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How Much is My Dental Practice for Sale Worth?

When it comes to valuing a dental practice for sale, there are a lot of different methods and theories. In all honesty, there are so many variable factors that there is no one formula where you plug in numbers on one end and get an objectively correct answer out the other. But there are a couple of rules of thumb that can give you a good idea of a ballpark range. Realistically, you’ll need to work closely with your accountant, your dental practice broker, and, ideally, a certified valuation analyst (here at ddsmatch Southwest, we partner with Blue & Co. for our client’s valuation needs).

The two most common methods for valuing a dental practice dental practice for sale are to use a multiple of collections or a formula relying on your earnings before interest, tax, depreciation, and amortization (EBITDA). We’ll discuss each in turn and then discuss why these numbers will only tell part of the story.

Multiple of Collections

The multiples of collections method is fairly simple, until its not. The simple part is that it’s just a multiplication equation. You take your total collections (or gross revenue from the practice) and multiply it by a percentage. This, however, is where it gets less clear: what percentage do you use? Historically, the average answer has been about 67%, although you will also hear this should be 70-80% of the average of your last three years collections. Another way to consider this approach is the price to gross revenue. That is, what will the buyer be willing to pay for each dollar of collections? $.67, $.70, $.75, or $.80?

Our use of the word “historically” should be telling. This method of valuation is become less common as the business side of the dental industry changes (more on this in the next section). However, before you get too excited about the simplicity of this method, consider the following hypothetical: if you have a practice will $1m in collections, using a multiple of collections method, the practice could be valued reasonably within the $670,000-$800,000 range, depending on other variables. The problem here is you are only looking at one number, the total collections. You don’t have any information yet about overhead and other costs. This hypothetical dental practice for sale could actually be worth much less.

EBITDA

The earnings before interest, tax, depreciation, and amortization (EBITDA) is becoming increasingly popular as the business side of the dental industry has experienced a shift towards a greater number of group practices being driven by entrepreneurial dentists and outside investors. With group practices being more and more focused on investor returns, there is a shift to an investor perspective of owning and operating dental practices. Typically, investors consider the actual debt-free cash flow, rather than gross collections, as the most reliable indicator of the likelihood of a return on their investment. The EBITDA method can be considered a price to earnings method. The question here is how much is the buyer willing to pay for each dollar of free-and-clear net earnings?

This method is trickier because determining your debt-free earnings is not as simple. Also, the range for the multiplier for EBITDA is much wider (you can see anywhere between two and 18 as the correct multiplier) and more variable by practice type. For a solo practice, a reasonable multiplier might be three-to-four times. For a multi-doctor practice, in might be four-to-five times. For a multi-location practice, it might be five-to-six times. And for a group practice with infrastructure and scalability, it could be six times and up from there.

When we apply the EBITDA method to our above hypothetical, you can see both the difference and the advantage of this method. If a dental practice for sale has $1m in collections and 60% overhead (which is about average for a dental practice), its EBITDA is $400,000. But, what if a practice has an above average amount of overhead? If a practice has $1m in collections but 75% overhead (if, say, the practice has more employees than it needs or the doctor pays themselves a hefty salary), the EBITDA is only $250,000. The multiplier of collections would place both practices at the same value, however, the second practice is clearly worth less than the first.

The Rest of the Story

There are two major factors that are not accounted for in either of these models. First, as mentioned previously, there are all kinds of variables that impact value outside of the information used in either of these valuation methods, including:

  • Location
  • Product mix
  • Payer mix
  • Fee schedules
  • Referral rates
  • New patient acquisition
  • Fixed assets
  • Whether office is leased or owned
  • Cosmetic appearance of the office
  • How modern or well-maintained is the equipment
  • Availability of financing and current interest rates
  • Transition plan (whether seller will stay on for a period)
  • Community goodwill and how well that will translate to the buyer

All of these things will impact the value that both the buyer and seller will place on the dental practice for sale. Which brings us to the second factor: market value. At the end of the day, a practice is worth whatever it can bring from an open market. All of the valuation methods are simply ways to try and reach an agreed upon range from which negotiations can start.

We Work for You to Get What You Want for Your Dental Practice for Sale

Here at ddsmatch Southwest, our goal is to help you meet your dental practice transition goals and get a deal that you think is fair. As part of our Trusted Transition Process, we work with you by discussing the current local dental practice transition marketplace, help establish the best transition options for your practice, and suggest improvements and investment options that will result in a real return in the sale. Contact us today for a free, no-obligation Practice Transition Assessment.

Considering DSOs and Private Equity Groups When Putting a Dental Office for Sale

In the world of dental practice transitions, there is a lot of talk these days about the increasing role of corporate dentistry. If you are wondering whether you should consider these options as you put your dental office for sale, it’s important to understand what these options are, what they aren’t, and how they are different.

Dental Service Organizations

Dental service organizations (DSOs) are management companies which own and run multiple practices. Examples include Heartland, with over 800 locations across 36 states, and Aspen Dental Management, with more than 650 locations. A DSO will have their own methods, meaning they’ll have a management organization, fee schedule, staffing requirements, and other business tools that they’ll want to impose on your office. Uniformity is part of the key to success, replicating the functioning of one office across many. If they have a good model, theoretically, a DSO can smoothly run a practice from a business standpoint and not get in the way of providing quality care.

If you sell to a DSO, you become an employee. This can be a good option for a dentist looking at retirement, but not quite ready to give up the game. You can still provide treatment for your patients, receive a salary and benefits, but not have to deal with as much of the business or administrative side of things that takes up your time after office hours. If you are looking to cut back hours or responsibilities, this can be a good option.

If your concern is getting the most money out of your practice, a DSO can similarly be a good choice. A DSO will have deeper pockets and easier access to more financing than a private buyer. And, given that a DSO typically has a long term goal of expansion into additional markets, seeing the gains from their economies of scale, they may be willing to outbid private sellers.

The downside may be your legacy and possibly losing the goodwill of your patients and community. You’ve worked all of your career to build a successful business. If you use a dental practice broker, such as ddsmatch Southwest, when you put your dental office for sale, we use our expertise to help identify a buyer with a strong skill set and personality match that will carry on the practice and legacy you have worked so hard to build.

While a DSO is staffed with real people, who care about the treatment they provide, their doctors are merely employees with a limited ability to respond outside of the corporation’s practices and policies. How much this is an issue is a personal determination that will vary from practice to practice. If you want to consider offers from DSOs, you are still well-advised to retain a dental practice broker as the issues that arise in the sale to a private buyer are mostly the same as the ones involved in selling to a DSO.

