The Right Time to Meet the Staff When Buying a Dental Practice

When you’re buying a dental practice, one thing you have little control over—but have a strong interest in—is when the selling dentist informs their staff about the sale. Typically, a selling dentist will not inform their staff until very late in the process. This may seem counterintuitive—wouldn’t a conscientious employer want to keep his staff up-to-date about changes that could cause concern or job insecurity? In a broad sense, perhaps yes. But, in the context of the sale of a dental practice, it is usually in the best interests of the employees for the news to be kept confidential until certain things are in place to maintain a steady level of staffing, service, and patient care.

Why Staff is Best Not Informed Early in the Process of Buying a Dental Practice

The staff in a dental office, from the front desk receptionist to the assistant at your elbow, plays a critical role in the success of a practice. First, they are the first and last people patients will interact with, and go a long way to setting the tone for each patient’s visit and for the office overall, whether they are being checked in properly, prioritizing the scheduling of ongoing care, and correctly handling payments and insurance matters. Also, patients interact with staff much more than they do with the dentist. A well-trained, professional, and friendly staff will make the patient’s experience much more pleasant, a key factor in patient retention and referrals.

Because of this, its key to have a staff that is comfortable with each other and with the doctor. This comes from time and experience. High turnover in staff inhibits a smooth operation in a dental office, as new staff members have to spend more time focusing on how tasks should have to be done, take other staff member’s time with questions, and will inevitably make more mistakes as they become familiar with how the office operations (as well as possibly learning new equipment or computer programs).

If staff members are told about the potential sale too early in the process, or aren’t informed in an intelligent and organized way, it’s reasonable for them to be concerned about their job security. This is problematic for several reasons. First, they may tell patients there is another doctor buying the dental practice. Patients who feel loyal to the selling dentist may start making plans about finding another dentist before you and the selling dentist have had a chance to properly position the transition in a letter or other form of communication.

Second, the staff may erroneously assume that their jobs are in jeopardy. While you certainly aren’t going to run the dental practice exactly as the selling dentist has, a smart buyer will recognize that the less the practice changes at the time of closing, the better chances you have to maintain the consistency of patient retention, referrals, and morale that made you want to buy the dental practice to begin with. A smart buyer isn’t going to come in and fire a bunch of people, although certainly adjustments may be made eventually.

Third, if you get a perfect storm of these circumstances—staff leaving, patients being aware the selling dentist is retiring, patients being unhappy about the new and inexperienced staff members who replaced the ones who left, patients being concerned about their treatment plans under with a new and unknown dentist—you have the potential for the inevitable patient attrition to begin before the transition is positioned and properly communicated. This will negatively impact the practices collections before the sale has closed and you might not like what you see.

An exception to this rule may be in a situation where staff members sense a difference in the selling dentist’s habits or demeanor and begin to suspect that change is coming. Under these circumstances, it may be best for the selling dentist to get ahead of the issue. An open conversation can alleviate speculation that may drive fear or distrust. The selling dentist can reassure staff members that they are being considered and taken care of during the transition.

Why not just handle it that way all of the time? Risk. Although the approach of reassuring staff members who are informed earlier in the practice transition process can work out better than you might think, why take the chance if you don’t have to?

How Staff Should Be Informed About the Sale of a Dental Practice

The exact timing may change from situation to situation, however, you certainly don’t want to be brought in to meet the staff before the purchase and sale agreements are signed, deposits are made and non-refundable, and the financing is in place. At this point, the transition details are settled and a deal is in place, subject only to closing. Before that, there is too much uncertainty, as either party may retract. The stress of the transition will be enough for the staff, you don’t want to add uncertainty into the mix by introducing a buyer only to have the deal go south.

The best way to break the news is for the selling dentist to call a staff meeting and let everyone know the same thing all at once. When it comes to introducing the person who is buying the dental practice, you should expect the selling doctor to give an strong endorsement of you, explaining why you were selected as the right buyer—the one to carry on the practice, care for their patients, and manage the staff. At this first meeting, you may want to be prepared with your qualifications, such as a resume or C.V., share some personal information by way of introduction (perhaps show some family photos), and discuss what attracts you to the community and this dental practice. When discussing the practice, you can highlight what you know about the staff as a factor in your decision to buy it, expressing enthusiasm at the prospect of working with them.

ddsmatch Southwest Specializes in Matching Those Buying a Dental Practice with the Right Seller

Selling dentists often have a strong interest in finding the right buyer, one who will take care of their patients and staff, protect the reputation of the practice, and reflect the values on which the practice was built. Likewise, those buying a dental practice have an idea of the kind of practice they’d like. Here at ddsmatch Southwest, we specialize in matching the right practice with the right buyer and helping to facilitate the transition, start to finish.

This can even include running the meeting where staff is informed about the sale. One of our satisfied clients reports that Andy, his ddsmatch Southwest broker, “even helped us when we had to have the meeting with the staff and say, ‘Hey, this is coming down the pipe.’ He ran the meeting and answered questions. A lot of people were worried and things. It just made it a lot easier. A lot of the uneasiness, he calmed it down a lot.”

If you are looking to buy a dental practice, or to sell your practice, contact ddsmatch Southwest today and find out what we can do for you.

Will New Equipment Help You Sell Your Dental Practice?

Any time you’ve been to a dental conference, you’ve seen all of the equipment being exhibited. The sales reps can spin a great line about how much faster and more efficient you’ll be by upgrading to what they have to offer. Also, these conferences frequently have presentations on new procedures and the latest technology, methods and tools that can improve the profitability of your practice.

While a young dentist can afford to take a long term view of investments in new technology, given that they have time to recoup the investment, for an older dentist, with an eye toward transitioning their practice, this might not be the case. The question is whether the investment will add value before you sell your dental practice or whether you’ll just eat the cost.

As the pace at which technology is improving keeps getting faster and faster, it’s harder than ever to know when is the right time to upgrade your equipment. After all, you don’t want to invest in something only to have it quickly become obsolete. And while it’s imprudent to get infatuated with every new technological improvement, it can be essential for your practice to stay up to date on new developments in your field and understanding what will impact your practice for the better.

Sticking too closely to what you know, what you’ve always done, will keep you in the past. This could cost you patients. Sometimes it best to stick with what’s worked, but sometimes you have to change. The trick is how to know when.

Even the best equipment will wear down. It’s imperative to keep an eye on how each piece is functioning and know when it’s time for a replacement. If you keep the following thoughts in mind as you assess your equipment, it can help you determine the right time to invest in upgraded equipment.

