Whether you are a first time practice owner or someone looking to expand, relocate or add an additional location, the options for financing today have never been more extensive.

When it comes to the types of financing available for the purchase of a dental practice, the most common options are conventional banks, small business loans and seller financing.

Conventional banks who specialize in financing dental practices may provide up to 100% financing. This means a lender may provide the buyer a loan for the full purchase price. Buyers will usually borrow additional money for operating capital or to acquire the seller’s accounts receivable. Some lenders offer this as a term loan or a line of credit or a combination of both.

Throughout the country, small business loans are made available through local lending partners who can offer traditional term loan options. Borrowers are typically required to cover a percentage of the borrowed amount. Depending on the lenders’ expertise the process can be very fluid. Trust your advisors when choosing a small business lender.

Seller financing is where the borrower has a financial obligation to the seller for the amount borrowed. This was quite common many years ago when bank financing wasn’t readily available like it is today for most borrowers. This option is more commonly used today for space sharing situations as a first lien position is difficult to obtain for traditional lenders.

Borrowers too often associate the best deal with the lowest interest rate. Interest rate is important, but it isn’t the only factor that a borrower and their advisors should be focused on. Remember, once the contract is signed, you are the one responsible for making the payments, not your advisor.

Chart with terms of loan and loan amountTerms offered vary from lenders but 10, 15 and 20 year terms are among the most popular selected by borrowers. With student loan debt being what it is these days, a longer term might provide better cash flow for the new owner. Before selecting the term, be sure to know what the principal reduction policy and the prepayment penalty policy is with the loan.

Principal reduction is where a lender provides the borrower the opportunity to reduce the outstanding principal balance by making a payment above and beyond the required monthly contract amount. Know what the lenders policy and limitations are prior to signing their documents. Some lenders have no limits, some limit the amount each year and some do not permit any principal reduction.

Prepayment penalties are quite common. A prepayment fee may be applicable if the loan is being prepaid in full during a restrictive period stated in the contract. The most common prepayment fee is 5% of the borrowed amount in year one and declines by 1% each year with no prepayment penalty after the fifth year. This varies by lender and should be discussed and disclosed prior to executing any loan documents. Prepayment penalties present less concern today for most borrowers and their advisors as today’s interest rates are quite low compared to previous years.

Collateral for most lenders is a first lien position on the business. A personal guarantee of the borrower is also required.

Some non-specialized lenders might limit the loan amount to a percentage of the requested amount. This would require the borrower to inject a percentage of the loan amount from their own personal savings. An additional household guarantor and the possibility of lien position on the personal residence may also be required. Fees could be a flat amount or a percentage of the approved amount. This varies by lender and their expertise in dental lending.

Create a realistic business plan. There are many resources available to provide templates and direction. Some lenders require them and may have their own templates.

No two practices and no two buyers are alike. A buyer’s experience, historical income, savings, credit score, student loan debt, installment debt, credit card debt, household obligations and household income all play critical parts in the underwriting process, decision and what collateral might be necessary to secure a loan.

The practice of your dreams could be right around the corner. Before that day arrives, connect with an expert and be prepared.

We are often asked by potential dental practice sellers what they need to do in order to get their practice ready to be sold. The following are:

TEN TIPS TO PREPARING YOUR PRACTICE FOR SALE

1. PLAN AHEAD
In today’s market, selling a practice is “easier said than done”. It is necessary for you to plan well in advance for the sale of your practice. Depending on your location, metropolitan to rural could be six months to several years.

Dental practice waiting room2. CLEAN UP THE CLUTTER
Don’t underestimate the impact of first impressions. Patients walk in the front door and so do buyers. Most practices have accumulated years of clutter (books, journals, old dental equipment, and artifacts). All areas of the practice need to participate in de-cluttering. Institute a monthly or quarterly clean up so that you don’t draw too much attention to what you are actually planning. Buyers will expect an office to be organized and clean.

3. SPRUCE UP THE DÉCOR
Like the appearance of your home, the practice should look neat and tidy when attempting to sell it. Some low-cost items like carpeting, wallpaper and paint can do wonders for the appearance of an office and enhance its appeal. Make sure all the lights are working and that they are all giving off the same type of light.

4. GET YOUR FEES IN LINE
No buyer wants the first order of business to be raising fees! If your practice has been lacking in updating your fee schedule, do so in preparation of its sale. Fees should be evaluated regularly and adjusted accordingly. There are a number of resources available to help. An average to above average fee schedule shows a patient acceptance of quality dentistry.

