Dear friends, partners, and colleagues,
I hope that all of you are healthy and well in these challenging days.
All of us on the Integrity Practice Sales team have been doing their best to adjust to working from home as we continue to support our clients looking to sell or acquire dental practices.
As the situation continues to unfold, we will do our best to bring you important news and updates. Please feel free to forward this email to anyone else you think may benefit.
An Update from our Office Team
While Andrea (our listing coordinator) and Alison (our transaction coordinator) are doing well, my (Trevor) personal situation has looked a little different:
An Update on Available Lending for Dentists
The SBA has a Disaster Relief Program with $300 billion allocated. You apply for these directly through the SBA website. They are basically regular loans (must be paid back), but with abbreviated underwriting. They do want collateral, I’m not sure how fast the money will arrive (the website has been overloaded), and the terms are your basic 30 year fixed rate at 3.75%.
There’s another program called the Paycheck Protection Program with $349 billion allocated which was just signed into law hours ago.
It’s designed to keep people employed by allowing businesses to essentially pass their payroll expenses on to the federal government. Here’s what we know so far:
- These will be handled by an approved SBA partner bank through the 7(a) lending program.
- No collateral or personal guarantees required
- Max loan amount is 2.5x average monthly payroll (possibly excluding salaries over $100k)
- 4.50% rate
- No payments for the next 6 months.
- If you can show that all the money was used to keep all your employees employed, you are eligible for 100% LOAN FORGIVENESS.
At this point, I’m not sure how this works if your employees are furloughed. We will keep you updated as we learn more.
If you are interested in this program and don’t already have a relationship with an SBA lender, we’d be happy to put you in touch.
An Update on HR Issues and The Family First Coronavirus Response Act
We’ve seen a number of reports on the sick leave provisions in the second relief bill signed into law on March 18th by the President. You can read the Department of Labor’s summary here. I have seen some recommendations to terminate your staff prior to April 1st in order to avoid being subject to this law.
While you should consult your own legal counsel, we recommend that you DO NOT terminate your employees prior to April 1st.
Basically, beginning on April 1st, the law requires that all employers with fewer than 500 employees offer two weeks of paid sick leave (80 hours for full-time or the average number of hours over two weeks for part-time) to all employees who either get sick or are required to quarantine by a health professional.
There is an additional requirement that employees receive 2/3 pay for 10 weeks if childcare is unavailable and the employee is unable to work from home. It’s not clear that your practice will be subject to this additional 10 weeks. From the guidelines: “Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.”
And if it turns out that you are liable, the financial burden caps out at $12,000/employee for the total duration – if your employee is full time and earning over $37/hour. If the employee is currently earning $20/hour, the max is $6,960.
While burdensome in the short term, “every dollar of required paid leave (plus the cost of the employer’s health insurance premiums during leave) will be 100% covered by a dollar-for-dollar refundable tax credit available to the employer.”
Most importantly, however, is the ethical and leadership issue. This is your team, the people you count on every day to get the job done in your office. The sick leave, as the name implies, is for people who are sick and under hardship. If you lay off your team now, not only are you risking legal trouble with a wrongful termination lawsuit, you are also signaling that you are willing to drop them in their hour of need. Will they be excited to accept a new job offer from you when this is all over? Will they be willing to go above and beyond for you as your practice gets busy again and the backlog of patients is clamoring at your door?
I completely understand that you need to protect yourself and your family right now. But this will be over in the coming weeks (hopefully) or months, and you will reopen your doors. Take care of your team and they will take care of you.
I hope everyone is managing to stay sane at home. This is a unique historical moment that we’ll be discussing for the rest of our lives. Make the most of it. Be grateful for what you do have.
In recent days Yo Yo Ma has been uploading videos in a series he calls #songsofcomfort. As a cellist myself, I’ve always been a big Yo Yo Ma fan. He is not only an incredibly gifted musician; he is also a phenomenally kind and thoughtful man.
Here is the latest entry (adapted from one of my favorite themes from Dvorak’s New World Symphony):
Stay safe out there.
Good health and best wishes to you and your families,
Trevor Kimball, PhD
President, Integrity Practice Sales
Dear friends, partners, and colleagues,
These are unprecedented and uncertain times. Most of you have decreased or stopped treating non-emergency patients in accordance with the CDA guidelines.
No one knows exactly what the future will bring. We certainly don’t. But we wanted to write to everyone to help us navigate the challenges ahead.