Private Equity Groups

By contrast, private equity groups typically don’t buy practices, they invest in them. Private equity groups are investment management companies that provide financial backing, as an investment tool, in either startups or operating business. A private equity firm generally doesn’t have an interest in being involved in day-to-day operations. Rather, they are looking for a return on an investment.

A common mistake people make when thinking about private equity investments is believing that the investor is looking for a return from the practice’s existing cash flow: that the investment is given in return for a percentage of the current earnings. If that were the case, private equity investing would not be a good investment tool. Why would you need an investor if you already are making enough profit? Private equity investors are not satisfied with your practice’s status quo. Rather, the investor sees an opportunity for growth and wants you to expand your practice with their equity.

Therefore, rather than selling your practice, you are, in effect, becoming a manager of the private equity group’s investment. Their investment gives them leverage over you to expand your practice. If you are looking to expand, this can be a good way to do it, rather than financing through a bank and increasing your debt load. You can greatly increase the value of your practice, the return on which you will reap when it does come time to sell. If you aren’t interested in becoming a business manager over a group of practices, then private equity investing is not a good way to go.

Currently, there is a merging of DSOs and private equity, with investors seeing DSOs as a field ready for harvest. In March 2018, Heartland Dental announced that a private equity firm had acquired a 58% stake in the company, in which it was valued at $2.8 billion. Other private equity groups have made investments in DSOs, but the jury is still out on whether Heartland Dental will be “a kind of Walgreens for the dentistry business” or whether the company is overvalued and overleveraged.

Is it a Good Idea to Sell to a DSO?

Again, this comes down to some very personal choices that must be carefully considered when you put your dental office for sale. While the ADA put the number of doctors working in DSOs at about 7.4% in 2017, it noted that for younger doctors (ages 21-34), that number jumped to 16.3%.  Doctors are leaving dental school with unprecedented amounts of student loan debt, which can make banks worry about financing for the purchase of a practice, especially when the doctor is lacking hand speed and production capabilities that only come with time and practice. The bank wants to make sure it gets its return, too. Young doctors are finding a safe bet is to join an existing practice to gain that experience, and DSOs can give them that time while offering a potential to build equity in the practice.

On the other hand, DSOs have gotten themselves into trouble with practices that indicate they may be more concerned about their bottom line than responsible treatment and ethical practices. Earlier this decade, a U.S. Senate investigation determined that some DSOs were providing unnecessary treatment to children to collect more from Medicaid. Also, early last year Benevis LLC, which operates Kool Smiles clinics in several states, settled with the U.S. Department of Justice and paid a fine of $23.9 million plus interest for submitting false Medicaid claims.

ddsmatch Southwest Can Help You Get What You Want When You Put Your Dental Office for Sale

At ddsmatch Southwest, we take the experience of hundreds of successful dental practice transitions from all across the country and put it to work for you. As seen here, there are a lot of tough questions about how to get to where you want to be when you put your dental office for sale. We can help you review your options, look at the benefits and drawbacks of each, and offer unbiased advice about what choice is most likely to get you to your goal. Our definition of a successful deal is not just one where papers are signed and money changes hands. It’s one where the parties walk away happy, feeling like they got a good deal. Contact us today and find out what we can do for you.

Are You Thinking About Selling Your Dental Practice? You Should Be

If you aren’t thinking about selling your dental practice, you should be. We’re not saying you should sell it now. Rather, you should be thinking about when that day does come and what you can do now to be better positioned to maximize your practice’s value. Here, we’ll discuss some things that you can do to start preparing, no matter where you are at in your career.

Start Planning Early

We all hope to be able to retire on our own schedule, but life often has other plans in mind for us. Should you become ill or injured, should you fall prey to a repetitive motion disorder, you may find the time to sell your dental practice arriving sooner than you think. And while we are not advocating you should assume the worst, the fact is that dentists who are compelled to sell their practice on a short timeline (less than one year) are more likely to get less than the actual value of their practice.

Conventional wisdom puts planning for a dental practice sale at a minimum of between two to four years. Here at ddsmatch Southwest, we say that if you think you are five years or less out from retirement, it’s a good time to have your practice evaluated by an outside consultant who can advise you on any changes or upgrades that will bring you a return in the sale. For doctors in that five year range, we offer a free, no-obligation Practice Transition Assessment.

Starting early has a couple of benefits. First, you need to realistically consider how long the transition will take. It’s not just about doing a bit of spit-and-polish, signing papers, and handing over the keys. Depending on your practice and the buyer, you may want (or need) to stay on for a period to help the buyer transition into the practice. If you’re counting the days until you can spend your days on the golf course, keep this in mind.

Also, some of the upgrades you may need to make for your practice to be reasonably attractive to a buyer may take time to implement (if you have issues with your patient base) or to make profitable (if you need to upgrade equipment or software). If your upgrades are expensive, or require a learning curve, you need sufficient time before they stop costing you money and start earning you money.

Don’t Mentally Retire Before You Actually Retire

The closer those last days or weeks or months get, the more tempting it may be to start easing into retirement. Don’t. When the buyer’s bank assesses the value of your practice, they aren’t going to rely on numbers that are five or ten years old. They want to know what the practice is earning right now and in the recent past—one to three years. If you’ve started cutting your hours, referring more work out, cancelling insurance plans, reducing the number of patients, or doing less marketing, you run the risk of devaluing your practice.

Know What Gives Your Practice its Value

This can be summed up in three simple words: active patient records. A nice clean office with up-to-date and well-maintained equipment and a pleasant, professional staff are all great things to have. But, in and of themselves, they have little value without a strong and growing patient base. Most importantly, you need to be able to show a steady stream of work for the 18 months prior to your valuation.

When you sell a dental practice, what you are really selling is you active patient records. This, along with your brand (the practice’s reputation and goodwill in your community) account for 75% or more of your practice’s value. These “intangibles” are by far your most valuable assets. Their value is increased when paired with an efficient business. If you have high overhead costs, you’ll get less than a comparable practice with a better cash flow. The buyer is going to look for a practice that can provide a reasonable income to cover their living expenses after servicing the debt of buying the dental practice. So, a strong active patient base plus good cash flow yields a better sale price.

