental business, finding, cultivating and retaining patients is a much more competitive endeavor. And it’s competitive in subtle ways. So, when considering a dental practice purchase, first enlist the support of an NAPB dental practice broker. They can guide you, and more importantly, then you are working with someone who has a long history of brokering successful dental practice transitions. A broker can help you navigate both the visible and less visible considerations when buying a dental practice.

On average, sellers are usually offering practices at a price that’s about fifty to seventy-five percent of the last twelve months’ gross revenue. This statistic assumes that the practice is healthy and profitable. This excludes sales where there is a more urgent need to sell (such as when a dentist is facing health problems, limited capacity, or even death).

Again, there are as many variables as there are practices. From sale-to-sale, the structure of the sale can range from an estate sale, where the departing dentist sells off parts of the practice (equipment, patient lists, etc.) to total sale of the entire practice (building, equipment, staff, the works). There are also agreements in between. For example, sometimes a younger dentist comes on as an associate and then buys the practice after working there for a few years. Having an NAPB dental practice broker with experience with all these wide-ranging scenarios can help you measure the visible components with the less visible components.

I want to focus on the less visible aspects of valuing a dental practice. Visit the location and trust your intuition. Sometimes, what may appear to be a dilapidated practice may actually be a real “diamond in the rough.” While the equipment may not be sparkly and new or the furniture is outdated, the patient roster spans generations. In this instance, you can always update the equipment and furniture. Your dental practice broker can provide a dental practice valuation to provide you with accurate numbers. However, many times a practice like this one is a great buy. I would argue that the existing patient relationships offer the greatest guarantee of the most financial return.

Because of the nature of this intangible value, I also find it is advisable to work with your dental practice broker to get a letter of recommendation from the seller. As part of the deal, have the seller agree to introduce you and endorse you to their current patient roster.

This is your livelihood; therefore do your homework. Work with a dental transition broker and examine the hard facts about the practice. And then weigh those less visible components when you are making the dental practice purchase.

Consult with a local dental practice broker today as you embark on this exciting next step.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


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


McLerran & Associates Dental Practice Brokers Texas Austin Houston

The Art of Negotiation

By Patrick Johnston of McLerran & Associates

As dental practice brokers and transition consultants, we are regularly involved in the negotiation of letters of intent, asset purchase contracts, restrictive covenants, partnership buy-in agreements, associate employment agreements, lease agreements, space sharing agreements, listing agreements, commission agreements, real estate purchase contracts – a fairly long list! Some negotiations go very smoothly, both parties are satisfied, and the particular deal is completed in a timely manner. Other negotiations can be bumpy, with emotions running high, and seemingly no end in sight to the deal being completed.

In advising dentists on how to buy a dental practice, and on how to sell a dental practice, we communicate to them that there are negotiating strategies and behaviors that can be learned and applied to produce positive, long-term results for both parties.

In his classic book on the subject, “The Art of Negotiation”, originally published in 1962, Gordon Wade Rule offers a definition of negotiation:

“Negotiation is a peaceable procedure for reconciling, and/or compromising known differences. It is the antithesis of force and violence. A negotiation will be fruitful or completely meaningless, depending upon the existence of two essential elements . . . good faith and flexibility. Both must be present on both sides of the table – one without the other on either side is a fatal defect.”

Rule’s target audience were diplomats and government procurement personnel, so some of his recommended do’s and don’ts probably do not relate to how to buy a dental practice (like the “do” of sending the other party your documents in both English and their own language). However, some of his recommendations that we feel apply include:

  • Do analyze and understand the type of person with whom you are dealing.
  • Do try to have a sense of humor, but not overly so.
  • Do have a positive attitude that issues can be resolved and worked out between the parties.
  • Do negotiate your issues in a way that any concession you make on your flexible or “give” points will bring you closer to agreement on your less flexible or “must points”
  • Do not make concessions without getting something you want in return.
  • Do not try to drive too hard of a bargain.
  • Do not try to be overly friendly or popular in the negotiating process, but try to foster genuine respect and cordial relations with the other party.
  • Do not treat or talk with the other party as though you are superior to them.

