When is the best time to think about buying a dental practice? The current COVID-19 pandemic may have you rethinking your original plans. But should you? Though it may not seem like it, this uncertain time is actually providing buyers with unique circumstances. As they take the time to re-evaluate their long-term goals, the health crisis is reaffirming to many buyers that it’s more important now than ever to have a self-sufficient, stable future. Transitioning to a new dental practice is still possible, and even advantageous, in today’s world.
We’ve had many discussions about the current market with an increased number of buyers and sellers, as well as our wide network of dental transitions professionals—lenders, CPAs, business valuators, lawyers, other dental practice transition specialists—and we’re finding a consistent theme: dental practice transitions are still not only possible, but quite active.
Before COVID-19, many potential buyers thought about owning their own dental practice as a worthwhile goal to be achieved at a later date. Now, the COVID outbreak has many dentists questioning if they are completely satisfied with being employees or if they’re ready to do things differently. Also, some older doctors see the pandemic as an opportunity to jump into retirement early and leave their practice in the hands of a capable dentist.
At any rate, change continues to happen despite the effects of COVID-19. Now is a good time to evaluate which action you’re ready to take that will contribute toward your long-term goals. Here are some factors you should be aware of as you contemplate your decision.
Are Reliable Dental Practice Valuations Still Possible?
The more we’ve talked to dental industry professionals, the more we’ve found that business valuations will work similarly to the way they did pre-COVID. Valuation was previously largely done through income valuation, looking at the specific economics of a practice (production, collections, overhead, etc.) over the three previous years. The valuator today will zero in on the numbers for 2019—as it’s the period with the most pertinent, available information—to create a baseline for the historic performance of the practice. Then, the valuator will look at the numbers for the practice after COVID hit in 30-day “snapshots”, and compare them to pre-COVID statistics. Practices that are getting close to 80% of pre-COVID numbers after reopening strongly suggest to lenders that the figures will continue to improve and the office will resume normal operations in the near future.
Should I Be Concerned About Losing Patients?
When COVID started spreading, most dental practices decided to close for a period of time, and no new ones opened up. But this isn’t necessarily bad news for your patient base. Patients that had to cancel appointments during closure will most likely return to the dentist they were already seeing rather than seek out a new dentist they aren’t familiar with.
Once an office reopens, patients who had appointments before the closure may want to be seen as soon as possible. However, some patients may have experienced job loss or other economic struggles, and they may want to push their appointments out further. Still, other patients may feel uncomfortable entering a public office with current restrictions still in place and may choose to wait until treatment is absolutely necessary before they come in.
Regardless of where you live in the states, all of the dental practices in your area will be experiencing the same difficulties. An office can retain its patient base by focusing on the immediate needs of the patients and taking a proactive approach. When considering buying a dental practice, you should look at how the practice handled their reopening and see which type of efforts are being made to preserve patient loyalty and keep business steady.
When looking at a potential dental practice, you should also examine if COVID-19 has impacted other aspects of the business. For example, “How much will face masks for every employee cost?” or “Does dental equipment sanitization need to take place more often than before and will this cost extra?” As procedures are adjusted, pricing and marketing may also be affected. Be sure the practice you’re considering is continuing to be profitable with the new COVID-19 related costs and limitations.
Will COVID-19 Impact My Ability to Get a Loan?
Lenders have generally been amenable to loaning dental professionals the finances required to establish a new practice, as the dental industry claims some of the lowest default rates. Right now lenders don’t seem any less willing to do so, despite the present crisis. While COVID-19 is an interruption to business as usual, it doesn’t fundamentally change the nature of dentists or the dental practice.
Much like the business valuator approach, the lender will look at 30-day snapshots of the post-COVID financials, focusing on production and costs, to determine if a loan is any more or less risky. They will compare the current statistics to the numbers from 2019 and see if the practice will achieve proportional levels of production and costs in the current market. If the numbers are on track, the lender will likely value the practice as a worthwhile investment.
Even so, many potential buyers may find that the application process has changed. Some lenders will prioritize certain buyers (those with more cash in the bank or a stronger track record of production), and some may collect applications and single out the strongest ones. Still other lenders may want to wait to finalize the loan until things stabilize a little more.