5. REVIVE YOUR RECALL SYSTEM
Hygiene usually accounts for around 25% of the practice revenue in a general practice. If your number is less than this maybe your recall system needs a boost. Some aging practices evolve into a voluntary recall system. Instituting an active recall system will not only increase your production, but your active patients and patient flow.

6. TUNE UP YOUR DENTAL AND OFFICE EQUIPMENT
Although it is not advisable to make major equipment purchases immediately preceding the sale of your practice, it is advisable to get your equipment functioning well, and if necessary, replace or add certain items. For example, recovering a dental chair or replacing a cabinet facing are a few items that can enhance the practice’s appearance and productivity. Today’s buyers are seeking more modern equipment and technology. Invest wisely and consult with a trusted advisor before committing.

7. WEED OUT THE “BAD” ACCOUNTS RECEIVABLE
Some practices have accounts receivable that should have been turned over to collections or written off. This should be done on an ongoing basis; however, it is imperative to handle these accounts before the practice is sold.

8. DON’T LET YOUR LEASE LAPSE
With some exceptions, it is important that the buyer have a facility in which to practice. If you lease your space, be sure that your lease is current and that renewal options, assignments and/or new leases are available to a buyer. Most buyers will require financing and today’s healthcare lenders require a minimum remaining term of five years, which can be made up with options. In many cases, the new buyer will be negotiating a new lease for the facility. Caution: please check with your advisors before signing a long-term lease. If your plan is for the next few years, a series of one- or two-year renewal options might be a good choice.

9. MAINTAIN YOUR PRODUCTION
In anticipation of the sale of the practice, some doctors cut back significantly on their schedules, thus affecting the practice’s production, new patients, vitality and ultimately, value. It is critical that the practice’s production does not slide prior to sale. The number one negative effect on a practice’s value is declining revenues. On the flipside, don’t accelerate your treatment plans. Leave some meat on the bone. Buyers and advisors may recognize this and it could have a negative impact on your value.

10. CHECK WITH YOUR ADVISORS
Before you make what may be a “once in a lifetime” decision, you should check with the people you trust the most. Counsel from financial advisors (to check on the financial feasibility of retiring), accountants (to check on the tax ramifications), attorney (to check on any legalities or estate planning issues), and a competent experienced practice broker (to pull the whole thing together) is essential for a successful transition.

“No time like the present” has never been more appropriate than right now when it comes to protecting your practice from any form of an infection. And, while patient well-being is always first and foremost, there’s a secondary concern about an infection incident that can impact a practice – image and value.

Anything that adversely affects your practice can jeopardize the value of your practice if you are thinking about selling it. That is why ensuring standard precautions are followed to prevent and minimize infection are so important.

The Center for Disease Control and Prevention has in-depth guidelines for preventing and minimizing infection in dental health care settings. The full document can be found here.

Hand sanitizer and masks

Standard precautions should include:

1. Hand hygiene
2. Use of personal protective equipment
3. Respiratory hygiene/cough etiquette
4. Sharps safety
5. Safe injection practices
6. Sterile instruments and devices
7. Clean and disinfected environmental surfaces

Hand Hygiene – Performed:

– When hands are visibly dirty.
– After touching any instrument, device, or any other object that may have come in contact with blood, saliva, etc.
– Prior to and following patient treatment
– Immediately following removal of gloves

Use of personal protective equipment:

1. Provide sufficient and appropriate Personal Protective Equipment (PPE) and ensure it is accessible
2. Educate all DHCP on proper selection and use of PPE
3. Wear gloves whenever there is potential for contact with blood, body fluids, mucous membranes, non-intact skin or contaminated equipment.
4. Wear protective clothing that covers skin and personal clothing during procedures or activities where contact with blood, saliva, or OPIM is anticipated.
5. Wear mouth, nose, and eye protection during procedures that are likely to generate splashes or spattering of blood or other body fluids.
6. Remove PPE before leaving the work area.

Respiratory hygiene/cough etiquette:

1. Implement measures to contain respiratory secretions in patients and accompanying individuals who have signs and symptoms of a respiratory infection, beginning at point of entry to the facility and continuing throughout the visit.
     a. Post signs at entrances with instructions to patients with symptoms of respiratory infection
     b. Provide tissues and no-touch receptacles for disposal of tissues.
     c. Provide resources for performing hand hygiene in or near waiting areas.
     d. Offer masks to coughing patients and other symptomatic persons when they enter the dental setting.
     e. Provide space and encourage persons with symptoms of respiratory infections to sit as far away from others as possible. If available, facilities may wish to place these patients in a separate area while waiting for care.
2. Educate DHCP on the importance of infection prevention measures to contain respiratory secretions to prevent the spread of respiratory pathogens when examining and caring for patients with signs and symptoms of a respiratory infection.