Some of these challenges are obvious. We’re being asked (and, in some counties, ordered) to stay in our homes and avoid contact with others. The markets are falling dramatically. Small businesses, including your dental practice, are struggling across America.
But America was built on struggle.
Morgan Housel recently remarked on how times of pain and need make innovation necessary. “The Great Depression brought unimaginable financial pain. It also brought us supermarkets, microwaves, sunscreen, jets, rockets, electron microscopes, magnetic recording, nylon, photocopying, teflon, helicopters, color TV, plexiglass, commercial aviation, most forms of plastic, synthetic rubber, laundromats, and countless other discoveries.
Same for World War II, which is responsible for both the most risk and the most rapid invention of any six-year period in history. The war began with troops on horseback. It ended by splitting an atom in half.”
And to put the market decline into some context – as of this writing at 9:45am on March 18th the S&P 500 index currently sits at April 24, 2017 levels, when people were shocked at how high the market had risen.
So what are we supposed to do today?
It’s ok to step back for a minute. The constant news updates about the coronavirus (a crazy 15% of all daily web traffic) can overwhelm the mind. Ironically, our desire to gain control through a steady diet of information can actually result in a kind of mental paralysis and our losing the ability to act. It’s a vicious cycle: we worry, we try to use information to control our environment, we worry more. This constant anxiety paralyzes the mind.
One simple way to regain agency – our ability to act – in challenging times (and this is for me as much as anyone) is to intentionally limit our media exposure. Take a deep breath.
If you’re able to spend more time with your loved ones, be grateful for that. If you have kids, play games (just not the one where you use toilet paper to turn yourself into a mummy). And if your loved ones get to be a bit much, go for a walk or lock yourself in the bathroom (there’s another toilet paper joke here, but I can’t find it).
Look ahead, plan, and execute.
This is the time when leaders will get out in front. I know several doctors who are using this time to train staff or go chartless. Almost every crisis is an opportunity. You’re taking a break from seeing patients – use this time to work on your business instead of in your business.
That’s what I’m planning to do. At Integrity Practice Sales, we have a mission. Here it is:
“Selling a business is hard, and most dentists don’t have the tools they need to get the best price and terms in today’s dynamic market.
Our mission is to deliver the expertise, support, and network required for a truly successful practice sale, so that dentists can financially support their loved ones, protect their reputation, and leave their practice in good hands.”
I’ll be recalling that mission today especially and using this strange week to recommit myself and our team to that important work. (By the way, if you want to discuss the future of dental practice sales and transitions, feel free to email me directly. I’d love to hear from you at firstname.lastname@example.org.)
Am I worried about what things will look like on the other side of this pandemic? Of course. But I have a high degree of confidence that:
- People will continue to require dentistry (including the backlog of people missing treatment because of the temporary shutdown).
- Dentists will help those people.
- We will work to help those dentists.
Is it future proof? Not exactly, but I’m moving forward. And we’re not going to stop preparing practices to go on the market, showing practices, speaking with potential buyers, and working to put solid deals together.
You can use this time to work on your business, too. You probably also have a mission, whether it’s promoting healthy smiles or providing excellent care to all of your patients.
There are ways for you to enact your mission today, even when your practice is closed. Reach out and reassure patients. Everyone is looking for a word of encouragement or comfort right now – offer one! Post content on social media. Dentists have been infection control experts for decades. Use that knowledge to inform and reassure the public.
And you can absolutely make the most of this downtime by working to build your team, your marketing, and your systems.
Dr. Bill Kimball at Kimball Consulting, Inc. is utilizing ZOOM conferencing to continue team training during the downtime. You can try this as well. Since employees CAN utilize unemployment insurance for reduced hours (and without the one week waiting period), it’s fine to ask the team to join you in person at the office (with proper distancing), on the phone, or with video conferencing.
1 – You now have time to address those systems that have fallen by the wayside, such as:
- New Patient Protocols
- Case Presentation
- Financial Arrangements
- Insurance or Membership Plan Discussions
- Delta Premier Updates
2 – Get organized for reactivating charts. Knowing that your practice will be very busy once you and your team are safely back to work, you can call patients now to schedule in a few months. Dr. Bill Kimball suggests you take the next week to get organized and perhaps start calling patients as early as next week.