  1. What is the true cost? There are two costs to consider for every piece of equipment. The first is the sticker price—how much does it sell for. Second, what will it actually cost you? Here is where you factor in the cost of financing (how much will you ultimately pay when interest is included), fees for any training you’ll need, the cost of installation, and any other related costs to getting the equipment, getting it installed, getting yourself familiar with its functionality, and having access to technical support, or related accessories or supplies. All of that added together is the true cost.
  2. What will I earn from it? Once you know the true cost, consider how the equipment will impact your practice. Will it make you faster? Will your practice be more efficient? Will you be able to perform any new procedures or keep diagnostics in your office instead of sending the patient’s money somewhere else? You can use the answers to these questions to project whether the equipment will increase your collections either in the form of added services or ability to see more patients. Then, take that projection and compare it to the true cost of the equipment to figure out how fast the equipment will pay for itself. It may be sooner than you think. It also may not.
  3. What could I do that I couldn’t do before? This is fairly straightforward: if the equipment allows you to perform procedures you couldn’t before, then, instead of referring them to other doctors, you keep that revenue for yourself. Also consider whether the new procedures are an opportunity to grow your practice, either through attracting new patients or by bringing in an associate (younger dentists will look for offices with newer equipment, with which they will be more familiar).
  4. Is it cheaper to fix the old equipment or buy new equipment? If you have equipment that is frequently breaking down, even if the repair costs seem low, they add up over time. Also consider whether the malfunctions are impacting your ability to see patients or perform procedures—that is, whether your old equipment is costing you money. Look over your books to add up what you’ve already sunk into the old equipment and track when you have to reschedule patients. Take those numbers and compare them to the true cost of new equipment.

Equipment Upgrades Should Be Driven By Financial Rationality

If you’ve considered all of these factors but are still undecided, here are a few other considerations about new equipment and whether it’ll be good for your practice. As above, these points are all about whether the new equipment will earn you money or cost you money. If you think you will be transitioning your practice in the next five years, you also have to consider whether you can recoup the cost before you sell your dental practice, or make up the difference in the sale. For those considerations, you may want to consult a business valuator or dental broker.

  • Will it make me more efficient? Generally speaking, new equipment is faster and easier to use than old equipment. This means you can do more, with more ease, in less time. While you may have a learning curve, newer equipment is also typically easier to use once you adjust to it. Plus it’ll be more likely to be easily integrated into your other software systems, which may save your staff time.
  • Will it make me able to do more things? The more things that you can keep in office, whether its procedures or diagnostics, whether it’s digital radiography or a machine to make crowns, the more you do yourself, the more you earn.
  • Will it bring in new patients? This can work in two ways. Some patients, as consumers, are attracted to new technology, making your upgrades a selling point. Also, if there are patients who need certain specific procedures or tests, new equipment open up that market to you.
  • Will it enable me to provide better care to my patients? You want to provide your patients with the best care that you can. Your patients want this too. And they sense when you are making an effort to do that. It can help with patient retention and building goodwill for your practice.  This area also includes improvements that directly impact your own comfort and quality of life at work, or that make your own work more enjoyable, as these factors also improve the patient experience.

To be sure, not all equipment upgrades are equal. Some of these questions will be tougher to answer than others, but going through this exercise can help you make the choice that will be the best for your practice and your patients, which will translate into higher earnings for you.

Get a Practice Transition Assessment Before You Sell Your Dental Practice

If you are considering transitioning your practice in the next five years, ddsmatch Southwest offers a free, no-obligation Practice Transition Assessment. During this assessment, we find out your goals for your practice transition and offer professional, experienced advice on how to best prepare to sell your dental practice, including potential investments to increase value and physical and image improvements. We never advise a doctor to upgrade simply for the sake of upgrading, but only if the cost of that upgrade will have a related increase in the value of the practice when sold.

Contact us today and arrange for your free Practice Transition Assessment.

Whether to Start or Buy a Dental Practice

As you think about your career in dentistry, there are three main questions to answer. What will be the focus of your practice? Will you go out on your own, or join an existing practice? And if you go out on your own, should you buy a dental practice or start a new office? Here we’ll discuss what’s involved involved in starting a new practice, and give you some things to think about as you consider the costs.

No doubt about it, the costs of starting a new practice are high. If you are independent and enterprising, and willing to put the time and effort into creating a solid and detailed plan, financing with reasonable terms is available. Buying an existing practice can be similar in cost and you’ll get everything in one package, with adjustments for depreciation of assets.  You will also benefit from a couple of pretty big assets that aren’t involved in starting a dental practice: the practice’s reputation and patient base.

Whether building from the ground up or buying, you need to consider many of the same principles.

What You Probably Already Know

When you start a new practice, your practice has to be located somewhere. You have some options here. You can buy a piece of land and build a new building on it. You can lease a piece of land and build a new building on it. You can lease a piece of land with an existing structure. Or you can lease space in a multi-tenant building. The last option is probably the least expensive, but may be the most restrictive in terms of what you can do in your space and in the common areas.

What is the most advantageous option will likely depend on where you practice. Leasing within a multi-tenant building might be the smart move in an urban area whereas buying is probably more practical in a rural area or small town. Even if you lease, it’s highly unlikely the space will be ready for you to move into. You’ll need to budget for the lease (which, unlike an apartment lease, will probably involve a substantial down payment of several months’ rent up front) along with costs for renovations, including decorating and furnishing.

Other major costs include:

 

  • Equipment: this will include everything you need to provide clinical care and operate the practice. Chairs, handpieces, imaging equipment, computers, printers, office supplies, etc.
  • Employees: eventually employees will be paid out of revenue, but, when you start or buy a dental practice, you have no revenue. So you need to budget to pay your hygienist, your receptionist, and whoever else you’ll need (along with your lawyer and accountant) to have a functional office. Also, you’ll have to provide insurance and other benefits. Remember that your patients will probably spend more time interacting with your staff than with you, so it’s important to put the time into carefully selecting the right people (it will take more time that you think), then compensating them in a way that makes them happy to work for you.
  • Marketing: how are you going to get patients through the door? You’ll have to advertise and make your community aware of you and your services. Here it might be best to start small and increase your advertising budget when you can or if its needs a boost. For more on modern dental practice marketing, read our post on the topic.
  • Operating costs: once you’ve staffed and equipped your office, your costs don’t stop. Supplies have to be replaced as they are consumed. Staff has to be paid every month. So do insurance premiums. And utility bills. And so on.

 

What You Might Not Know

Unless you’ve already ran a small business, there are a lot of costs that might not be on your radar. These can include:

  • Self-employment taxes: You aren’t going to just be a dentist. You’ll also be CEO (literally, if you organize your practice as an S-corporation). You’ll also be the human resources department and bookkeeper. However you manage it, at the end of the day, it’s up to you to make sure all of the necessary taxes are being paid, including Social Security and Medicare. This isn’t just what comes out of your paycheck, but includes quarterly payments you have to make as an employer.
  • Health insurance: whether you offer this as part of an benefits package for your employees or not, you’ll probably want to have health insurance for yourself and family. In addition to purchasing a plan and making the premium payments, you may want to consider a health savings account or flexible spending account for additional out-of-pocket expenses.
  • Vacation time: when you’re an employee, you may enjoy the luxury of paid time off. Not so when you’re self-employed. Anytime you aren’t working is time you aren’t earning. Maybe you won’t take any time off in those early months, but, after a while, this will be something that you will need. Be sure to plan well for it.
  • Retirement: you might be inclined to put this last, as retirement is, chronologically, last. But it’s something that will be easier the sooner your start, and it’s highly unlikely that you’ll regret planning for the future. Discuss this with your accountant or financial planner to create a plan that is right for you, including options such as an IRA or other savings plan with tax advantages.
  • Maintenance and repairs: it’s smart to create a monthly budget for maintenance and repairs. You want a surplus because some months, you won’t need much, but others, you will. If you’ve used your monthly allotment for a building repair and then have equipment malfunction, you don’t want to have a disruption in your ability to see patients.