Sharps safety:

1. Consider sharp items (e.g., needles, scalers, burs, lab knives, and wires) that are contaminated with patient blood and saliva as potentially infective and establish engineering controls and work practices to prevent injuries.
2. Do not recap used needles by using both hands or any other technique that involves directing the point of a needle toward any part of the body.
3. Use either a one-handed scoop technique or a mechanical device designed for holding the needle cap when recapping needles (e.g., between multiple injections and before removing from a non-disposable aspirating syringe).
4. Place used disposable syringes and needles, scalpel blades, and other sharp items in appropriate puncture-resistant containers located as close as possible to the area where the items are used.

Safe injection practices:

1. Prepare injections using aseptic technique2 in a clean area.
2. Disinfect the rubber septum on a medication vial with alcohol before piercing.
3. Do not use needles or syringes* for more than one patient (this includes manufactured prefilled syringes and other devices such as insulin pens).
4. Medication containers (single and multidose vials, ampules, and bags) are entered with a new needle and new syringe, even when obtaining additional doses for the same patient.
5. Use single-dose vials for parenteral medications when possible.
6. Do not use single-dose (single-use) medication vials, ampules, and bags or bottles of intravenous solution for more than one patient.
7. Do not combine the leftover contents of single-use vials for later use.
8. The following apply if multidose vials are used
     a. Dedicate multidose vials to a single patient whenever possible.
     b. If multidose vials will be used for more than one patient, they should be restricted to a centralized medication area and should not enter the immediate patient treatment area (e.g., dental operatory) to prevent inadvertent contamination.
     c. If a multidose vial enters the immediate patient treatment area, it should be dedicated for single-patient use and discarded immediately after use.
     d. Date multidose vials when first opened and discard within 28 days, unless the manufacturer specifies a shorter or longer date for that opened vial.
9. Do not use fluid infusion or administration sets (e.g., IV bags, tubings, connections) for more than one patient.

Sterile instruments and devices:

1. Clean and reprocess (disinfect or sterilize) reusable dental equipment appropriately before use on another patient.
2. Clean and reprocess reusable dental equipment according to manufacturer instructions. If the manufacturer does not provide such instructions, the device may not be suitable for multi-patient use.
     a. Have manufacturer instructions for reprocessing reusable dental instruments/equipment readily available, ideally in or near the reprocessing area.
3. Assign responsibilities for reprocessing of dental equipment to DHCP with appropriate training.
4. Wear appropriate PPE when handling and reprocessing contaminated patient equipment.
5. Use mechanical, chemical, and biological monitors according to manufacturer instructions to ensure the effectiveness of the sterilization process. Maintain sterilization records in accordance with state and local regulations.

Clean and disinfected environmental surfaces:

1. Establish policies and procedures for routine cleaning and disinfection of environmental surfaces in dental health care settings.
     a. Use surface barriers to protect clinical contact surfaces, particularly those that are difficult to clean (e.g., switches on dental chairs, computer equipment) and change surface barriers between patients.
     b. Clean and disinfect clinical contact surfaces that are not barrier-protected with an EPA-registered hospital disinfectant after each patient. Use an intermediate-level disinfectant (i.e., tuberculocidal claim) if visibly contaminated with blood.
2. Select EPA-registered disinfectants or detergents/disinfectants with label claims for use in health care settings.
3. Follow manufacturer instructions for use of cleaners and EPA-registered disinfectants (e.g., amount, dilution, contact time, safe use, disposal).

Infection prevention is key in protecting the health and well-being of both your patients and your practice. For additional information and current updates, please visit www.cdc.gov today.

I’m currently doing an analysis for a client who will be selling his practice. It’s rare that someone who has been offered 120% of their gross income for their practice and an offer to work for five years after the sale for $350,000 per year would bother to ask if that was a good deal or not, but this dentist did. Here’s the statistics of this actual real-life practice and that offer he received.

 

Price Offered 120% of gross, cash at closing$4,200,000
Five years of commission at $350,000 per year$1,750,000
Stock$250,000
Total Revenues$6,200,000

 

So what is there to think about? Just grab the money and run, right? But on the advice of his sage accountant, he called me and asked, “Earl is this really a good deal for me?” I told him it depends. Compared to what? Comparing this delicious offer to an alternative option, that of keeping his practice for the next five years and then selling it for $2,900,000 or 75% of his gross to a buyer who wouldn’t require him to stay on. And he could retire. Let’s take a look at this seemingly less attractive option.