3 – Update your HR manual. The CDA has a free version online for members. It takes a little time and it’s cumbersome (even boring), but you really need an up-to-date copy and now might be the time to complete it.
4 – OSHA or HIPAA, CPR, or medical emergency training (all done virtually of course)
Here are a few more highlights to navigate some of the unique challenges that this unprecedented historical moment presents.
The IRS extends us some good news: “Individuals and businesses will have an extra 90 days to pay the IRS if they owe additional income tax for 2019, Treasury Secretary Steven Mnuchin said Tuesday.” Federal Tax Extension (CNN link)
So does California: “This relief includes moving the various tax filing and payment deadlines that occur on March 15, 2020, through June 15, 2020, to June 15, 2020. This includes:
- Partnerships and LLCs who are taxed as partnerships whose tax returns are due on March 15 now have a 90-day extension to file and pay by June 15.
- Individual filers whose tax returns are due on April 15 now have a 60-day extension to file and pay by June 15.
- Quarterly estimated tax payments due on April 15 now have a 60-day extension to pay by June 15.” CA Tax Extension for Affected Taxpayers (That’s all of us, right?)
Your team CAN file for unemployment benefits: “If your employer has reduced your hours or shut down operations due to COVID-19, you can file an Unemployment Insurance (UI) claim. UI provides partial wage replacement benefit payments to workers who lose their job or have their hours reduced, through no fault of their own. Workers who are temporarily unemployed due to COVID-19 and expected to return to work with their employer within a few weeks are not required to actively seek work each week.” EDD COVID-19 Resources Page
We will get through this. It’s going to be a challenge, but it’s a challenge to which we can all rise together. These moments of great necessity become moments of great innovation.
All the very best to you and your families,
The Team at Integrity Practice Sales.Read More
Update: Some months later, this article might seem somewhat outdated. But I think the fundamentals remain as true as ever. With the post-COVID recovery already well underway and dental practices producing near pre-COVID levels across America (something many other businesses cannot say), the outlook for practice ownership is as good as ever.
What smart dentists understand about potential recessions, election-year jitters, and the practice sales market in 2020.
There seems to be a pervasive feeling that the economic outlook is too uncertain to make the jump into dental practice ownership. I have spoken to more than a few dentists recently who are concerned about the future and who suspect that it would be better to wait before they start reaping the rewards of practice ownership.
It can be difficult to feel positive about the future. Our fast-paced, 24-hour news cycle consistently confronts us with reasons to worry. The pundit class seemed all but convinced over the summer of 2019 that the economy was due for a recession (far fewer of them are talking about it now). The current impeachment drama and the impending presidential election have dominated the news for months. Escalating conflicts around the world give us new reasons to worry.
I don’t want to downplay the importance of being informed about the world around us. But pending catastrophes get clicks, and clicks generate income. Most of the news media is incentivized to keep us on the edge of our seats, anxiously refreshing our browsers to consume the latest headlines (and see their ads).
Unfortunately, all this can contribute to the feeling shared by some dentists that the economy is shaky and 2020 is not a good time to act. On the contrary, I believe that the smart move is to invest now and move your career forward.
My argument is simple and can be broken into two parts.
- The economic outlook for practice ownership is good.
- Practice ownership remains the best option for most dentists from both a financial and quality of life perspective.
Now, I know I run a dental brokerage and it’s in my best interest to say this. But hear me out. There are many good reasons to be positive about the business of dentistry and the many opportunities for both first-time buyers and seasoned multi-practice owners. In this article, I’d like to share a number of reasons to feel optimistic about these opportunities, especially as we head into 2020.
US News and World Report just released its lineup of the Best Jobs of 2020. In 2nd place, coming in after software engineer (but with almost 50K more per year in median salary) is General Dentist. Orthodontist ranks #4 and Oral Surgeon comes in at #9.
Does it surprise you that 3 of the top 10 jobs in the US this year are dental related?
It shouldn’t. The population is growing and the demand for dentistry remains consistent. Dentistry is a great profession.
The Economic Outlook for Practice Ownership is Good
Markets expand and contract and business cycles will continue to roll. While the panic that a recession was imminent has died down, we know that the future holds both good times and bad. In spite of this, I think dentists should feel confident about the future. Here are three reasons why.
Reason #1: Dentistry is recession resistant.
Will bad times crush your practice?
The Great Recession (officially December 2007 to June 2009) is considered the most significant economic downturn since the Great Depression. It caused personal and financial strain for a great number of people, including some dentists.