This is not a comprehensive list, but gives you something to start with. If you’re starting as an associate, take a look at the practice you’re working in and make notes about what you see that you will have to take care of (and pay for).

ddsmatch Southwest Can Help You Buy a Dental Practice

At ddsmatch Southwest, we have available practices in Texas and New Mexico. As part of our Trusted Transition Process, we specialize in matching the right buyer with the right practice. We understand this is about more than just exchanging money for the keys to a business: its a career choice with far-reaching consequences throughout your life. We want our clients and whoever is on the other side of the transaction to walk away feeling like they’ve each gotten what they wanted out of the deal. If you are interested in buying a dental practice or an associateship, contact us today and find out if we have the right practice for you.

Back-Office Automation: Add Value Before Putting Your Dental Practice for Sale

Any long-time reader of our posts knows that it’s important to looks for ways to add value to your practice, but not all ways of doing so are equal. The best ways to add value are not always the most obvious. Especially when done right before you put your dental practice for sale, buying new equipment and furniture, or upgrading your technology, might make your office snazzy, but it probably won’t increase your value as much as you may think. In fact, sometimes you can even take a loss on expensive upgrades. This is because a buying dentist wants to make the office their own—with their own choices about decor and equipment.

Better ways of boosting value are in the intangibles: your brand and your business practices. This is because those areas are where most of the value of your practice lies. No one buys a dental practice because it has digital imaging technology. If a buying dentist wants that, they can get it for themselves. Buyers will look at your practice if you have a steady, solid patient base, resulting in steady, solid collections, and low overhead. These areas are where you want to build value.

Invest Wisely: Technology that Saves Money, Not Costs Money

One great—but definitely unsexy—way way to increase the value in your practice is to reduce your billing costs through software automation. When you look at practice valuation reports, you can see that a simple, smooth process for collections is a big factor. Collections take time, and in running a small business, time is money, as the cliche says. The more time your staff takes to work on collections means higher costs in the form of wages and other administrative costs.

Therefore, investing in software or other technology that enables your staff to reduce their time and work with time-of-service collections, pretreatment estimates, and claims can be an asset for your office. When you put your dental practice for sale, if this is positioned properly, buyers will see that your office practices are efficiently organized to facilitate collections.

One thing to be careful about, though, are the HIPAA standards. You first need to understand what you can do under HIPAA. You are allowed to automate claims submissions, eligibility and benefit verifications, claims payment, and remittance advice. The automation of claims submissions and eligibility and benefit verification is fairly common practice. As of 2016, about 74% of dental offices in the U.S. had automated their claims submissions, and about 58% had automated eligibility and benefit verification.

But that is only half of what you can do, and as of 2016, virtually no dental offices had automated the other process. Only 8% of dental practices had automated claim payments. And none had automated the remittance advice. This is surprising, because if the dental and medical industry would fully automate their back-office processes, it could result in nearly $2 billion in revenue annually. That’s a lot of money to go around.

How to Automate Claims Payments and Electronic Remittance Advice (ERA)

To get your piece of that pie, and boost your dental practice value, all you need to do is follow these four simple steps to get your back-office processes fully automated.

  1. Contact the dental insurers you work with and enroll in the health-care electronic funds transfer (EFT) standard via ACH for claims payments and ERA (ACH stands for “automated clearing house” and is an electronic funds-transfer system run by the National Automated Clearing House Association (NACHA) to facilitate payment services such as payroll, direct deposit, tax refunds and payments, consumer bills and many other services). Receive payments directly in your bank account.
  2. Decide how you’d like to receive ERA.
  3. Make sure that your practice management software will automatically reconcile EFT and ERA.
  4. Ask your bank for the delivery of remittance information.

When you take advantage of the full spectrum of back-office automation allowed by HIPAA, you will reduce the time your staff spends of collections and the administrative costs involved. You thereby reduce your overhead, making your dental practice more profitable, saving as much as $36,000 per year. That’s money in your pocket that you can choose to reinvest in your practice or put away for retirement.

Also, by maximizing the automation allowed by HIPPA and using compatible practice management software that allows for automatic reconciliation and posting of receivables, your practice will show the following benefits:

  • Improved cash flow as funds are directly deposited into your bank account
  • Get paid faster because many dental insurers will pay claims that accept health-care EFT before paper claims that require a check to be issued.
  • Reduced instances of missing payments or fraud—direct deposits don’t get stolen or lost in the mail.
  • Keep your patient account records up to date faster, easier, and with greater accuracy, allowing you to make sure your billing is accurate and alleviating the risk of bad debt by facilitating collections closer to the time of service.
  • The ability to process more payments with less staff or fewer staff hours; the benefit here is twofold: you reduce costs and the less time you and your staff spends on book keeping is more time spent with patients.

Although we described business practices as an intangible above, the benefit of automating your back-office processes can be easily quantifiable in terms of lowered overhead costs and increased profit margins. Those numbers can be provided to buyers with the explanation of how you got there. When you want to put up your dental practice for sale, having these processes in place—with demonstrable savings—will make your more attractive to buyers. This is especially the case as the dental industry continues to move away from sole practitioners toward group practices, as automated systems are easier to fold into an existing corporate structure that the buyer already has in place.

ddsmatch Southwest Helps Add Value Before You Put Your Dental Practice for Sale

If you are considering transitioning your practice in the next five years, ddsmatch Southwest will provide you with a free, no-obligation Practice Transition Assessment. As part of that assessment, ddsmatch Southwest will help identify potential practice investments to help you increase the value of your practice before you sell. Contact ddsmatch Southwest today and request your free consultation.

Buying a Dental Practice? Review the “Don’ts” of Dental Practice Marketing

Being a dentist who owns their own practice is really two jobs in one. First, you are a dental care provider. After all, you went into dentistry to be a dentist. But you are also an entrepreneur. When you start or buy a dental practice, you have taken on all of the financial risk of that business just as any small business owner does. You want it to be the best it can be—to take care of your patients, your staff, your family, and yourself. In a large part, your practice is your legacy. This means that in addition to providing the highest quality dental care to your patients, you also want to put that same level of quality into the business side of your practice.

So, while you went into dentistry to practice dentistry, as long as you are running your own practice, you cannot ignore the competing responsibilities to properly manage the business of your practice. When we say “competing,” we don’t mean there has to be a compromise in the quality of care your provide. Rather, we mean that the business responsibilities will compete for your time, a finite resource. This month, here at ddsmatch Southwest, we are running two articles focusing on good and bad business practices: some simple “do’s and don’ts” to help you manage your practice. These basic principles can help you grow your business and sustain a level of success that will pay off in both the short and long term.

This article will focus on a few “don’ts” for promoting and growing your business. If you’ve not run a business before, you’ve probably already realized is a bit more complicated that it looks. Here are a few things to avoid going forward that will make it easier to get your practice to operate at the level you hope to reach.