 

Practice Price  75% of gross, cash at closing$2,900,000
Five years practice net income$6,900,000
Total Revenues$9,800,000

 

Now I do realize that an extra $3,600,000 may not mean a lot to some dentists, but for those it does, we should understand how the difference came about. It’s obvious that the sale price in the wait-to-sell option is considerably lower, however the seller earns over $5,000,000 more net income by working for himself instead of someone else. This owner currently nets 54% of his personal (not the gross) production and the buyer’s offer was only 15%, providing they did not load him up with extra work from new managed care plans, thus making that percentage lower.

There are great bragging rights by selling your practice for 120% of gross, but understand that it is the seller paying that price, not the buyer.  By the way, these results are consistent with practically any size practice, not just this mega practice.

So, the takeaway from this little story is don’t be flattered by high price offers and bamboozled by terrible terms.  It’s always a good idea to seek expert guidance in reviewing critical options before finding out the hard way that price is not always what it’s cracked up to be.  Remember it’s the bottom line that sellers walk away with, not the top one.

Earl M. Douglas, DDS, MBA, BVAL is principal of ADS South, LLC. The firm provides consulting, valuation, analysis, partnership and brokering services.
www.adssouth.com
770-664-1982
earl@adssouth.com

What is a self-respecting professional practice broker to say about the invasion of the dental industry by this no-longer-new business model? DSOs have taken a significant and growing percentage of the dental services industry, as detailed below. And while we all know the DSOs success has been punctured with controversy, significant clinical ethical lapses, and outright failure, one might also observe that taken as a whole, solo practitioners have had their share of the same. One might compare and debate the matters of degree, but in the final analysis it would be an academic exercise alone, because the model is here to stay.

Our industry is not a parallel to medicine. Physicians eschew the nightmare of insurance billings and astronomical technology costs difficult economies of scale and want rather to spend their time with patient care alone. On the other hand, solo practice and small group practice are perfectly viable business models in dental obviously and will remain so for the predictable future. The significantly higher incomes to solo dental practice owners versus employed dentists will ensure that DSOs won’t take over the industry. That said, the business of dentistry has gotten more intimidating these last twenty years or so, and a significant number of dentists young and old are choosing employment as opposed to ownership as a quality of life choice. Fifty percent or more of our graduating classes now are women as well, and they have been choosing for the most part to raise children first before stepping into ownership. This has allowed the DSO business model to be viable business model.

Of course, there is no stopping business progress that wants to happen. Perhaps the best we can do, then, is equip ourselves to address the concerns of our clients, and young dentists stepping into practice where we can, such that they can make informed choices of direction, and end up with transition and career results that best serve them.

A few words about DSOs

DSOs actually go by a number of different names: Dental Service Organizations, Dental Management Organizations, Dental Support Organizations, and variations on the theme. They provide practice management services which include marketing, employment and human resources, billing, accounting, regulatory compliance, lease negotiation, purchasing services, information technology, and negotiation of higher fees with PPOs.

Obviously, the American Dental Association and a few others have taken note of the phenomenon and commissioned a few studies. The statistics are telling. The California Dental Association recently reviewed1 the ADA’s proposed classifications and reported on the ADA statistics, and stated as follows:

The ADA’s Health Policy Resources Center released a research brief, A Proposed Classification of Dental Group Practices. The brief acknowledges that dentistry is a profession in transition with a growing number of large, multi-site group practices with changing character and structure. According to the ADA, group practices currently represent 5 percent of practices nationwide and are expected to grow to 20 percent by 2020.

A 2012 “Distribution of Dentists” survey supports the trend, revealing that the proportion of dentists who own practices dropped from 91 percent in 1991 to 84.8 percent in 2012, and the proportion of solo practitioners dropped during that same time period from 67 percent to 57.5 percent.

The ADA’s Health Policy Resource Center identified six basic types of group practices that indicate two or more dentists are somehow affiliated with each other. CDA plans to utilize the classification system in future communications with members to help in better understanding the dynamics of various practice models.

The classifications are as follows:

Dentist Owned and Operated Group Practice

An aggregation of a variable number and/or type of dentists in a single practice that may be located at single or multiple sites completely owned and operated by dentists, usually organized as a partnership or professional corporation.