Some other considerations on increasing cash flow and building value include:

  1. Raising Fees. Too frequently, older doctors are reluctant to raise their fees. Given that profitability is a major driver of a dental practice’s value, you must avoid making this error. Raising your fees each year may be the best way to guarantee increases in collections and profitability, which benefit you both immediately (more income that you get to keep in the practice) and at the time of sale (higher market value). Also, your buyer is going to want to have fees that are in line with the current market but not have to immediately raises fees after the transition, possibly driving away patients.
  2. Overhead. Keep a careful eye on all of your costs. Create a budget each year with specific amounts allocated for each overhead category. Be sure you are aware of current industry standards to make sure you aren’t overpaying for lab or supply costs. If your practice isn’t growing, you cannot afford to give annual cost of living raises. If this is the case, you may instead consider bonuses that are tied to increased collections. The lower your overhead, the greater your profitability, and, therefore, the higher your market value will be.
  3. Keep marketing. Just because you are retiring doesn’t mean your practice is going stop running. It might surprise you to learn how often doctors approaching retirement will cut back on marketing efforts or stop them altogether. As discussed above, the lending bank wants to know how your practice is performing right now and in the more recent past. You need your numbers to be on a consistent upward trend. A dip at the end will be a red flag that the practice has a problem. Also, make sure that you are keeping up with modern marketing trends. Your first efforts should be on referrals. But you should also update your website, invest in online marketing tools (search engine optimization, or SEO, to make sure you show up in online searches), and get patient reviews on Facebook and Google and post them on your own website.
  4. Update your office and technology. If you are closer to retirement (under two years) you can make cosmetic improvements to your office. First impressions matter (and ongoing impressions matter to your patients). If you have more time, you should consider your equipment and technology. Your buyer will likely be young and more familiar with the latest technology. However, you will need time with new tech to learn and become proficient. Once you do, however, it can bring you a return by increasing your patient flow and your treatment acceptance rates. These, in turn, will be reflected in your books as increases in profitability.

 

 

Think About the Impact of a Transition Plan on the Practice

When selling a dental practice, it’s common for the seller to stay on for a period of time. If your buyer is not already working in your practice (such as an associate or partner), this means the practice will have to support an additional doctor. You need to consider how that will impact cash flow and any existing practice debt, and whether you have sufficient revenue to support another doctor. The bank will certainly consider this when determining whether its willing to finance the purchase. These details need to be carefully considered but may be hard to predict, as what the buyer wants will impact how long you need to stay on, if at all.

ddsmatch Southwest Can Help You Sell Your Dental Practice

At ddsmatch Southwest, we bring the experience of hundreds of successful dental practice transitions, of all types and from across the country, and put it to work for you. We use that experience to help you identify a buyer with a strong skill set and personality match that will carry on the practice and legacy you have worked so hard to build. We ensure that every detail is covered, help you avoid common mistakes, and ensure no step is overlooked.  Plus, your confidentiality is always guaranteed. Contact us today and find out how we can help you meet your practice transition goals.

What to Look for & Look Out for in Buying a Dental Practice

Buying a dental practice will be one of the biggest—if not the biggest—decision of your career. It’s also the biggest risk, so it will pay, in both the short and long run, for you to be careful, get reliable professional advice, and do all of your due diligence. This is because, absent an ability to show fraud, once the practice keys are in your hands, there will be very little you can do about any overlooked details. And this landmark moment will cast a long shadow over your career.

Here at ddsmatch Southwest, while we represent the interests of our client, we view a successful transition as one where both the buyer and seller are happy with the terms and outcome of the deal. Most frequently we represent sellers (although we also have services for buyers and dental associates) but we think it’s important for those looking to buy a dental practice to know what they should look for, and what they should look out for, when considering a dental practice for sale.

What to Look for When Buying a Dental Practice

The Practice’s Financials

This might seem obvious, but it can also be complicated. It’s not just so simple as reviewing a profit and loss statement. You should expect to be provided with all recent financial statements and tax documents, along with the records of expenses for things like payroll, employee benefits, insurance premiums, continuing education, and reimbursements. You want to be able to know what percentage of collections is covering the practices overhead. That is, what does it really cost to run this practice?

The Practice’s Valuation

The seller will give you a number of what they think the practice is worth. You need to know how they reached that conclusion (the valuation method) and what are the bases of that valuation. Don’t be satisfied with the prior year’s cash flow, or a few recent years’ of cash flow. You should be prepared to review the entire history of the practice. That will tell you the whole story. For more on valuation methods, see our post “How Much is My Dental Practice for Sale Worth?

The Practice’s Brand and Goodwill

While the financial numbers are quantifiable, and easy to evaluate if properly recorded, the intangible assets—the practice’s reputation in the community and how closely it is tied to the selling dentist—are major factors in the practice’s overall value. This can be determined by looking at patient records which will show you patient retention, patient turnover, new patient referrals. These are indicators that the practice is viewed positively in the community.

Relatedly, when buying a dental practice, you need to know how the selling dentist intends to transfer that goodwill to you. This may or may not be something the selling dentist has thought about. It may mean that the selling dentist will want (or need) to stay on for a while to ease patients through the transition. How this works will vary from practice to practice. It’s a good idea to retain your own consultant or broker to help evaluate this and give recommendations of what will work best.

If the selling dentist is not retiring, you may need to obtain a non-compete agreement to keep the patients from being syphoned off.

The Practice’s Patient Base

In addition to what is discussed above, it’s a good idea to look at things such as the types of insurance the practice accepts and how many patients are with each plan, the patient demographics (older patients or young families, for instance), and how patients are retained. This information can help you project future cash flow.

What are the Seller’s Plans?

Is the selling dentist intending to stay on as an employee or contractor? If so, for how long? Does this match with your vision for the practice? While it is common, you should be wary of a selling dentist who may want to exert control rather that ease transition. However, if the selling dentist doesn’t want to stay on, you should consider whether you will have access to the doctor in case you need to consult regarding past patient treatment plans or accounts receivables.

What to Look Out for When Buying a Dental Practice

Pressure to Rush into Closing

While it may be understandable for a seller to be anxious, do not allow yourself to be rushed. Any step that is skipped will only run to your detriment, not theirs. It’s in your interest to be cautious and take the time necessary to complete all of the due diligence. A seller rushing you into buying a dental practice may be hoping that you’ll overlook a defect. It’s simply not worth the risk.