Don’t Rely on Traditional Marketing, the Marketplace has Changed

When you are starting or buying a dental practice, you can look at what the practice has done in the past—or what other local practices are doing—to market themselves. Are they hyping specials? Discounts? Are they lowering prices or advertising what insurances they accept? If so, they are engaging in traditional dental practice marketing.

That may have worked well in the 20th Century, but not today. Dental patients have more choices than ever, and more access to information. Although they aren’t experts, consumers in general are better informed than previous generations. When someone wants a dentist, they start online, most likely with reviews. Look at those reviews, and you will see what patients care about most. Sure, cost is a factor. But customer service, the attentiveness of the staff and care provider, and the quality of care are all a priority. The fact is, consumers are looking for the nexus of value and quality overall, and most are willing to pay a little more for a better experience and quality of care.

Chasing the low-price consumer is a losing game. You’re competing against cut-rate providers for customers who will not stay loyal to your practice if they think they can get a better price. Also, you’ll be forced to cut your margins so tight that you may end up reducing your cash flow to a point that could be detrimental to your business.

What you want for your practice is not an ever-shifting patient base with no loyalty. What you want are the smart consumers who understand the quality that you offer and are willing to pay a fair price. Those are the patients that will keep coming back. That stable patient base is essential for a healthy dental practice (and will be a big asset when you want to sell your dental practice).

Don’t Overlook What Your Patients Care About

Another common mistake is thinking that your patients will think about dentistry the way you do. You are an expert with training and experience. Your patients just want their teeth to look and feel good. Exactly how that happens is what they are paying you for.

The more technical something sounds, the less potential patients will care. Do you have techniques or technology that will enable them to smile again? To be free from pain and discomfort? That they care about. A lot. However, they will care about it at about that level of detail. If you’re buying a dental practice and updating to the equipment with the most advanced technology, go ahead and advertise that. But don’t explain what the technology is. Explain what it does to better patients’ lives in terms they can understand (a good rule of thumb is to keep everything at about a 6th Grade reading level).

Remember, it’s not about compromising the quality of care, it’s about making it accessible.

Don’t Neglect Social Media

Social media performs two important functions in marketing, and any dentist who neglects their online presence will lose patients to one who doesn’t. First, on a human level, it allows you to engage with your patients and potential patient base. It gives them a feel for who you are, what your practice philosophy is, whether you are someone they want to take a risk on with their money and their mouths. With less people watching broadcast television, listening to terrestrial radio, reading print publications, or paying attention to traditional advertising, your social media presence is one of the best, most direct ways of engaging with your market.

Second, an up-to-date, well-optimized website, linked to social media and YouTube channels, with a steady stream of backlinked content, signals to the online search algorithms that you are an active, healthy, legitimate business that will appeal to consumers doing searches in your area. Active engagement and promoting quality website content across social media channels is an essential piece in keeping your website at the top of local search rankings. And whether you like social media or not, it’s key to modern marketing.

Don’t DIY Your Marketing

If the last few paragraphs aren’t sitting well with you, that’s fine. You don’t actually have to do this yourself. In fact, it’s probably better if you don’t. Online marketing is an ever-shifting shell-game. Once people learn how to work the search algorithms, the algorithms change, often on weekly basis. Online marketing requires the expertise of people who are staying on top of these changes, which is, in itself, a full-time job.

Hire an online marketing company to build your site and work with them to produce quality content. Maybe you have a young, savvy receptionist or hygienist who, for a little extra in their paycheck, will engage with patients on Facebook, Twitter, and Instagram. Trying to do it yourself will cost you time you don’t have, and will not be as effective. Plus, the experts help track where new patients are coming from and can continually optimize to ensure your marketing efforts are paying off and where you need to adjust.

When Buying a Dental Practice, Use a Dental Broker

Just as you are not an expert in marketing, you also probably aren’t an expert in selling or buying dental practices. But here at ddsmatch Southwest, we are. We take the combined experience of hundreds of dental practice transitions from all across the country and put that to work to match the right buyer with the right seller. Give us a call today and find out how we can help you get the right practice.

Getting A Loan for Starting a Dental Practice or Buying a Dental Practice

Getting a loan for starting a dental practice, or buying a dental practice can seem like a daunting prospect, and rightly so. This will be one of the biggest, if not the biggest, decisions of your career. And you have to make it at a point in your professional life when you have the least amount of experience, either in dentistry or in business. That’s the bad news.

The good news is that if you choose the right lender, one who understands dental practice lending, and you’re prepared, it can be a lot simpler that you might think.

Choosing the right lender is the easy part, you just need a reputable bank with experience lending to dentists—that is, one that understands how practices need to be financed.  They’re not hard to find. The financial preparation can be the hard part. But it doesn’t have to be if you understand a few things about the practice lending process.

Dental Associate Experience Reduces the Bank’s Risk

How much experience do you need before starting your own practice? Honestly, not much. Lenders report that 60% of dentists seek to set up their own offices within the first five years of their practice. But that doesn’t mean you can just walk out of dental school and into a bank expecting to get a few hundred thousand dollars. While many lenders don’t require much experience (more on the reasons for that below), they will be looking for some experience—at least one or two years as an associate. The reason for this is that most young dentists gain invaluable experience in those first couple of years: working in a real world office with patients from the general public, managing staff, increasing hand speed, and creating a track record of production. There is no real substitute for that experience.

There may be an exception for someone with good dental intern experience, or someone who has worked in a family practice and understands the business and administrative sides of a practice already. But these are going to be the exceptions. This will be reflected in the fact that a bank will typically lend less to someone right out of school because its a riskier prospect. The idea is that time working as an associate reduces the bank’s risk because the doctor has an established record of managerial experience and production. Without this, you’ll have to work much harder to convince a bank to lend to you.

Typical Debt (Including Student Loans) is Not an Obstacle

First, you might think that a few hundred thousand dollars of student loan debt doesn’t seem all that typical, however, you have to remember that we are not talking about lending, generally. We’re talking about lending to a dentist starting out a practice. Given that the average dental student graduates with somewhere between $200,000-$400,000 in student loans, within this demographic, your student loan debt is probably typical. The offset here is that loans for starting a dental practice or buying a dental practice are among the lowest risk loans. The default rates are very low and dental practices generate a high cash flow. This is why banks are willing to loan large amounts to dentists, funding the entire cost of starting up a practice, where in other industries, the borrower would have to invest up to 20% of their own capital.

Given these factors, lenders know that new dentists will have debt. As long as that debt appears to be typical, it won’t be an issue. In addition to student loan debt, its typical for a young doctor to have a mortgage, some credit cards, maybe even a luxury car payment. The concern is not having debt, but whether the debt is excessive and whether the practice that the loan is for is reasonably projected to generate an adequate cash flow to cover the loan repayment, along with the other debts, keep the lights on, and the staff paid.