Dental Management Organization Affiliated Group Practice

A group practice that has contracted with a dental management organization to conduct all of the business activities of the practice that do not involve the statutory practice of dentistry, sometimes including the ownership of the physical assets of the practice. There are several types of dental management organizations and there can be significant variations in the nature of the agreements between the dentist and the dental management organization. An example is Pacific Dental Services.

Insurer-Provider Group Practice

A group practice that is part of an organization that both ensures the health care of an enrolled population and also provides their health care services. An example is Kaiser Permanente Northwest.

Not-for-Profit Group Practice

A group practice that is operated by a charitable, educational or quasi-governmental organization that often focuses on providing treatment for disadvantaged populations or training health care professionals. An example is Apple Tree Dental.

Government Agency Group Practice

A group practice that is part of a government agency. It is organized and managed completely by the agency. All dentists are government employees or contractors and operate according to agency policies.

Hybrid Group Practice

A group practice that does not clearly fit into any of the above categories and can exhibit some characteristics of several of them.

The Oral Health Workforce Research Center, affiliate with the School of Public Health at the University at Albany, State of New York University, issued a report in 2017 with the following statistics2, which are telling:

In the period between 2002 and 2012, the number of firms (offices of dentists) with 50 to more than 1,000 employees increased from 284 to 438. The number of establishments (locations) operated by larger firms increased from 2,691 in 2002 to 5,485 in 2012. While the number of very large firms remains small, there was growth in the number of establishments/sites at which these firms operate. In 2002, 3 firms operated with more than 1,000 employees in 788 establishments. By 2012, 11 firms reported more than 1,000 employees working in 3,005 establishments.

We should note that in 2012 our nation was coming off the economic crisis. The Ontario Teacher’s Pension Fund at the end of 2012 purchaser and Heartland Dental for something like 11 x EBITDA. Keep in mind these practices were individually purchased for 3.5 to 4.5 x EBITDA. The stock value on a project overall was stunning to say the least. As they’ve grown, Heartland has changed hands a few more times, and each time with significant stock value increases though not to the degree as the initial. This dynamic has drawn private equity money to the dental industry like moths to the proverbial flame.

Today there are approximately 120 private equity backed DSOs in play in the US. Additionally, there are dental owned relatively small group practices structured as DSO’s in large numbers. Our experience of the dental owned “aggolomerators” as we have called them, is that more of them disintegrate than succeed. Many have had the plan to grow to 50 million or so and then sell to private equity for a one-time large profit. The margins prove so small over the process, however, and the financing and years of work involved prove so difficult, that the owners often discover it isn’t worth the opportunity cost.

The multiple dentist owned four of five practice groups aiming for higher ppo fees hybrid model does seem to have staying power in a number of markets – but that is a business model with a different intent. Those groups are a build and hold play. I received recently from a dentist with a large practice in one of the larger towns in Montana. He mentioned that he was among the last of the true fee for service practices left in town, and he was having a difficult time competing with the practice agglomerator groups. By virtue of the combined size of the group’s patient base, they had negotiated crown fees with Aetna of approximately $950. My client said when he checked into PPOs and called Aetna, the maximum crown fee they agreed to for his practice was $750.

Most DSOs have discovered that they need to purchase only practices with collections of approximately one million per year to hit a viable economy of scale. A practice collecting $700,00 today, for example, run with associates only and no owner-operator, will lose money for the owners. Additionally, DSOs want to purchase only practices in areas where they can readily attract dentists to employ. Most DSOs will not purchase or allow Medicaid work in their model, additionally, which is not to say there are not DSOs who do Medicaid by any means.

So, what are the fundamental issues in play for a seller here? Let’s start by looking at what we might call the “typical” DSO transition proposal. We can look at our transition of Dr. P’s large dental practice, which he was selling in order to retire. Dr. P had a very large office facility in one of the more desirable suburbs of Portland. His collections were approximately $950,000 annual. The facility was about 4,000 s.f., with 10 ops of nice Adec equipment. In our first meeting, Dr. P explained that Gentle Dental needed a larger space and had offered him $1,000,000 even for the practice. At that time in our market practices were typically selling for 75% to 80% of recent annual. I told Dr. P “wos” about that offer and he should take it because I couldn’t get that much. But then he explained the sale was on condition that he stay and work for 27% of production for three years. And of course, Dr. P recognized that million-dollar offer wasn’t really a million dollar offer in that case. I told him to just work another three years and then let me sell the practice and he would be far ahead. He really did want to just retire though and we sold the practice for him that year for something like 85% of collections.