In their April 2019 JADA article titled, The effect of the Great Recession on the demand for general oral health care and orthodontic care, authors Albert Guay, DMD and Andrew Blatz, MS conclude the following: “The downturn in the status of the general economy during the period of the Great Recession resulted in a decrease in the demand for general oral health care and orthodontic care in the United States.”
This sounds bad, but it misses an important caveat. Compared to the rest of the economy, dentistry fared remarkably well. And the ‘downturn’ they speak of was not very pronounced at all. Here’s a chart from that same article:
The top line tracks the percentage of the total US population with GP Dentist visits. In 2003, the figure was 41.2% (representing 119,616,627 visits), while in 2015 the figure was 39.2% (representing 125,959,071 visits). In those same years, average annual per patient spend (for GPs) increased only slightly, from $589 in 2003 to $601 in 2015.
But because the population grew, the actual number of visits grew by almost 6.5 million. And total dental expenditures increased by just under 4 billion dollars.
There are many factors at play here, but the primary takeaway is that – even as demand for dentistry may have decreased somewhat during the recession – the clinical need for dentistry did not go away. This constant need for dentistry is one of the reasons that the profession featured so highly in the US News jobs ranking.
This need persists through good times and bad, which is what prompted Gordon J. Christensen, DDS, MSD, PhD in his article titled Positive changes in dentistry related to the “Great Recession” to remark:
However, as the economy recovers and patients have more income, they must return to their dentists after prolonged periods without routine oral care because of potentially extensive oral therapy needs. As they do so, many will find that postponing their oral care has caused significant and extensive need for treatment of various oral problems.
I have seen hundreds of dentists in private practice succeed through economic upturns and downturns. Buying a dental practice is an investment, and there are many ways to maximize that investment. Hiring a quality dental management consultant can make a real difference by providing good advice, training for your team, and (most importantly) helping you grow into a better leader and savvier businessperson. I’ve seen doctors whose practices grew like crazy over the recession by sticking to fundamentals.
Reason #2: Consumer confidence isn’t as bad as you might think.
Despite strong job numbers, record highs in the stock market, and historically low interest rates, confidence in the future of the economy seems to have been down in the minds of some. However, most consumers are confident. A recent CNN poll found the following:
Looking ahead, nearly 7 in 10 expect the economy to be in good shape a year from now (68%), the best outlook in CNN polling since December 2003. The new finding includes 63% who say things are good now and will continue to be good next year, while just 9% say the economy is currently good but will turn south in 2020.
Consumer opinion fuels economic growth, and confident consumers are a good sign.
Reason #3: Lenders remain confident.
The best part of all this – you don’t have to take my word for it! The banks and their teams of economic prognosticators have not put the brakes on lending to dentists. To the contrary, they are lending more than ever before.
According to Burnett Facer, VP at Zions Bank,
Applications are up and loan volume for 2019 was up 60% over the previous year. Rates are at historic lows and well qualified borrowers have multiple offers to choose from. We are seeing well run practices continue to thrive and expand both internally and externally.
The reason why is simple: the percentage of dentists who default is lower than other small business owners. Buying and operating a dental practice is a solid and generally very safe investment.
Matthew Christie, Regional Director at Lendeavor and Jason Schneller, Director of Business Development at Lendeavor highlight why dentists stand out:
From a lender’s perspective, dentists are highly educated borrowers and amongst our economy’s hardest working entrepreneurs. They understand the implications of maintaining good credit and preparing themselves for practice ownership. While nothing in life is guaranteed, if you’re a dentist with around a year of experience, a good credit score, and a demonstrated ability to produce dentistry, the chances of you getting a loan are very good, even if you have a good amount of student debt. Investing in private dental practices has remained relatively low risk over many years.
Lenders (and their risk-averse underwriters) are continuing to lend 100% of the purchase price (often with working capital), and they’re offering historically low interest rates. These terms would be unthinkable for other business owners, especially if they had the type of debt carried by many young dentists. But the facts speak for themselves: the lenders are confident in you and your profession.
Why does practice ownership remain the best option for dentists?
The economy will have its ups and downs and consumer confidence will wax and wane. When looking at the financial benefits of practice ownership, a piece of classic investing advice is in order: time in the market beats timing the market.