Seller Refuses to Disclose Information

If a seller refuses to make the requisite disclosures, or suggests you don’t need to see complete sets of records, or otherwise obscures information, it is likely there is something they don’t want you to see. While a dental practice can be a complex operation with legitimate issues of confidentiality, you have absolutely no incentive to overlook any detail, especially those being requested by your team of professionals (lawyer, accountant, business valuator, broker).

Declining Production or Poor Patient Retention and Recall

Sometimes selling doctors cut their hours in anticipation of the practice transition—looking forward to retirement, for instance. While this is not the best practice, it does happen. However, if there is declining production, be sure to determine the cause and make sure there isn’t a larger problem that you will be buying. The same goes for low patient retention and recall numbers. If you see this in the records, you need to know why. If the patients are going to another practice, you need to know where and why. You may want to ask the staff about this—often they have a good sense of patient issues. If the selling dentist won’t give you access to staff, that’s another red flag.

Employee Turnover

There are a lot of factors why employees leave (or are dismissed). But if the practice records indicate an unusually high turnover rate, it could indicate that wages are too low, meaning you may have to increase your payroll and benefits costs. It could also mean that the selling doctor is either poor at hiring or a bad manager. This can have an impact on the practice’s reputation and goodwill, if patients are having negative experiences with the staff.

Overreaching Non-Disclosure Agreements (NDA)

You should expect to sign an NDA before you get anything but the most basic information about a practice. For a variety of reasons, the selling doctor has a strong incentive to not let it be know the practice is for sale. However, if the NDA includes terms such as trying to establish an exclusive relationship with you as a prospective buyer or imposes an unethical requirement prohibiting you from looking at other practices for sale, you should not sign. When buying a dental practice, you need to keep all of your options open.

ddsmatch Southwest has Experience Matching those Buying a Dental Practice with The Right Seller.

When we look for the right buyer for our sellers, we consider your lifestyle and location goals, clinical skills, personality, and professional needs before we present you with a confidential list of sellers seeking to transition out of practice or bring on a new partner or associate. The ideal ddsmatch Southwest buyer candidate will have a comparable clinical skill set as the seller, associate experience, a desire to reside long-term in the geographical area of the practice, and requisite financial qualifications. If you are considering buying a dental practice in Texas or New Mexico, contact us today to review our extensive network of dental practices.

Build Value Before Putting Your Dental Office for Sale

There are typically two phases a dentist goes through when thinking about the value of their own dental practice. The first comes early, when a dentist is concerned with take home income—that is, “How much can I earn right now?”  The second comes later, when the doctor begins to think about transitioning the practice. Then the doctor is concerned with “What is my practice worth?” The fact is, however, many things that determine what the practice is worth are built in early in a doctor’s career. Here are some important things to consider early on that will pay off when you are ready to put your dental office for sale.

Your Value is in Your Brand

“Brand” is a hot buzzword right now, as social media influencers are concerned about their personal brands. This sort of talk can be annoying. But remember what a brand actually is. It began as a mark to identify livestock (and, later, goods in commercial markets) to denote ownership and deter theft. Presently, the term has broadened to encompass an overall experience of a customer that distinguishes an organization or product from its competitors. For a dentist, it can be your own name, but it’s really about the good name your practice has, and your reputation among your patients, and in the community.

A strong brand is important for a dental practice for the purpose of attracting and keeping patients. Without it, it’s unlikely a practice will have a strong patient base. And while you may look at your practice and see deep patient files, lots of new patients each month, high referral and case acceptance rates, and a full appointment book scheduled out for several weeks, what you really have to offer when you put your dental office for sale, is a strong brand. That is what the buyer is paying money for.

This is important to consider early in your practice because you want a strong brand that is not explicitly tied to your name. If you open an office as John Doe, DDS, built a solid reputation of goodwill in the community, and are known as a provider of excellent care and quality service, what will happen when John Doe is no longer part of the practice? Patients will find a new dentist (studies have shown that up to 40% of patients will leave under these circumstances). Buyers know this and may not be willing to pay as much for a practice that is too explicitly bound up with a single dentist’s identity.

While you want to be known as a good dentist, it’s more important for the life of your practice to survive some inevitable patient attrition after the practice transition. This can be easy to address early in one’s career, when one’s name is less well known. However, even for established dentists, rebranding to a more general practice name that leverages existing affinities in the community is not a risky move and can get your more when you transition your practice.  For instance, in Farmington, Utah, a historic hotel built from stone was refurbished and operated as “Rock Hotel Dentistry” to build on existing goodwill in the town’s pioneer heritage. Consider local affinities you can leverage in building your own brand.

Be Properly Organized as a Business

In a large corporation, each department has a head. In a small business, too often the owner tries to do it all. The fact is, as a practicing dentist, you can’t. You simply don’t have the time. This is why it’s important to have a solid organization with clear lines of responsibility and a consistent monitoring program, or else you’ll find details being overlooked and balls being dropped.

How you organize may be unique to your circumstance. However, you need to have structures organized for every aspect of your clinical care, operations, accounting, marketing, and personnel. You, of course, remain CEO and are ultimately responsible for everything. But this doesn’t mean that you can’t leverage your staff’s skills or outsource things such as marketing and accounting.

On the point of accounting, it’s more important than ever to have a solid set of well-organized and detailed financial records. Buyers are not content with a simple report of production and collections. They now want to review earnings before interest, taxes, depreciation and amortization (EBITDA), gross margins, assets, the lease agreement, and patient base. As with every aspect of your organization, the more prepared you are (and the sooner you start), the more likely you are to get what your practice is worth when your put your dental office for sale.

Once you have a smoothly running operation, it’s important to regularly review each part to see where you can refine processes and update your business systems. In part, you want buyers to be impressed with your efficiency and organization. But, importantly, this can translate into higher profits for your and a more quantifiable increase in value for buyers. In a study by Deloitte, businesses that use state-of-the-art business and human resource systems can average cost savings of 22% per employee. That kind of cost savings can be passed along through the practice transition, making your practice more valuable.

On the same point, up-to-date systems for re-care and reactivation will ease the transition for the new dentist, an attractive selling point. You can do the same with automated systems for submitted claims and receiving payments from insurance providers. For more one this, read our recent article about how back-office automation can build value for your practice.

Leave Profits in the Business

A common practice among small business owners is to pay the employees, pay the bills, and take the rest home. This might seem like a good idea in the short term, however, what it’s really doing is obscuring how profitable your practice is for potential buyers.