When selecting a lender, take the time to do your research and have your ducks all in a row. Though the process may take longer than usual, if you are a strong candidate for a loan, you will most likely find a lender willing to work with you. The current economic situation means you can also take advantage of the financial support currently available from recovery stimuli for small businesses.
How Do I Prepare to Buy a Dental Practice?
If buying a dental practice is the next logical step for you, prepare for the process by doing the following:
- Stay flexible. The practice transition may evolve as the economic climate changes, so stay patient as the process adapts to new situations.
- Gather your team of advisors. You should not buy a dental practice without the help of trusted professionals to guide you through the steps. It’s a good idea to have a dental-specific CPA and tax professional on hand to answer your questions and make sure you do things right the first time. It’s also important to consult with a dental-specific attorney to review documents, identify potential issues, and be sure you’re in compliance with all laws and regulations. You’ll also want to talk to a lender who has dental practice experience. All of these individuals can assist you with your decisions about buying a dental practice.
- Research your options. Each dental practice is unique and comes with its share of advantages and disadvantages. You should take the time to review all the aspects of the dental practice you’re considering. There should be no lingering questions about the type of responsibility you’re taking on and you should be completely comfortable with your decision. As practices will be adapting post-COVID, you need to look carefully at the logistics of those changes to be certain they are both adequate and sustainable.
- Look at the practice from the seller’s perspective. While this is a financial business transaction, for the seller it can also be a very emotional one. The selling doctor’s practice is a culmination of their own blood, sweat, and tears, and they will have deep and mixed feelings about letting it go. Be aware of this as you engage in negotiations and make arrangements for transfer of ownership. You want to ensure an outcome where the transition is as smooth and straightforward as possible.
- Recognize what you are buying. When buying a dental practice, you are buying a career. You are essentially starting your life’s work as the selling doctor is ending theirs. Make sure the dental practice is one you can be proud of and in a place where you see yourself living for years to come.
- Consider “the right fit.” Both the selling doctor and the buying doctor should be well matched if you want the dental practice transition to be successful. The selling doctor’s individual characteristics and their relationships with staff and patients are fundamental factors in the practice’s achievements. You shouldn’t come into the picture with vastly different attitudes and objectives unless you want to be met with adverse reactions from patients and staff members. You don’t have to be a clone of the seller, but you do need to be compatible with those aspects of the practice that have kept patient satisfaction high and employees content.
With All of this Uncertainty, What Can I Do to Protect Myself?
It is still unknown whether or not the practice transition process will change now or in the immediate future. Some deals between buyers and sellers that were arranged before COVID-19 are on hold for the moment while they reassess the logistics. With summer beginning, some deals are moving forward while others are still on hold. Other deals are being restructured to account for increased risk to the buyer.
During a dental practice transition, it’s common for the selling doctor to write a letter to patients explaining that he or she is selling the practice. The selling doctor may also work in the practice with the new doctor for a period of time before leaving for good. These measures can prevent patients from leaving and ensure a successful transition. Transitions happening right now during this uncertain time will require extra attention to help things run smoothly.
When a deal is being made between a seller and a buyer, sometimes money is withheld under certain circumstances, called a “holdback.” When a “holdback” happens, a percentage of the selling price is placed into escrow for a period of time after the sale. If, during the “holdback” period of the transition, the practice hits specified performance benchmarks, the money is released to the seller. This is an option available during a dental practice sale to protect you as a buyer in case the practice doesn’t bounce back as quickly as expected. Before buying a dental practice, talk about this option with your attorney and CPA to determine whether this or another strategy would make sense in your current situation.
Find Available Dental Practices for Sale with ddsmatch Southwest
At ddsmatch Southwest, we represent selling doctors, but we also do all we can to cultivate good relationships with the buyer. We strive for transparency, clear communication, and flexibility among all parties, and seek out quality buyers to create the perfect match. We want everyone to walk away from the table satisfied with the final outcome.
Our goal is to encourage open lines of communication and help buyers and sellers work towards mutually agreeable solutions where everyone wins. If you are considering buying a dental practice in New Mexico or Texas, you can view our available practices here. If you’d like further information about our available practices, or wish to discuss any dental practice transition you are considering, please contact us today.