In other words, as long as you’re planning to be in private practice for over 5 years, the time to start reaping the rewards is now. While the parallels aren’t perfect, consider Bob, the world’s worst market timer. Bob only purchased stock at the worst moments in the last 30 years – just before every downturn, yet – through time in the market – he still came out very much on top. (The whole detailed story is fun and worth reading.)
Buying a dental practice is an investment, and it pays off MASSIVELY over time.
Here’s a little rundown on the 7-million-dollar difference between being an associate for 30 years and being an owner (producing the same amount of dentistry) over the same period. And that’s assuming that you park that money in a savings account! Investing even 1 million of that 7 million over 10 years (assuming 6% returns) would turn that initial million into almost $1.8 million.
Here’s how I came up with a 7-million-dollar difference:
Let’s say that you’re an associate producing $800,000 at 25% compensation. Your take-home income is $200,000 (not bad at all…Mom is proud and you’re beating the average associate compensation, but those years in dental school could be worth a lot more).
With more dentists entering the market, your job isn’t entirely secure, but let’s say that you keep working at the same place (a very rare feat) for 30 years.
Now, as an owner producing $800,000, your overhead is likely around 60%, meaning that your take-home income is $320,000. Let’s say that you’re still receiving 25% for the work you do, but you’re also receiving the 15% profit generated by the business. That’s a $120,000 bonus every year!
But wait…there’s more!
Assume that a conservative 25% of the practice production comes from your hygiene department. If you continue to produce $800,000, then your hygiene department is producing $266,000, for a grand total of $1,066,000. Now your overhead is still 60% and you’re still producing the same amount of dentistry, but your ‘bonus’ (profit from the business) has just gone up. Your total take-home income is now $426,400.
Now let’s say you buy this practice today for $850,000 (a reasonable price for a practice doing these numbers in many California markets).
Your annual payment for the loan you take out (10 years at 5%) is $108,192.
Your take-home after debt service is $318,208.
Your tax savings on just the practice purchase over 10 years amounts to around $340,000.
Assuming you haven’t grown your new practice at all, the difference after 10 years:
Owner: $3,182,080 + $340,000. + practice equity of $850,000 = over $4,000,000
The difference after 20 years (10 years of no loan payments):
Owner: $7,446,080 + Tax Savings + Equity
The difference after 30 years:
Owner: $11,710,080 + Tax Savings + Equity
That’s 7 million dollars with no practice growth and no investing. Grow the practice by improving systems, producing more, working more days, increasing fees, or any other means, and that number goes up even further.
Buying a dental practice is an investment. It provides you with more than a job that you control; it also offers profit above and beyond your compensation for the dentistry you perform, tax-advantages, a working environment you control, and equity in an income-producing asset (your practice).
2020 is a great year to purchase a dental practice!
In some cases, doctors who sell their practices are contractually obligated to stay and work in the practice for several weeks or months after the sale to provide treatment and “introduce the patients to the new doctor”.
The benefits of such an arrangement may seem clear, even obvious. It makes sense to keep the selling doctor around for a while to talk to the patients and introduce them to the buyer, right?
In my opinion, short-term work-backs just for the sake of “introducing the new doctor” typically do more harm than good. In fact, they can be a real disaster for the buyer if the patients see Dr. Seller in the office treating some patients since they’ll wait for him or her rather than seeing Dr. Buyer.
This can complicate the transition, causing problems with team members and confusing patients. If the Seller becomes an associate and helps produce dentistry for the new doctor, then it can be an ideal situation. Here, context matters most.
Team Loyalty: It is difficult for the team to transfer their loyalty to the buying doctor when the selling doctor is still around. Even though the team knows that the practice has sold, the de facto leadership will always remain with the seller. The staff will ‘double-check’ on instructions with Dr. Seller, and it only takes a slight eye roll, or a muttered “Well that’s not what I would have done…” to lower your credibility in the eyes of your new team.
For the new doctor to assume the leadership role in the practice, it is easiest for the selling doctor to make him or herself scarce, even right after the sale. It is important for the selling doctor to be available by phone and during the non-patient time to answer questions, but if they are around the practice too often, especially when patients are there, it can cause problems.
Patient Loyalty: With patients, the selling doctor’s presence can cause even more problems. Even if the buying doctor can see a patient tomorrow, they’ll wait for months to see Dr. Seller, the one with whom they’re comfortable and often “the best dentist in the world”. Furthermore, when patients schedule an appointment to see the new doctor and, while in the office, see Dr. Seller walking down the hall, they may feel cheated. They thought Dr. Seller retired and they didn’t understand that they had an option to see her.