A better practice is to pay yourself a salary just as you would an associate, typically about 30% of collectable production. This makes your take home pay a predictable recurring expense, with the remainder of your practice’s net income as profit. Your numbers will be more clear and concise, with the value of the practice more easily ascertained—the profitability will be easily quantified in your financial records, how you need it to be when it’s time to show them to potential buyers.

Also, this method makes a clearer distinction between you, personally, and your practice as a business organization. This is important because, first, you don’t want to have a murky and confusing set of books to open to potential buyers. But, more importantly, the protections that come from limited liability are lost when the owners commingle business and personal funds and expenses.

ddsmatch Southwest Can Help You Prepare Your Dental Office for Sale

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 or improvements to increase value. We never advise a doctor to change for the sake of change, but only where we see areas that will add value in a sale.

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

Plan To Sell a Dental Practice?

The short answer is, much sooner than you probably think. The long answer is that it depends. Because of the variables involved, no two dental practice transitions are alike. However, a good rule of thumb is that you want to start actively planning for selling a dental practice around ten years before you think you want to retire. Below, we’ll discuss some of the variables and break the timeline down a little bit to give you a better idea of what you should think about doing and when.

Variables Impacting Transition Timelines

Dentist Take-Home Pay

While dentists regularly show up on the list of highest paying jobs in the U.S., you probably don’t need us to tell you that how this actually translates into money in your own pocket can vary widely. For instance, the latest numbers from the Bureau of Labor Statistics report the median salary for a dentist is $158,000. That number will go up and down in real life depending on where you practice and what kind of work you do (oral surgeons and orthodontists have markedly higher median salaries at $208,000 and up, while general dentists come in slightly lower, at just over $151,000).

Also, consider in a private practice how your collections vary from year to year. And, like most small businesses, your earnings ebb and flow with the larger economic well being of your community (consider the frequency with which you are asked to negotiate on fees with patients who may be experiencing financial difficulties).

If your potential buyers are fresh out of dental school, you need to consider that the costs of education, and subsequent debt load, is rising. The class of 2018 reported an average student loan debt of $251,869 (public universities) and $236,133 (private universities). When combined with the financing to purchase your practice, this is a significant amount of debt for a new dentist to have to manage. They’ll need to carefully consider what they need to realistically earn to stay afloat and whether the practice they are looking to buy has a record of consistent collections.

Location of the Practice

This is, at its most basic level, a consideration of small towns and rural areas versus urban and suburban markets. Urban centers have more people and, therefore, more potential buyers. In an urban area, once a qualified buyer is located, a dental practice transition close in six to twelve weeks after the practice is valued. In a rural area, it can sometimes take two to three years before a qualified buyer is even located. This is not even considering the economic health of your community: whether its a growing city, a shrinking town, an area that has lost major job providers, etc. The stronger your local economy, the faster you’ll probably be able to sell. However, you can have problems at the other end of the spectrum as well. A highly successful practice that is worth a high sale price may be out of reach to most buyers.

When the Dentist Thinks They Will Retire

According to a 2010 ADA survey, dentists under 40 years of age reported that they anticipated retiring at the average age of 61. Dentists over 40, however, reported that they anticipated retiring at the age of 67. A possible reason for the change is the more experience a dentist has, the more they realize what is involved in retiring and what has to be done to get ready when selling a dental practice. For this reason, the idea of planning your transition ten years out might seem like too much, but, when you are inside that process, you’ll understand.

Planning for Selling a Dental Practice

No matter how far off you think you are from retirement, thinking about the recommendations below will never hurt. And even if you inside ten, or five, or two years from transitioning your dental practice, there are things you can do to prepare that will add value and help you get the best price you can get.

Ten Years (or More) from Dental Practice Transition

This is a good time to consider your equipment and office technology. Replacing equipment and making high-tech upgrades can be costly. If you are closer to retirement, these costs may not be worthwhile for you. This is because, first, you need time to be able to pay off the equipment. Second, you need time to become proficient on the new equipment or software before you and your staff become more efficient in a way that is reflected in your earnings.

Costly equipment and technological upgrades only build value once you own the equipment outright and its earning you more money. If you don’t have the time for this kind of investment, you shouldn’t do it, as it can eat away at your bottom line in the short term. If you do have the time, it’s a good idea to bring your office up-to-date.

Five to Ten Years from Dental Practice Transition

First, you should plan on reducing your specialty procedures, making your practice as mainstream as you are able to by about five years out from your practice transition. Second, you should consider whether the improved efficiency from your equipment and tech upgrades allows you to keep more things in-house—are there things you referred out that you now have time and equipment to keep (e.g. making crowns)? Keeping more production in-house allows you to keep that money in-house as well.

Additionally, you should look at each aspect of your office and consider where your processes and procedures could be refined or made more efficient. If you haven’t done so already, it’s imperative that you switch to a digital record system, taking your office paperless. No young dentist is going to find an old fashioned filing system appealing. Rather, it will look like an old relic (which it is) that they have to deal with (which they won’t want to do).

This is also a good time to bring in a dental practice consultant to review your practice and give advice on how it could be improved and additional adjustments that could impact valuation before you try and sell your dental practice. Here at ddsmatch Southwest, we offer a free, no-obligation Practice Transition Assessment aimed at dentists who are five years out from transition. In our assessment, we look at your local market, suggest physical and image improvements, advise on potential investments to increase value, review present and future staffing integration, and help you establish the best transition options for your practice.

Two to Five Years from Dental Practice Transition

Here you want to look at your fees and determine where you can raise them. A good place to be is within the 80th percentile in your market for comparable procedures and services. Consider ways to increase your patient base or services. However, again, avoid adding specialty procedures. At this point, you don’t realistically have the time to be properly trained and gain the experience to be competitive.

You should also review your staff salaries and consider whether they are both fair for your local job market, and whether they adequately reflect each staff member’s qualifications and abilities. If your staff salaries are too low, you risk losing good employees. Staff turnover this late in the game can signal problems in the practice to potential buyers and can negatively impact patient retention (after all, patients interact more with staff than with you). Conversely, if your salaries are too high, that will reflect lost value in your practice. Experienced and reliable staff who feel valued are most likely to stay through transition, which will be an important selling point for buyers.

At this point, you should no longer consider expensive equipment or extensive remodeling. Instead, your focus should be on cosmetic improvements, like flooring and paint. Look closely at your office, and solicit input from your staff, for wear and tear that can be easily—and inexpensively—repaired. Your goal here is to make a good first impression on your buyer with a well-tended office.

