COVID-19 Update #10 from IPS
Another week has passed as many of you start to open your doors a little wider and see more and more patients. We are rooting for you – feel free to reach out and let us know how it’s going!
In this newsletter, I’ll cover:
- The Practice Sales Market – Should I sell now?
- Finding PPE
- Fit Testing N95
- Is the PPP Taxable?
- Dental Practices for Sale
- Another Musical Interlude
Work From Home Update
The IPS team is continuing to thrive from our home offices, living rooms, and kitchen tables. The commute has been rather nice, but we do miss seeing each other!
One BBC Sports commentator has extended the possibility of Zoom meeting by hosting a work meeting with his…co-workers? I’m not sure where we go from here…enjoy!
The Practice Sales Market
At Integrity Practice Sales, we’re fielding lots of questions about the state of the dental market.
If this pandemic has taught us anything, it’s that predicting the future is dangerous business. At the beginning of January, I wrote a very optimistic article about the dental practice sales market in 2020. Soon after, the market met the coronavirus. We have still been accepting offers and moving through due diligence with a number of doctors, but most (not all, but most) transactions have paused at the finish line
The true risk is always the thing you didn’t see coming. But I have high confidence in the following:
The Demand for Dentistry is Delayed, Not Lost
The current crisis has hit different industries differently. Unlike many restaurants, maid services, Uber and Lyft, etc., lost revenue in the dental practice is not gone forever. Jim’s tooth still has that same decay, Martha’s gums still have periodontal disease, and there will still be patients who are excited to get straighter, whiter teeth. While a few patients may hold off on some elective procedures, revenue for dentists has been delayed, not lost.
Many Associate Dentists (Buyers) Want More Control
I’ve spoken to a number of buyers recently who are furloughed and unsure about whether they will be rehired in their corporate jobs. Many of these doctors are now looking to purchase a practice. Ownership is not for everyone, but it provides clear and significant financial advantages while allowing you to control your own schedule, treatment plans, workspace, and team.
The buyer pool has not dried up. To the contrary, there are many eager buyers who have been considering a practice purchase for years and are now ready to make the final step to practice ownership.
Banks Will Continue Lending
Banks control most of the available capital for practice acquisitions. While some lenders have temporarily halted activity, others continue making loans.
Remember that dentists have some of the lowest default rates of all business borrowers, so banks still love dentists.
The banks want to lend to you. And with the historically low interest rates, practice values should remain high so long as revenue and net income figures return to within the range of normal (factoring for one-time equipment expenses, expanded PPE expenses, and new protocols).
If You’re Considering a Sale, Now Might Be a Great Time
The right time to sell your dental practice is always when you’re actually ready to sell.
But here is one thing to keep in mind: we’re currently selling practices based on 2019 financial figures. The banks use tax returns as the ‘document of record’, and if you list your practice in the next few months, it is likely that you could walk away (if that’s the transition plan you want to pursue) well before your 2020 tax return comes into play.
Selling next year (in 2021) may be more challenging because the banks will be looking at your 2020 tax return, which will probably not show the same levels of income as 2019.
That being said, don’t be scared off by brokers saying that you won’t be able to sell in 2021 (I’ve seen some variation of this multiple times now). One important principle in valuing any business is making an adjustment for non-recurring events like settling a lawsuit, making a large equipment purchase, or, in this case, closing your office completely for a number of weeks because of a pandemic. It may be a little easier to sell this year, but I don’t see practice sales falling off a cliff next year because underwriters at the bank can’t wrap their heads around an adjustment for weeks of practice closure and new infection control protocols.
The most important thing you can do now is focus on getting your practice back up and running and your bank account filling back up.
Finding PPE – Try the MHOAC
The CA Department of Public Health has required dental practices to carry two weeks’ worth of PPE. And as you’re well aware, PPE can be difficult to get your hands on right now.
I’ve heard some doctors say that they will be ordering PPE from their supply reps, even if that means re-opening a little later than they might otherwise. If you order from Patterson or Benco or Schein, you know you’re receiving a quality product and there is a high likelihood that the supply will continue.
While I completely support that move, I’d like to also point to you another resource that lots of doctors have overlooked. The CA Department of Public Health listed a number for your local Medical Health Operational Area Coordinator (MHOAC)here. I’m not sure how helpful they will be, but at least it’s a lead. Let me know if you’re successful.
Fit Testing N95 Masks
From OSHA’s website: “A “fit test” tests the seal between the respirator’s facepiece and your face. It takes about fifteen to twenty minutes to complete and is performed at least annually. After passing a fit test with a respirator, you must use the exact same make, model, style, and size respirator on the job.
You may also want to look into this interesting option: https://bellus3d.com/solutions/facemask.html
Is the PPP Taxable?
There is some confusion right now whether business expenses that are paid for with a forgiven PPP loan will lose their tax-deductible status. I didn’t put too much stock in this (and didn’t look into it very closely) because it seemed so contrary to the stated goals of the PPP.
While it’s very unclear how this will end up, do reach out to your CPA and make a plan for moving forward.
In the spirit of slowly returning to (semi-)regular business, here are some fantastic new listings that our team have brought to market in the last few weeks.
Monterey Peninsula General Practice
Asking Price: $379,000 | 3 OPS | Seller Net Income: $193,000
Building Type: Freestanding Dental Office
Revenue Sources: FFS 100%
Summary: 70-year established, 100% fee-for-service general practice in a highly coveted location. The current owner has been here for 33 years and the office is considered a mainstay in the community. The office features 3 equipped operatories, a consultation room, and a lab. Sign the NDA and receive more information here.
Ventura General Practice
Asking Price: $550,000 | 3 OPS | Seller Net Income: $350,000
Revenue Sources: FFS 41%, PPO 59%
Building Type: Medical Building
Summary: Very profitable, 36-year established GP in the charming seaside city of Ventura. Consistently successful, modern practice features state-of-the-art equipment and a highly skilled team performing both traditional dentistry as well as cutting-edge procedures! Sign the NDA and receive more information here.
Sacramento General Practice
Asking Price: $534,000 | 4 OPS | Seller Net Income: $200,000
Revenue Sources: FFS 53%, PPO 47%
Building Type: Professional Office Complex
Summary: 45-year established General Practice in a fantastic Sacramento neighborhood! This beloved practice has a strong foundation to be tremendously profitable, and a young ambitious dentist could absolutely capitalize on this. The seller has spent a lifetime carefully building trust within the community and there are only positive opportunities here! Sign the NDA and receive more information here.
Menlo Park General Practice – BACK ON THE MARKET
Asking Price: $150,000 | 3 OPS | Seller Net Income: $77,000
Revenue Sources: FFS 35%, PPO 50%, Denti-Cal 10% (pedo only)
Building Type: Medical Building
Summary: Fast-start GP in highly desirable Menlo Park. The practice features three fully-equipped operatories, pano, and a large underground parking lot. Most of the patients have been with the doctor for 10-15 years and Stanford Hospital refers patients on a regular basis. This practice would benefit tremendously with some fresh, thoughtful advertisements and social media activity! Sign the NDA and receive more information here.
Musical Diversions – Today Feels Like a Friday
Alright…it’s time for something completely different. For some reason, today feels more like a real Friday than just-another-day-as-I-work-at-home kind of day.
In honor of that Friday spirit, here’s a well-known track by Norwegian DJTodd Terje called Inspector Norse. If you listen all the way through and aren’t feeling a little more upbeat, I’ll refund you the price of this newsletter. Enjoy!
Stay safe out there.
Good health and best wishes to you and your families,
Trevor Kimball, PhD
President, Integrity Practice Sales