The outright sale is almost always the best option for a clean transition. There are a number of important strategies for transferring goodwill, like a well-crafted letter to patients and thoughtful reactivation telephone scripts, that do a much better job than a work-back arrangement.
What if the selling doctor wants to keep working? What I’m talking about here is not the same as the transition scenario where the seller stays on as an associate for several years or where the buyer and seller form a partnership (partial sale) for the foreseeable future. Such arrangements – when carefully planned out ahead of time – can be mutually beneficial.Read More
This is one of the most common questions we receive at Integrity Practice Sales. And it makes sense – you’ve devoted a huge part of your life to your practice! If you’re thinking about selling your dental practice, understanding practice value is key.
The first thing to note regarding practice value is that, just like the value of anything else, the basic rule of supply and demand applies. A glass of water isn’t worth much. I can get a cold water bottle for 25 cents at Costco – and I can turn on the tap in the office and get one for very close to free. So water isn’t worth much…until you’re lost in the desert. With the sun beating down on your parched skin, a single drop of water may be worth a fortune.
Our goal as practice brokers is to find that one buyer to whom your practice is worth the most. We do this by keeping a large and up-to-date record of buyers looking for practices. We pay attention to their specific criteria and overall circumstances, and we also widely advertising the practice to other prospective buyers for whom we may not have detailed information.
When we go to set a listing price for a dental practice, we are aiming to determine what a willing buyer would offer our seller. From there, we discuss strategies for pricing that depend on the seller’s requirements (financial, timeline, etc.) as well as the local market conditions.
There’s both an art and a science to arrive at the opinion of value for a dental practice. On the science side, there are several guidelines that can be fairly easily applied. You can plug the numbers in and…voila! The application of some industry-standard multiples to your top line collection figure or your bottom line profit figure give us a foundation from which we can begin valuing your dental practice.
Determining the profit figure can be a challenge for anyone looking to value a dental practice. Small business owners (dentists included) are economically incentivized to reduce their tax burden. The job of the CPA is, in part, to help the small business owner limit their tax liability through a set of perfectly normal and legal strategies. These strategies are designed to reduce the ‘profit’ that the business shows on paper without reducing the actual discretionary income available to the seller. When we look at the financial records of any selling doctor, we always consider these strategies and work to “re-cast” the financials as if none of these tax strategies were employed. There are many cases where the profit on a tax return may only be $20,000, but the total cash flow actually available to the seller is more like $250,000 or more.
The application of basic multiples, however, is not all there is to it. The art side of the equation is where things get tricky. Below, I’ll give examples of the formulas, and then show how these formulas can get more complicated.
What do you mean by ‘multiples’? Multiples are ratios that are calculated by dividing the value of an asset by some dental-practice specific financial variable. For example, if we know that practices collecting $1,000,000 per year are selling for an average of $850,000, then the multiple we can use is 0.85. We can then take this multiple and apply it to other practices.
Where do you get these multiples? Since there is no reliable and statistically significant data publicly available for recent transactions of dental practices, these multiples are derived from industry standards and our own private data sources. Additionally, they are regularly confirmed by dental practice finance lenders, who maintain some of the best privately-held data available.
How do you choose the right multiple? Initially, we apply a multiple that is based on location and practice size. However, the final multiple will be a function of location, goodwill, profitability, tenant improvements, equipment and technology, insurance accepted, and other factors.
The basis of this multiples approach is the economic principle of substitution, which says that one would not purchase a business asset for more than one could acquire an equivalent substitute asset. Basically, a buyer would probably not purchase a practice – even if the investment risk was relatively low and the projected reward was high – if that buyer could acquire a similar practice for less.
Valuing Dental Practices:
Simple Example: One of the simplest ways to come up with a value is to apply a multiple to your last year’s collections. For this example, I’ll use 80% – but, as I said above, this number depends on a number of market conditions. So if you collected $1,200,000 last year, this quick rule of thumb would value your practice at $960,000. How easy!
Why this doesn’t work: Not so fast. Imagine that there are two practices, Practice A and Practice B. In both practices, the total collection from last year was $800,000. So they’re both worth $640,000, right?