Credit Risks are Still Credit Risks

While typical debt is not a problem, and while that typical debt can add up to quite a bit, banks are still going to balk if they find red flags on your credit history. Dentists generally have a reputation among bankers as being among the most financially dependable borrowers, however, you won’t benefit from that reputation if your credit history indicates an inability to manage debt. Lenders typically want a credit score in the high-600s. You should be concerned about the following things, if they’re reflected on your credit report:

  • A short sale or foreclosure on a home
  • A pattern of late or missed payments
  • Taking on too much debt
  • Excessive credit card debt
  • A low asset to liability ratio

Red flags can also appear with the practice you are proposing to buy or build. These can include:

  • An expensive build-out
  • High costs for remodelling or re-equipment an older office
  • A negative trend in the practice’s collections
  • A young dentist seeking to purchase a high-end practice (typically, a doctor should seek to establish a practice that can be profitably run at the doctor’s current production and managerial ability)
  • Relocation to an area where the doctor has no established community (there is less to keep a doctor there if the practice experience’s problems)
  • A poor production record for the doctor seeking funding
  • Disciplinary actions
  • Probationary periods

Banks with dental industry experience are looking, in essence, at a combination of the doctor’s ability to responsibly run a practice and produce at a level of profitability that will allow repayment of the loan, and whether the practice is worth the amount being asked for. The bank has to be comfortable with both parts of this equation before it will take on the risk of the loan.

Loans Types for Starting a Dental Practice or Buying a Dental Practice

Typically loans for dental practices are 10-to-15-year fixed-payment products. Some banks will offer a 20-year loan, reducing the monthly payment amount. And some offer an alternative to fixed-payment loans, where payments may be low or even deferred during the first months, allowing a new practice to build momentum before starting with low payments which will increase over the first couple of years. The variable-payment loans let a new practice invest in equipment, staff, advertising, and other things needed to establish and grow the business.

Something unique to dental practice loans is they can include money specifically earmarked as working capital. This means that the bank understands that, just as you don’t have 20% of your own capital to invest, you likely don’t have a large cash reserve to keep a business afloat as it operates in the red during those first months. For instance, a typical dental practice loan from Bank of America may include $75,000 for working capital and an additional $25,000 if the doctor wants to bring on a practice management firm to help increase their business training.

SBA (Small Business Administration) loans are often a preferred choice by lenders. SBA loans are guaranteed by the federal government for 75%, greatly reducing a bank’s risk. SBA loans have other because they are loans are designed for small business like the one you are considering. They also are available for ground-up construction, which many conventional banks won’t offer.

Have a Plan

Before any lender is going to work with you, you’re going to have to show them why it’s a smart investment. You need to have two things. First, is a vision for your practice. What will it be? Where will it be? Why that type of practice in that location? And why are you the one to be trusted with it? You should be able to answer any of these questions with thoughtfulness and confidence. This will show you’ve really considered your choices, and that they are being made intelligently and responsibly.

Second, you’re going to need a solid business plan. This is the document that shows what your costs will be, how those costs will bring revenue, and whether that revenue will be sufficient to support the practice, its staff, and repayment on the loan. For more on how to prepare to prepare your plan, read our recent article, “Five Financing Questions to Answer Before Buying a Practice.”

In addition to your business plan, the lender will probably also want to see your tax returns, dental license, resume, production reports, documents which report all of your financial assets and liabilities, demographic information about the location of your practice, and financial records from the practice (if you’re buying an existing one), or any other information they find relevant. Once all of the paperwork is properly submitted, preapproval is typically completed within a week.

We Can Help You Find the Right Practice

Here at ddsmatch Southwest, we specialize in matching the right buyer with the right seller. If you are interested in buying a dental practice in Texas or New Mexico, we can help you find the practice that best fits your vision for your dental career. Contact us today and find out how we can help you.

Five Financing Questions to Answer Before Buying a Dental Practice

As a dentist, no one needs to explain your area of expertise to you. You’ve dedicated yourself to providing the best care for your patients that you can; you are the one in the best position to treat and advise them. And while excelling in your field requires a lot of diverse knowledge and skill, it does not require a high level of financial expertise. You may need to be able to balance your books, and maybe run a P&L report. But, when it comes to more complicated financial transactions, you are not alone among dentists who may quickly get out of their depth.

At the same time, the more complicated financial aspects are exactly what is involved when buying a dental practice or starting up a new practice. Just as your patients deserve quality, compassionate dental care, you deserve financial advice that is just as reliable and accessible as the care you provide to others. So, when you are ready to take the next step in your career—to either buy or start your own practice—you need to find a dental financial adviser who understands the transaction in the same way you understand your specialty.

What to Consider Before Choosing a Lender

First, you need to work with people who understand the unique needs of your business, the dental business: a dental financial adviser (on your side) and a dental lender (on the bank’s side). While your local bank may be a trustworthy and reliable institution, you have no guarantee that they understand the dental business. And if they don’t, it can create trouble.

Lack of knowledge about the dental business can lead to a lender making errors in valuing the practice you are considering buying or starting. There are unique aspects to how dental practices are valued and financed that don’t align with typical business financing. And that leads to the second problem—that the type of loan you will likely need doesn’t fit into a typical loan structure. You need to work with a lender who understands the type of business you are buying, and what kinds of loans work in that field.

Depending on whether you are buying a dental practice, building one from the ground up, or something in between, a Small Business Administration (SBA) loan can be a good option. For one thing, SBA loans are designed for small business like the one you are starting. They also are available for ground-up construction, which many conventional banks won’t offer. Even if you aren’t building something new, but are planning to buy land or a building, you may need a commercial real estate (CRE) loan.

Also, if you have credit problems, you may still qualify for an SBA loan, even if other lenders have turned you down. You may also have an option for an A/B loan (also known as a syndication loan), where a lender provides part of the loan from its own money, and partners with a second bank for the remainder, reducing the risk for each lender. With these loans, typically the A bank is the lead lender, and administrator for the entire loan.

As you can see, this gets tricky very quickly. This is why you need a financial adviser on your side who understands the dental business, and can help you figure out the answers to these five questions, which you need to have sorted out before you start talking to banks:

  1. How much money will you need for your project? This is an important question to get right, because an error on either side will create a real problem down the road. You definitely do not want to take on any more debt than necessary. On the other hand, you also don’t want to run out of money part way through the process. Getting a second loan can be tough. Talk this through carefully with your dental financial advisor, and review your numbers until you are sure they are correct.
  2. What is your plan? Here is where you identify the specifics of what you are doing. That is, what the is money for. Are you buying an existing practice? Does it include ownership of a building, land, or both? How is the practice equipped—will it need to be updated? Are you constructing a building? Are you outfitting a completely new practice? Again, talk this through thoroughly with your financial adviser and review your numbers carefully.
  3. When do you need the funds and when will they be repaid? Whatever your plan is, the seller (whether it’s a dentist, landowner, or contractor) typically has a strong interest in having the deal closed by a fixed date. Make sure you can meet that deadline, or you risk losing the deal. Also, make sure you will be prepared to start repayment on the loan terms on a schedule that will satisfy your lender, without creating a financial hardship for your practice or yourself personally.
  4. Do you have a solid business plan? All new business are started in a spirit of optimism. Optimism, however, doesn’t pay the bills. If you don’t have a good business plan, it’s likely you won’t get a loan. So, for the bank’s sake, and for yours, make sure your documents are complete, accurate, and based on reliable information. Look closely at the projections, and make sure they support the amount of money you are asking for, and your repayment plan.
  5. What is your backup plan? Things rarely go as we plan them. While many dentists buy or start a practice and it all works out fine, it’s unlikely that it worked out just as they had planned. Given the size of the debt you will take on, you will be better off with a contingency plan in case external factors impact your business. How will you repay your loan? Think about this carefully and work it into your business plan. This is definitely a case in which it’s much better to have something and not need it, than need something and not have it.