Less than Two Years from Dental Practice Transition

If you haven’t already, now is the time to retain a dental transition expert. Whomever you get should be experienced, with a solid track record of successful transitions and happy clients. A good transition broker can help you put together the team you need (business valuator, lawyer) and make the final preparations for selling a dental practice.

Put ddsmatch Southwest’s Experience to Work for You

Here at ddsmatch Southwest, we bring the experience of hundreds of successful transitions from all across the country, in all kinds of markets, and put it to work for you. The proof of this are in the testimonials from our many satisfied clients. Your goals are our goals. Contact us today and find out how we can help you meet your practice transition goals.

Add Value to Your Dental Practice 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.

Why Are You Selling Your Dental Office?

There was a reason you went to to dental school. You wanted to go, prepared, got accepted, went, graduated, and began to practice. That takes a lot of internal motivation sustained over a long period of time to achieve a difficult end.

What was your motivation? Have you lost sight of it?

When you come into the office each day, do you look forward to your work? Or does one day blur into another, punctuated only by fluctuations of stress?

Put simply, when you think about putting your dental office for sale, is it with a sense of accomplishment? Or is it with longing for relief?

To be sure, being a dentist and running your own office is stressful. In addition to dental care, in any given day, you may also have to be a bookkeeper, a human resources office, and a general manager. No one is invested like you are. It can create a sense of being all on your own, and you’re not alone if you feel a little lost under the burden.

If you’ve lost your sense of purpose, it will affect every aspect of your practice—starting with your staff and bleeding out to your patients. Once patients sense it, they will be less likely to return.

But, you can regain the sense of purpose that you once had. In fact, you must if you want to maintain the long term success for your practice.  The good news is, while turning this sort of ennui around isn’t the easiest thing in the world, you might be surprised to find a few simple things will set you back on a path you feel good about.

Remember Why You Did This

Think back to when you first decided to go to dental school. What were your reasons? Think about your education. How did that change your purpose and sense of your future?

Finally, think back to when you graduated and were preparing to start, join, or buy your own practice. Why did you want to do that? What did you imagine it would be like?

Those last two questions may be the most important. The reason why you wanted your own practice is still there. The problem is probably in the disconnect between what you thought it would be like, and how it is in reality. Take time to consider that just because something turned out differently than you expected, doesn’t necessarily mean its gone wrong.

Once you’ve remembered your purpose, consider where you are at now. What’s good about your practice? You have to have an accurate sense of both the positive and negative to make an objective assessment of your practice’s success.

Like many people, maybe you tend to look at what’s wrong over what’s right, and the human brain is wired this way.  But in the modern world, happiness depends on taking time to appreciate all of the parts that make up the whole.

Once you have a sense of what’s working, then consider what isn’t. If the problems are easily identified, they are probably more easily solved with actions such as creating new office practices or policies, or by replacing or training staff.

If the problems are harder to pin down—indicating a more systemic problem—consider bringing in a business consultant to assess your practice and make recommendations. Often an outside observer can view the situation more objectively, putting them in a better position to identify what works and what doesn’t.

Consider having one-on-one conversations with your staff to get their perspective on where things are at. It’s important to do this one-on-one, rather than in a staff meeting. It takes more time, but you’ll be sure to get everyone’s input and they’ll speak more freely.

Once you’ve done these assessments, reconsider your original purpose. Is the way your practice is operating moving you toward that purpose, or away from it? Is the purpose still relevant?  

Have the ways you’ve changed personally, especially after experiencing dentistry as a practicing doctor, changed?  What it is you really want to accomplish? If so, consciously revise your purpose.

All of this is to make sure you are on course to achieve what you set out to accomplish (or move you toward your new goal). As noted above, a practice without purpose is likely to suffer.

When you put your dental practice for sale at the end of your career, you want to see that you are transitioning your practice at its peak, not when its fizzled out. Once you know what’s going well and what needs to be changed, you can create a plan to right the wrongs and move forward in a positive direction.

It Takes a Village (or, at Least, Your Staff and Advisors)

Once you’ve reengaged or revised your career purpose, you need to bring your team on board. You team includes all of your employees, your outside professionals (accountants, lawyers, consultants, etc.), and your informal advisors— those colleagues, friends, and family that you trust and rely on for advice.

Just as you can’t run the whole practice by yourself, you won’t be able to course-correct your office to meet your purpose by yourself. When you are discussing changes with staff, they need to understand the “why” behind the change so they’ll be bought-in. If the staff doesn’t understand the “why,” they’ll be more reluctant.

There is no need for anything but transparency here. In fact, staff can be more motivated by the idea that they are contributing to the success of the office—feeling like an important part of positive change, rather than just a replaceable cog in a system.

Another benefit of enlisting your team is that it forces you to clearly articulate your purpose and your goals for achieving that purpose. You’ll find out how well thought out your ideas and plans are. Gaps will be illuminated and can be filled in at an early stage rather than later when a problem arises.

You’ll also get feedback from your team. Are they enthusiastic or skeptical? That can indicate a sense of how realistic your plans are. Skepticism doesn’t necessarily mean your plan isn’t good, it may just be missing some intermediary steps to get from A to B before you can get to C, D, E, and so on.

Career Goals Impact Post-Career Goals

We’ve discussed your purpose for your career, however, there is something important that is largely depended on your career success— what happens after you put your dental practice for sale.

You can’t practice forever. You probably don’t want to. How do you envision your retirement? Where will you live? How will you live? What will you have to enjoy once you’ve set down your handset for the last time?

Being able to choose how you live in retirement is dependent on building value in your practice now. If you have an idea in mind of where you’d like to end up, you need to map out a clear path to get there. Without a path to follow, who knows where you’ll end up? Regardless of where you are in your career, it’s not too late to start charting that course. And it’s never too early.

ddsmatch Southwest Can Help Prepare Your Dental Office for Sale

If you are in the later stage of your career, you can benefit from a Practice Transition Assessment. This is a free service offered with no obligation and designed for doctors considering transitioning their practice in the next five years.

As part of this assessment, we will discuss with you the the current local dental practice transition marketplace and help you identify the best transition options for your practice. We will suggest practice physical and image improvements and advise on potential practice investments to increase value. This will help you understand where your practice stands and where you can get it to before placing your dental office for sale. Contact us today and find out how we can help you achieve your purpose.