Let’s take a closer look. In Practice A, the overhead is at 50% of collections, which means that Doctor A takes home a profit of $400,000. Dr. B’s overhead, on the other hand, runs high at about 80%. Dr. B takes home a profit of $150,000. A practice where a doctor makes $400,000 every year is more valuable than a practice where the doctor makes $150,000. The percentage of collections method is helpful, but it does not always give you the whole picture.
Multiple Multiples: We always apply these multiples to both top-line (collections) and bottom line (profit or doctor income). Both of these aspects must be balanced to provide the most accurate value, but at the end of the day, the doctor’s take-home income is what provides a very substantial part of the value for a potential buyer. At the same time, you cannot rely on any single multiple alone. Remember Drs. A and B from the example above? Is Practice A really worth $800,000 and Practice B only worth $300,000? That’s a serious discrepancy in value when compared to the percentage of collection method.
Additional Considerations: In our experience, practice value is influenced by many different, dental-specific factors. These include curb appeal, location (city, neighborhood, professional complex vs shopping center, etc.), the age of the practice and resultant value of the goodwill, the age and condition of equipment, the level of technology in the practice, and the recent income trends of the practice (up or down). This is why it is so important to work with an experienced dental practice broker.
What does it really boil down to?
At the end of the day, cash flow is king. It only makes sense to buy a dental practice if you can make enough money in the practice to pay the overhead, pay the bank, and still generate a reasonable income for yourself and your family. If a practice is valued correctly, it will support the buyer.
Balancing these different valuation methods takes an experienced hand. At Integrity Practice Sales, we look at everything to make sure your practice or any practice you are looking to purchase is correctly valued. Click on the link below to get a free preliminary opinion of value for your practice to assist with your financial planning today.Read More
When most doctors purchase a dental practice, one of the big worries is always patient retention. Most of the value of a dental practice is in the goodwill with the existing patient base, and if those patients choose not to come back, you’re in trouble.
Fortunately, this ALMOST NEVER happens. At Integrity Practice Sales, we work hard to make sure that both buying and selling doctor work together to manage a successful transition.
Many doctors decide to write a letter explaining the transition to patients. This can be a powerful tool for controlling the narrative around the transition and can help patients feel at ease with the new doctor.[Why winning over your new staff is the key to winning over your new patients.]
As with all powerful tools, however, the transition letter can be misused and serve to confuse or worry patients. Remember that patients don’t really care who “owns” a dental practice. In fact, practice ownership rarely crosses their minds.
Instead, they want to know why their doctor is leaving (or becoming less available) and who the new doctor is. In fact, patients can be offended if they read that Dr Seller “sold” her practice to Dr. Buyer.
The transition letter should be used to thank your patients for their loyalty and friendship over the years, explain why you are transitioning (basics only), and then promote the new doctor. Preemptively thank the patients for continuing as patients at the practice and for supporting the new doctor.
Tips for a great transition letter from the seller:
- Have a professional photo taken of Dr. Seller and Dr. Buyer together to use in the letter.
- Write an introductory paragraph explaining the need for the transition and thank them for the years of commitment to the practice.
- Introduce the replacing dentist and include experience and qualifications.
- Dr Seller should become Dr Buyer’s patient and let the patients know this.
- Explain the reason you have chosen this doctor to take over your practice.
- Give a personal view of the new dentist, including hobbies and family.
- Keep this letter enthusiastic and share your optimism regarding the transition.
- Repeat your appreciation and confidence in the new doctor.
Send this letter out AFTER the close of escrow. This cannot be over emphasized. The deal isn’t done until it’s done. Once you close escrow and send out the letter, you’ll also want to call the patients that have scheduled appointments over the next few days since they will be at the office prior to receiving the letter.
A few months into the new practice, the buyer should send out a second letter.
From the new doctor (1 to 2 months after the transition):
- Greet and welcome the patient.
- Talk about your background and experience.
- Discuss common commitment and philosophies with the previous dentist and thank him or her for their support and for creating such a nice practice.
- Thank the patients for such a warm welcome and thank the team for being so supportive and encouraging.
- Encourage the patient to come by to meet you or call with any concerns.
- Express your desire to get to know the patients and promise to listen to their goals.
At Integrity Practice Sales, we provide samples and help the doctors draft ideal transition letters. But no matter who you list with or buy from, following these guidelines will help you retain the value of your new practice and build great relationships that will last for years to come!Read More