Having a solid business plan supported by complete and accurate documentation will go a long ways towards getting where you want to be with a lender. It will make their job much easier, smoothing out the process, and allowing them to determine the most advantageous way to fund your request.

Buying a Dental Practice? ddsmatch Southwest can help!

At ddsmatch Southwest, we are in the business of matching those who are selling a dental practice with those who are buying a dental practice. You can read more about buying dental practices in our article “Ten Things to Consider when Buying a Dental Practice.”

We understand that you are not just exchanging cash for an office and equipment. This business will be where you invest your time and your energy. You are not just investing money, but also your hopes for the future, and your plans for your family and loved ones. You will be building your legacy. We have many practices available for purchase and proven methods for matching the right dentist with the right practice. Give us a call and find out what we can do for you today.

Dental Associateships: Reduce Your Risk Before Buying a Dental Practice

You didn’t go to dental school with a dream of being an employee. But before you are in a strong position to consider buying a dental practice, you may need to put in time as an associate. A generation ago, starting up your own practice right out of dental school, or soon after, was a more common trend. These days, however, the marketplace has changed. More and more, dental graduates are putting in time working with another dentist, whether as a stepping stone to an independent practice, or with an eye to buying-in down the road.  The mentorship experience is also valuable, to train under an experienced guide.

This first step in your career can be critical, and the more care you take when deciding where and how to start practicing dentistry, the better off you will be long-term. The question is, how do you know which practice is right for you? Without being able to see the future, there will always be some risk. The good news is, that there are good ways to reduce that risk, and increase your chances of security and success over time.

Here are a few items to consider.

Location, Location, Location

First, think carefully about where you want to practice. You’re young, you’ve worked hard, you’re on the brink of a successful career, and you want to enjoy this stage of your life while setting the stage for your next step. Living in a cool city where you can take advantage of what urban life has to offer may appeal to you. Or, maybe you’d like to live near a coast, or near the mountains.

However, these preferences come at a cost, both literal and figurative. Cities and other popular areas are expensive. Also, they are competitive. You’ll have to work harder to get hired as a dental associate, to get a decent and affordable place to live (as you’re not earning as much yet), and to attract patients. While rural areas and smaller towns may not be your first choice, they have a lot to offer.

For more on this, read our post about the benefits of dentistry in rural areas. You can let your classmates slug it out for a small apartment and a practice with lower profit margins in the big city, while you get ready for buying a dental practice sooner than you probably could otherwise. You can save your earnings for trips to the city, or weekends at the coast where you can enjoy what it offers with less stress.

Job Interviews are Two-Way Streets

The process of locating a dental associateship is not just about you wooing established dentists. You are young, energetic, well-educated with up-to-date training, and well versed in new technology. You will be an asset to any practice you join. Getting a dental associateship is not just about getting an offer. It’s about finding the right fit. You are kicking the tires on the hiring dentist and their practice, as much as they are vetting you.

Here are some things you can do to make sure you have the data you need to make an informed choice about where to start your career.

The More You Know, the Better

  • Call the practice. Your experience with the front desk personnel can tell you a lot about how the practice operates. Do they answer the phone quickly? Are they courteous? Do they sound professional and organized? Also, call after hours to hear their outgoing message. Do they provide emergency information? Do they provide a professional impression of the practice and reflect a sound business operation? If a practice can’t manage their phones well, what does that say for the rest of their services?
  • Arrive early. Just like calling the practice, you will be able to see the front office staff in motion: what happens when patients arrive, how they are checked in, how long they wait, the culture of the office, and other things that may be glossed over in a formal interview. The front office operations are essential to a successful and healthy practice, and first hand experience is really the only way to see it for yourself. Are they properly scheduling follow ups for additional work? Are they on top of collecting payments and getting insurance information? And while it may seem awkward to sit in the waiting room, you can easily devise an excuse (being cautious about time, for instance, especially if you’ve come a long way) and the information you gather may be invaluable.
  • Don’t just talk. It’s not hard for either party in a job interview to impress the other. But talk is cheap. If it’s not offered as part of the interview process, ask for a “working interview” where you can work with the hiring dentist, perhaps acting as an assistant. This will give you the chance to impress with your skill, but, more importantly, you’ll get to see something you never would have otherwise until after you’ve began your associateship; you’ll get to see how the doctor and their practice actually function. This will tell you more than anything they can say in an interview. Also, when it goes well, you’ve given the staff something good to relay to patients as they start scheduling appointments for you.

Remember, the more information you have, the better positioned you are to make a good decision, reducing your risk.

Dental Associateships Prepare You for Buying a Dental Practice

Dental associates perform a variety of functions for an owner dentist. But, for you, this is your path to prepare for your likely career goal of owning your own practice. It’s a time when you have lower risks and less at stake, so you can figure out how to work within a practice setting, learn managerial skills, and understand what your role is—and, importantly, what it is not.

When you get your diploma, you are a doctor. You are not staff. A well-run practice, like any business, is one where the manager (here, the doctor) hires able staff members, provides them with proper training, direction, and support, and then gives them the independence to do their jobs. This model empowers staff and communicates to them that they are trusted. These qualities in a business encourage staff to do their best, build loyalty, and generally the staff will reflect trust back to the doctor. Organizations with these qualities are better suited to weather tough situations.  

This is important to remember as a dental associate, because, while you are not the manager, you are a doctor, with a supervisory role over staff. If there is an unfortunate circumstance where you need to align yourself with one side or the other, you are best aligned with the other doctor(s). If there is an issue that you think needs to be addressed, address it in private with the other doctor(s), not in front of staff. This can be difficult—we want to be fair, and we want to be liked. But remember, your job is not to befriend the receptionist, as much to provide the best dental care you can to your patients, and work with the practice members to facilitate that. By always knowing your role and being professional at all times, it will be easier for you to navigate the difficult personnel issues that will inevitably arise sooner or later over the course of your career.

You may be someone who loves to attend to all of the details. You may be someone who is independent and self-sufficient, and takes pride in those qualities. Both are positive qualities, but you will need to learn to let some of that go and stay flexible as a member of a larger team. Think about the times you’ve spent in a well-run doctor’s office. Is the doctor at the front desk? Is the doctor looking at the schedule? Is the doctor asking questions about billing and insurance?

No, because the doctor is doing their job, attending to patients. That’s your focus. Let the staff do their job. After all, that’s why they are there (and getting paid and receiving benefits). If you are looking over their shoulder, they will be self-conscious, feel second-guessed, question your trust in them, and it can create an uncomfortable work environment. If there are problems with staff, they can be addressed in private or in staff meetings, whichever is most appropriate.

