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.