Utilizing proven, successful negotiating skills is especially important in dental practice transitions and sales because of the personal goodwill involved in the transaction. In these situations, the practitioner selling a dental practice usually has built very solid relationships with the stakeholders in the practice – the patients, the staff, the local community, vendors, etc. The buyer who does not convey a respect for those relationships is less likely to have the seller feel that he or she should give their best efforts in transitioning that goodwill after closing. Conversely, the seller that does not show respect for the young, relatively inexperienced, buyer, may be less likely to win concessions from that buyer.

There are many other resources available to improve one’s negotiating skills while learning how to buy a dental practice. By studying and applying the information from those resources, you will be prepared to have a less stressful and, ultimately successful, dental practice transition.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


CTC Associates Dental Practice Brokers CO ID NV UT WY

Buying A Dental Practice – Part II

By Larry Chatterley and Randon Jenson, CTC Associates

Evaluating a Dental Practice Transition Opportunity

First and foremost, when a practice opportunity presents itself, you should ask yourself, “Is this practice opportunity complementary to my goals and needs?” Goals and needs such as: “Does this practice opportunity address all my financial obligations? And is the philosophy similar enough to allow me to do the type of dentistry I want to do?” Establishing guidelines about your needs and goals will make it much easier to identify opportunities that are right for you.

When it comes to gathering the information required to make an educated decision, many doctors feel perplexed and overwhelmed. Obviously, a dental practice should not be purchased without first sufficiently studying the data. Nevertheless, enthusiasm frequently overrides objectivity, and many dentists decide to close a purchase prior to conducting the proper due diligence.

A good indicator of the future success of a dental practice is its track record. A practice that has demonstrated stable income over an extended period of time is likely to continue to do so. A productive history of active patients and referrals indicates satisfied consumers who are happy with the quality of care they have or are receiving. An extremely positive attribute is a good active patient base coupled with a healthy flow of new patients. Add to this a cooperative seller, good staff, and a profitable bottom line, and you have the ingredients for a successful practice.

Consequently, it is important that the purchaser conduct a patient chart audit. To accomplish this, pull every tenth chart and review the following:

  1. Frequency of patient visits
  2. Type(s) of insurance
  3. Distance patients live from practice
  4. Amount of restoration done in the past and amount left to be done in the future
  5. Type of dentistry previously completed

Review these five areas and rate each patient (chart) on a scale of one to five (five being the best). For example, if the patient comes in every year for hygiene, has some restorative work done, has good insurance, and lives within a five-mile radius of the practice, then he or she is probably a five. However, if the patient visits infrequently and has poor insurance coverage, he or she might be rated around a one or a two.

If after you review 100 charts the composite score is less than 200, you may need to re-evaluate the intangible value of the practice. A healthy dental practice should have 250 to 350+ active patients (patients of record seen in the past 18-24 months) and 30 or more new patients for every $100,000.00 of gross, annual revenue. The number of active good patients and number of new patients is critical to the degree of success achievable in the practice.

As a buyer of a dental practice, you are purchasing a future stream of income. The most important part of the income stream is what remains after paying all necessary overhead expenses and debt related to the purchase of the practice. This is referred to as the pretax, economic earnings or pretax profits. This figure should be around 25% (or more) of gross collected revenue. If you are unable make a reasonable income (at least 25% of your gross production after overhead expenses and debt service in the first year), then either an adjustment should be made to the purchase price and/or terms or you should continue looking for another opportunity.

In addition to reviewing the patient profile of a practice, there are several other items you should investigate such as the reasons the seller has for selling a dental practice, the seller’s philosophy in treating patients, the price and terms, the location, the current status of the local economy, profit and loss statements for the last three years, the condition of the equipment, the staff profile, a fee schedule, the type and prevalence of insurance plans, the terms of the office lease, and the level of OSHA compliance in the office. These are several of the numerous criteria for evaluating an opportunity.

As you can see, it can be a costly mistake to undertake researching a practice opportunity alone. Seek professional help in this area. It may be the best decision you make in planning your career and will ensure that you “do it right the first time.”

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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