Finally, while on the topic of meetings, beware of any practice that does not have staff meetings. Efficient, organized staff meetings are essential to a smoothly-running operation. Regularly scheduled meetings allow for open communication and a forum for questions, clarification, and addressing issues. An organization that only holds a meeting when there is a problem is like trying to build a boat after you’ve already launched the hull. A little extra time at the dock saves a lot of hassle out at sea. These meetings don’t need to be long, but they should be regular and always have a clear agenda to keep all staff members headed in the same direction.

If you pay close attention during your dental associateship, learning both what to do and, just as important, what not to do, you will be much better prepared for buying a dental practice when the time comes.

ddsmatch Southwest Can Help Reduce the Risk

One of the things we do at ddsmatch Southwest is place dental associates. Many dentists are thinking of transitioning their practices, but are not quite ready to go into full retirement. They may want an associate who will buy-in and perhaps, eventually take over and buy them out. They may want an associate who will expand their practice, increasing its value. They may want to stay involved, but reduce their personal workload.

We have a variety of options for new dentists looking to begin their career. Let us help match you with the right practice. Give us a call today.

Ten Things to Consider when Buying a Dental Practice

Buying a dental practice is one of the most important decisions a new dentist or dental associate can make in the course of their career. No detail is too small to consider, and there are a lot of factors outside your area of dental expertise that require skilled advisors.

While that may seem daunting, the good news is that people have been doing it successfully for years when they’re backed by the right team. There is a tried and true process, and a clear set of considerations. When you follow the guidance of experienced professionals, it will greatly enhance your chances for success.

In this post, we discuss things to consider as you get ready for the next exciting step in your career.

Start Day One with an Existing Patient Base

An existing patient base means a paying patient base. If you start a new practice, unless you have a loyal base of patients who will follow you from an associateship, you are starting from scratch. You’ll invest a lot in overhead to establish an office and hire staff and then . . . wait for the patients to come. But, when you buy an existing practice, you have patients in the door from day one. Now, that doesn’t mean you’ll keep all of those patients (more on this below) but you will be starting ahead, instead of behind.

This, of course, doesn’t mean you don’t have debt to worry about. The practice will likely have been purchased with a loan, and you’ll need to be able to earn enough to keep the lights on, service your debt, and take something home for yourself. Look at the practice’s cash flow and expenses to see if your expenses will match that, whether you can cut costs, and whether the practice is really sustainable.  According to Bank of America, “Lenders usually look for the practice and doctor’s personal income to cash flow at a ratio of a 1.20%, which means the practice is expected to generate a $1.20 in revenue — or collections — for every $1 spent between the practice expenses and the doctor’s personal expenses.”

Rely On a Team of Experience Professionals to Do what You Can’t

It’s likely you haven’t had experience buying and selling small businesses, dental or otherwise. There can be a lot of complexities in these transactions, depending on how the practice is set up, and there will be a lot of details you won’t even know you should worry about. Without a team of experienced professionals, you could walk right into a common pitfall without even knowing it.

To be successful, you will need these members on your team:

  • Dental Practice Broker. Like any other business or property, a dental practice can be sold directly from one person to another without any intermediaries. Yet this is much more complicated, however, than buying a residence or automobile. And if you’ve never done it before, you don’t know what you don’t know. Working through a broker, such as ddsmatch Southwest, helps ensure that both parties are aware of all of the essential considerations and that no critical steps are missed.
  • Dental CPA. Dentistry is a unique business, with accounting issues that don’t apply to other business, from dental equipment valuation to tax strategies. Find a CPA with a large roster of dental clients, they’ll understand the accounting side and be able to advise you better than a general CPA.  Your dental practice broker should be able to recommend a reliable CPA. At ddsmatch Southwest, we work with Blue & Co., where they have both dental CPAs and certified business valuators.
  • Dental attorney. The law is like dentistry, you have generalists and you have specialists. The generalists are good for small, everyday matters, but once you get beyond that, you really need a specialist. When buying a dental practice, you are going to be dealing with a host of legal issues: a sale contract, a lease, non-compete agreements, patient privacy disclosures, incorporating or other business organization set-up, and they may even help with lender requirements. Like the CPA, find an attorney with extensive dental experience, and ask your broker for recommendations. We can refer several affordable experts that we know and trust.
  • Dental lender. Your local bank may not understand the dental profession and could err in valuing the practice. Also, there are loan terms typical for the purchase of a dental practice that don’t fit into a typical loan. You need to work with a banker who understands they type of business you are buying and what kinds of loans work in that field.

The Term of Your Practice Loan

There is some flexibility here, with most loans ranging from five to 15 years. A longer term can be beneficial, as it will reduce both the impact your debt service has on the practice’s cash flow, and the risk inherent in losing some of the existing patient base (it will happen to some degree). You also may want to consider a flexible repayment option. If you grow your practice or otherwise increase your cash flow, you want to have the option to prepay the loan. If you are concerned about cash flow in the early days, ask about the loan being structured for interest-only payments for the first six months to a year.

Also, as with any loan, consider your interest rate. Often, a low, fixed rate is the best option. While an adjustable rate can have lower payments initially, eventually rates will rise, and so will your payments.

The Advantages of Buying a Dental Practice

As discussed above, an established practice has an established patient base, with a cash flow from day one. Also, the practice has established relationships with the local insurance providers.

The practice has an experienced staff. You don’t need to find, hire, and train a staff. However, remember that the practice was built around the dentist who, depending on the term of your contract, may not be around. Try to arrange to keep the existing staff on for at least a year. This way, you don’t have the hassle and expense of hiring new staff while learning how to run a practice. Also, the patients know the staff, and familiar faces will help with patient retention.

On that point, while the practice has a patient base, despite your best efforts, you will lose some of that base. Your broker can help advise on the best strategy to retain patients, which often starts with a letter explaining the practice transition. Ideally, the selling dentist will write the letter, as that dentist is someone the patients know and trust.

The Disadvantages of Buying an Existing Practice

While there are several advantages, there can be downsides as well. You aren’t just buying a business, you are buying the philosophy upon which that practice has been built. Your approach will certainly be different, and that may cause some strife with staff and patients, who may look for a new dentist.

Changes in workplace practices and policies can be tough for staff, especially when they don’t see why change is necessary or desirable. Also, if the staff members have been around for awhile, their compensation may reflect that, making them seem overpaid. Carefully consider this before making any staffing changes.

Before you finalize the sale, look closely at the office equipment and decor. Consider what updates or upgrades are required and what the cost of those will be. Factor this into the valuation process.

You Are Not Just Buying a List of Patients and an Accounting Ledger

As indicated above, the practice you’re buying was built around a personality and method of organizing that practice. This brings in a lot of things beyond just dentistry. The selling dentist had a vision for their practice and worked to achieve it. Is your vision for your practice compatible with that? If not, it may be a painful transition for you, the staff, and the patients.