Transition Out of Your Dental Practice

Change will come whether we want it or not. While we cannot always control outcomes, we are better prepared to influence it when we are ready. For instance, when you are ready to sell a dental practice, you can’t control who will be interested and what they are willing to pay, but you can position your practice as one that is stable and successful in a way that will attract buyers willing to pay for value. So we are better off proactively anticipating and preparing for change rather than passively waiting for it to happen to us. And, honestly, sometimes it’s the simplest changes that yield the biggest reward. A change of perspective can help us see our professions, our lives, ourselves in new and illuminating ways.

In this second part of two articles this month that focus on good and bad business practices, we’ll take a look at some simple things you can do that can have a big impact on your business.

Change Your Point of View

If your practice isn’t quite what you want it to be, but you aren’t sure what you can do differently, the first step is to take a wider perspective. Remember, it’s not just a way to provide quality dental care. And, it’s not just mechanism for generating revenue. While it’s both of these things, it’s more. It’s a place of employment for your staff. It’s an essential service for your community. And it’s a source of relief and healing (or fear and pain, depending on the person) for your patients. Think about how your practice looks from all of these perspectives, and the tangible and non-tangible benefits you receive.

Next, it helps to take a look at the business from purely a business perspective.  While it may seem crass to think of patients as “customers,” that is what they are at a certain level: people exchanging money for services with an expectation of quality. You have to look at your practice as a business and you have to run it like a business.

While there are things particular to dentistry that make it unique, there is a lot that is typical of any small business. If you don’t have any business training or experience outside of running your office, take some time to educate yourself.

You can start with some books on basic business practices. Maybe take a course in business management. There are some specifically designed for the dental profession.

None of this will diminish the quality of care you provide. It can, however, improve your patient’s experience and your staff’s experience. Happy customers and happy employees yield a more successful business.

Set Specific Goals (and Revise Them)

If your original goal was to have your own practice, congratulations! You did it! But now what? Without a destination in mind, you are more likely to wander listlessly.

You can start with a long term goal such as those for your retirement. Where do you want to be when you finally think, “It’s time to sell my dental practice”? Where do you want to retire? How do you want to retire? What do you need in the bank to get to that destination?

Once you’ve done that, you plot the route. If that’s 20-years off, set goals of where to be in 5, 10, 15 years. Then break it down even further. How do you get to that 5-year goal?

When you get to that 5-year mark, re-evaluate. Is your end goal the same? Are your intermediary goals realistic? Has your practice or your market changed?  

This way you ensure you are always on course. Without this kind of map, it’s harder to predict the outcome.

Write it All Out

When you have your goals set, make a detailed plan, step-by-step, of how to reach that first goal. And then the next, and then the next. As you do this, look closely at what you are proposing. Are these steps doable? Do you have the tools, resources, and skills to make the steps? If not, your plan is probably not feasible and will need to be revised (this may also point to unrealistic goals).

On the other hand, it may also be determined that you’ve set your sights too low. By getting out all laid out on paper, you will have a better view of what is attainable and what’s not. You will also have a better sense of the work involved. This is important because time is your most precious resource, and you must be certain that you are investing in where it will bring the greatest return.

Don’t Fall for the Entrepreneur’s Fallacy

As a small (or not so small) business owner, you are an entrepreneur. Your vision, determination, and work ethic is admirable. But, just because you’re good at being a dentist doesn’t mean that you are necessarily good at running a business, or anything else for that matter. Many entrepreneurs, inspired by their own intrepid spirit, often come to believe that no one can tell them anything. Don’t fall into this trap.

Bring in an outside consultant to look at your business, assess its value, and recommend improvements. You are a dentist. You are not an accountant. You are not a lawyer. And you don’t need to be. Frankly, it’s not worth your time.

If you try and do everything on your own, it will take you much longer than an outside professional and, frankly, you’ll likely do a poor job. The money you think you’ll be saving by not hiring a trusted expert will be lost in the extra time you spend and the mistakes you’ll make. Others have already made those mistakes. Don’t reinvent a faulty wheel.

Empower Your Team

No one needs tell you that there is too much to do and not enough time in the day. You need a reliable team that you can trust to do their jobs well. By “team,” we mean your staff, your professional service providers (accountants, lawyers, etc.), and the colleagues, friends, and family you look to for counsel and advice.

Look at the non-dental tasks that take up your time. Ask yourself, “Is there someone else who can do this?” If the answer is yes, delegate that task. If the answer is yes, but you don’t trust the team member who should be doing that, it’s time replace that team member. You need everyone in the right seats for the practice to perform its best.

If you are a micromanager, you are probably inhibiting the performance of your team. You fear that if you aren’t closely monitoring something, it’ll go wrong. If your team is competent, you are most likely inhibiting their best performance. Being micromanaged creates feelings of distrust and insecurity, and people perform poorly under those circumstances.

We all perform best when we feel like we have autonomy, the support to do our jobs properly, and recognition for a job well done. These practices result in higher job satisfaction, which creates loyalty and efficiency.  

If your team isn’t competent, it’s time to make hard decisions and bring in a consultant with the right reorganization and hiring skills.  Proper hiring first saves hours of management later.

Invest in Your Own Business

You owe it to yourself to take a dedicated weekend each year to consider the things discussed above. Set goals, plan how to reach those goals, bring in advisors, plot how to develop a reliable, efficient team.

A lot of this is going to require some investment: hiring experts, hiring new staff, training existing staff, making improvements to your office, learning new techniques. But these investments will pay off time and again, the more so the earlier you institute them in your career.

Remember, ultimately your end goal is likely retirement—getting what you deserve when it’s time to sell a dental practice. Don’t be afraid to put money into something that will move you further down that road.

Where to invest will vary from practice to practice, but doing the first three things (setting goals, creating a plan, bringing in expert consultants) will highlight where you can improve the most—that is, where the payoff will be greatest.

ddsmatch Southwest Will Help You Meet Your Goals for Selling Your Dental Practice

At ddsmatch Southwest, we don’t simply broker a sale. We come in early and advise on how best position your practice to help you meet your goal. If you are considering transitioning your practice in the next five years, we offer a free Practice Transition Assessment, with no-obligation, where we advise on potential practice investments to increase value and suggest physical and branding improvement, among other things.

Request a consultation today and find out how we can help you get what you want from your practice transition.

How to Add Value Before Selling a Dental Practice

Typically, a dentist will only consider the value of their practice twice: when they first buy it, and again when putting up the dental practice for sale. Between the purchase and sale, most doctors are more focused on providing care and the daily operations than on building value in an ongoing enterprise. As a doctor considers transitioning their practice, they may consult with a business valuator or other outside expert who may advise on changes to maximize value in advance of selling a dental practice. There may be lost value, however, where a doctor isn’t thinking long-term about how to build value throughout their career.