When you own a dental practice, you quickly learn that you have to become a jack-of-all-trades. You are the CEO, CFO, and the human resources department. This is all in addition to being both a practicing dentist and the lead clinical director. Be sure you are ready to take on these responsibilities.

Other things to think about include:

  • What quality of care does the practice offer?
  • What types of dentistry does the practice offer? Are there services you don’t want to offer? Are there services you think should be offered? How will this impact the practice, staff, and patients?
  • What is the ratio of restorative or cosmetic services versus hygiene?
  • What services are referred out? Could they be kept in house?
  • Is it fee-for-service?
  • What percentage of the patients are capitation?
  • What percentage of the patients are PPO?

What Type of Acquisition is Best for You and for the Practice?

The common types of acquisitions include:

  • 100% Buyout. Just as the name indicates, you exchange the full cash price for ownership of the entire practice. The selling dentist may exit immediately after your close the sale, or may elect to stay on for a period to aid in transition or to ease into retirement. These terms are negotiable.
  • Buy-In. Here you would buy-in for a portion of the practice, typically between 25-50%, and purchase the rest later when the selling dentist opts to transition into retirement. This may be a good option for someone who wants to ease more slowly into the responsibilities of full ownership.
  • Associate with the Option to Buy. An established dentist may be looking down the road to retirement. The dentist isn’t ready to sell yet, but wants to train a potential buyer in the existing practice, the associateship agreement includes the option to buy. At ddsmatch Southwest, we help place associates, and can provide guidance regarding options to buy.

Practice Valuation

As in most transactions, there is frequently a gap between what the seller thinks their practice is worth and what the buyer thinks it is worth.  As the buyer, you should consider that, for the seller, it’s very personal. They have spent their career building their practice and represents a significant investment of time, money, blood, sweat, and tears. Also, depending on the practice, the dentist may have provided care for generations of families and have strong community ties. All of this will impact the value they place on their practice.

Typically, what buyers are willing to pay (market value) is what the practice will sell for. A rule of thumb can be 70-90% of the last year’s revenue. Speciality practices may value for less because they rely on referrals, which are less predictable.

If You’re Planning Changes for the Practice, Take it Slow

Unless you’ve done a buy-in or option to buy, you are well advised to take your time to get to know the practice: the staff, the equipment, the patient flow, the patients themselves, the billing, and all of the processes and policies. Make sure you understand how it all works together (or doesn’t work) before you start making changes. There might be things that seem odd, but become clear once you are on the inside. Making changes too fast could create disruptions that would cause staff and patients to go elsewhere unnecessarily.

Due Diligence

In every business transaction, due diligence is essential. This means that you undertake a comprehensive appraisal of every aspect of the practice. You may want to retain a consultant to evaluate each aspect of the practice, including staffing, systems, and a complete chart audit and patient count. This type of consultant can also advise post-sale on ways to improve the practice according to your career goals without too much disruption.

At ddsmatch Southwest, we specialize in bringing sellers, buyers, and associates together. Using the experience of hundreds of transitions all across the country, we can help you with buying a dental practice and help it go smoother by avoiding common mistakes and finding the right match for your career goals. Contact us today and find out what we can do for you.

Thinking of Buying a Dental Practice? Midland, TX, is a Great Place to Consider

Where is the best place to buy a practice? Is it in an established, populated area, where markets and economics may shift and people might leave? Consider how much an area might change in 20 years as children grow up, leave home, and their parents downsize their homes. Will new families move in? Or will they look to newer developments as tastes and populations shift?

Is it on the edge of an urban area, where there is room for expansion, but also for a building boom to turn to bust? Think back to when the housing bubble burst 10 years ago. Remember those streets full of empty, new houses?

But what about buying a practice in an area where science is forecasting major economic growth in the coming decades?

And what about in the Permian Basin?

What you might not know is that those last two are one and the same. The Permian Basin is a geological area under a big part of west Texas, including Midland, Odessa, and Lubbock. While you may recognize those names as oil towns, what you might not know is that the Permian Basin is poised to become the largest oil patch in the world. And with that comes the opportunity for incredible growth, if you get in on it early enough. So if you’re thinking about buying a dental practice, Midland, TX, might just be the place.

What’s Happening in the Permian Basin

A recent article on Bloomberg reported that oil output in the basin was set to hit 3.18 million barrels a day in May of this year. That’s the highest the basin has ever produced since the Energy Information Administration began tracking the data. What’s more, that number is expected to only go up, with an estimation that the region may be producing as much as 4 million barrels a day by the year 2023. For reference, the Ghawar field in Saudi Arabia, currently the largest oil field in the world, has a capacity to produce 5.8 million barrels a day. Other top OPEC producers such as Iran and Iraq each produce less than 5 million barrels a day (Iran reportedly hit 3.81 millions barrels a day in March).

According to Rob Thummel, a managing director at Tortoise, a multi-billion dollar energy asset investment management company, “The basin in and of itself could end up being the largest oil field in the world, even bigger than Ghawar in Saudi Arabia . . . If the Permian was part of OPEC, it would be the fourth-largest OPEC member, right behind Saudi Arabia, Iran and Iraq,” and, “[b]y the end of the year, the Permian probably overtakes Iran.”

What Does this Have to Do with Buying a Dental Practice? Midland, TX, and Other Permian Basin Oil Towns are Going to Grow

In any industry, production depends on infrastructure. In the oil business, that infrastructure means pipeline capacity. Presently, the region lacks sufficient pipeline capacity to get the oil out of the area and to the market. Bloomberg reports that “rampant production growth has already strained available pipeline capacity to transport the oil to market, pressuring prices” some of which have dropped to a three-year low. Oil companies are working together to increase pipeline capacity, with a major project recently announced that will increase pipeline capacity by 700,000 barrels a day by the end of 2019.

Growth in the oil industry, including pipeline construction, means jobs. Jobs means families moving to the area, and families need dentists. This news about the oil field capacity can mean a major economic and population change to the area that will last potentially for decades. It’s a growth market for the oil industry and oil industry workers, but it’s also a potential growth market for industries and services that people rely on in their day to day lives. This is why it’s a good time to consider buying a dental practice, Midland, TX, or in nearby areas. Relatedly, if you have an established practice and are thinking about retiring, it’s also a good time to put a dental practice for sale. Midland, TX, and other Permian Basin towns are all set to grow over the next several years.

If you’re asking yourself, “why would I want to practice in Midland, TX?” you might want to take a look at our recent article about the benefits of buying a practice or seeking an associateship in areas outside of major metropolitan areas. While the Midland-Odessa area isn’t exactly a small town (there are just under 300,000 people within the Midland-Odessa metropolitan area), it’s certainly not like Houston or the DFW area, and encompasses a number of smaller communities that would be well served by a quality dental practice. Also, depending on how and where you are considering practicing, it could be a great place to look at purchasing or joining a practice with a pediatric specialty (see our recent post about that).

At ddsmatch Southwest, our team has members who work exclusively in Texas and know both the dentistry business and the region. Whether you are considering buying a dental practice, Midland, TX, or other areas in the Permian Basin, or if you are considering selling your practice, adding an associate, or joining as an associate, we can help you get the results you want. Give us a call today to find out what we can do for you.