When it comes to selling a dental practice, the owner must set aside personal feelings and consider what makes it a successful business, where it can be improved, and what factors really will make it attractive to buyers. Some things can’t be changed—location, for instance—but much of it can. Importantly, using smart business practices and up-to-date technology can improve the efficiency (and value!) of your practice more than you might think.

Location, Location, Location

While you can’t change your location, you can look closely at your location and see whether you are really meeting the needs and demands of your market. If, for instance, you started your practice in an area where the demographics skewed towards young families and addressed those needs, after 25 or 30 years, you will likely have a population that includes more middle-aged and older patients. This means more restorative work, less pediatric. The question here would be, have you adapted your practice—your services, your marketing, your equipment—to reflect this?

If not, your practice may have less value, as a buyer will look at the demographics of your location as they currently are, not as they were when you started. If your practice doesn’t appear well-suited to treat the population in which its located, you may have to accept a lower offer to account for the investment the buyer will have to make in adapting the practice to the current demographics.

If you aren’t ready to sell your dental practice, this is still a good way to adapt and build value. You’ll be better prepared when you do decide to transition. Knowing your demographic market will allow you to communicate to potential buyers how you’ve made the necessary adjustments over time so they don’t have to.

The Right Buyer for the Right Practice

A community can support a wide range of practices— pediatric specialists, ones that focus on cosmetic or restorative work, etc. You don’t need to try and cover all bases for all potential buyers, you just need to be sure that however you choose to focus your practice, that you’re using a good business model and maintaining a solid customer base. That’s what the buyer really wants—a strong foundation on which to build. Knowing your patient base well and having a clear record of services will communicate to the buyer whether yours is a practice they can build on.

But, this means that you should work your niche in a smart way, and you should keep your focus on buyers who are looking for a practice that is like yours. This is where a dental brokerage like ddsmatch Southwest can help. ddsmatch Southwest has buyers looking for all kinds of dental practices in Texas and New Mexico. Our specialty is matching the right buyer with the right practice.

Tangible vs. Intangible Assets

Where is the value in a dental practice? It may include land, a building, equipment, collections, a stable patient base, and growing a growing geographic market. All of these need to be carefully documented for buyers to review. But some of the real value in a dental practice cannot be reduced to spreadsheets—it is found in the intangibles of your brand reputation and the intellectual property of your practice.

Your brand is anything that builds goodwill among your patients, employees, and community. It includes your reputation, customer service (and perception of service), the quality of your work (and perception of that quality), patient loyalty, and employee loyalty. If you are selling your dental practice, you also have to be careful with your patients’ and employees’ sense of security.

The general rule is to not make the sale of the practice public to employees or patients until you absolutely must. Letting the cat out of the bag too early can create feelings of insecurity among employees, leading to potential staff turnover and the loss of team experience, patient relationships, and service quality.  These may be traits your practice is known for. Likewise, while there will likely be some loss of the patient base during a transition, it can be reduced by careful communication about the transition once it’s finalized. You don’t want your sale to go south due to employee vacancies and a dwindling patient base.

Again, a dental broker can help in positioning your message for both your staff and your patients. In fact, ddsmatch Southwest brokers have experience working closely with practices and even actively participating in the staff information meeting as part of the process when appropriate.

Your other great intangible asset is your intellectual property. What is your intellectual property? It is the unique business practices that have made your practice successful over time. Even if you haven’t thought about it explicitly, successful businesses don’t just happen. If your practice is attractive to buyers, it’s because you’ve done something right. That “something right” can often be hard to quantify but it can be reduced to a set of policies that guide the operations of your business. For instance, if you have an informal policy for collecting co-pays or deductibles at the time of service (assuring continued cash flow and reducing collections risk), and your employees and patients understand and follow that policy, then you can commit it to writing and make it a formal policy. These policies, when examined in conjunction with your financial statements, show that the good practices can be relied upon, even after the keys to the practice are handed to the buyer.

Take the time to think about how your practice operates: why you do things the way that you do, whether it’s effective, and what improvements can be made. Then, write out a policy manual that describes the practices and make sure every employee has a copy and is familiar with it. Finally, make sure the policies are consistently and correctly applied in practice. If a policy or practice isn’t working as written, revise it until you get it right. This will be a road map for the buyer to keep the practice running a smoothly and successfully as it did under your management.

The Technology Trap

A common mistake doctors make when selling a dental practice is undervaluing the intangible assets and overvaluing technology. If, immediately before placing your dental practice for sale, you update all of your equipment to the latest and greatest, it is highly unlikely that you will recoup the costs of the upgrades in the sale. You may be better off keeping your old equipment and letting the buyer decide whether and what to upgrade (they’re likely planning on doing so anyway).

The exception to this rule is technology that affects income. This basically means technological upgrades that are made not for the sake of looking shiny and new, but because they are bringing something to the practice that translates into better service, higher revenues, or greater efficiency. For instance, business software might not impact your patients’ experience, but it can streamline your back end in a way that saves time and money by decreasing your overhead, accelerating your cash flow, reducing default rates, and lowering your billing and collection costs.

However, this kind of upgrade is something you should be considering at all times during your practice as a way to build your own revenue and asset value, not only as a means before the sale. If you upgrade your software but don’t have the time to create a record of how it builds value, then a buyer may assume it hasn’t.

Don’t Wait Until You Sell Your Dental Practice, Build Value Throughout the Practice’s Lifespan

Building value effectively is a marathon, not a sprint. Trying to boost value right before transition can be somewhat effective, but you’ll get much further if you are working towards it throughout your career. Owning a successful dental practice requires you to be a business owner as much as a care provider. But, being a good business owner can make you a better dentist. Paying close attention to the business side and considering improvements will translate into a better experience for you, for your staff, and for your patients. Also, by spreading the work over years, you’ll save yourself time and stress when it comes time to transition.

If you are considering transitioning in the next five years, it’s not too late to look how you can build value before you sell. At ddsmatch Southwest, we offer a free Practice Transition Assessment where we will discuss the current local dental practice transition marketplace, establish best transition options for your practice, suggest practice physical and image improvements, advise on potential practice investments to increase value, and review present and future staffing integration. Give us a call today and find out how we can help you meet your practice transition goals.