So how does this work, then? Why would anyone sell to a large DSO? How are DSOs today getting around this concern? And given the thin margins on non-dentist owner practices, why is there such an aggressive push by private equity into this area?

Turns out, in the now “typical” DSO model, for the seller, it’s all about the stock. In the Heartland model, they figured out that they could incentivize the large solo practice owner by allowing them to participate in the larger play. We can run through a sale our company recently completed to illustrate how that works.

Again, the practice in this case is in a desirable SW suburb of Portland, Oregon. The office has 9 ops, collected about 3.6 last year and was online to collect 3.9 this year. The closing was in September. Total remuneration to the partners was 3.7 million not counting accounts receivable, and the Sellers are obligated to stay for three to five years. They are compensated approximately 30% of collections, and some of the 3.7 total will be paid out as the associate period completes. And again, one would initially ask, why would they bother with this model given the pay reduction. The answer is that for a dentist approaching the end of their career, the stock incentive aspect actually makes the model make sense. Here’s the play: the partners were allowed to purchase approximately $550,000 in stock. The DSO purchases the practice for approximately four times EBITDA, calculated after paying selling dentist projected wages. When the DSO operations reach one hundred fifty million in total, they will sell for 12 to 13x EBITDA. In this model, if it works, the seller’s $550,000 in stock will become $1,650,000. The documents are written up such that they can let their stock remain through the next turn. That is to say, Heartland for example has turned another couple of times after the initial sale to private equity. While the second turn after continued growth won’t yield a tripling of stock value again, it is nevertheless significant. The $1,650,000 would reasonably be worth well over $2,000,000. The early participators in the Heartland project realized an extraordinary gain.

Is this now a viable model for any owner of a large solo practice? Probably not. But for someone approaching retirement? Very possibly. For a young owner, the time involved with growing a practice and the opportunity cost of selling and being employed for three to five years and then trying it again, in our estimation makes no sense. The opportunity cost on something like this for them would be staggering in almost every market. When we run the numbers, they are far ahead by holding their own practice and staying put for a normal career.

Then too there is that issue the play, after all, is in stock. What if it doesn’t work? Today the variety in professionalism and wherewithal of the various DSO players out there are as varied as any large class of dental school graduates. Who do you partner up with? Be careful. Without the stock play, it’s hard to see the program make sense, in our estimation. And for a DSO that has already changed hands a couple of times, the stock history seen in the initial growth and sale is not going to be repeated.

In our review of practice models, for the enterprising and ambitious dentist, the most lucrative and quality of life in practice model is the model where one dentist owns one large office and employs one or two associates. Of course, to each his own. But certainly, from an income perspective, this is the model that virtually every dentist we have worked with enjoys.

Lastly, there is the question of where does the DSO play end up in the long term? Barring significant changes in insurance dynamics and radical clinical advances, what is predictable is the DSOs will max out exactly at the level allowed by the number of dentists in the marketplace willing to work for them as employees. This stock play during the “corporate rollup,” as they call it, can’t continue long term. This is a unique window of time.

In our Pacific Northwest market, a typical solo practice collecting 1.2 million will run with an overhead of 62%, and net out then over $400,000/yr. There are a very few very highly paid employed dentists who may break the $300,000/year income level, by comparison. A typical associate in the vicinity of the low to mid $200,000’s/yr. The “typical” owner vs “typical” employee incomes are far too disparate for the DSOs to take the majority of the market.

Obviously, an abundance of variables in market dynamics make any predictions difficult in our industry. Given present day constraints, however, it’s hard to see where corporate dentistry will proceed to take the majority of the market. There just isn’t the value there in placing a corporate interest in between the dentist and the patient. Corporate economies of scale have thus far not translated to sufficient benefits or cost savings to the patient. Nor have the incomes of employed dentists approached the incomes of dentist owners. DSO’s will continue to provide quality places of employment for dentists electing for that lifestyle for whatever reason. But overall, as long as the disparity in dentist income holds, it’s hard to see how DSO’s will displace the solo practice model.

Joe Consani, Consani Associates, Ltd. Joe has over 20 years of experience in sales and management and has been brokering dental practices since 1997. He has significant expertise in the valuation and sale of specialty practices and has facilitated numerous specialty practice sales.
www.mydentalbroker.com
866.348.3810
joe@mydentalbroker.com

1 https://iframe.cda.org/news-events/cda-explains-new-ada-classifications-of-dental-group-practices
2 http://www.oralhealthworkforce.org/past-projects/

“MILLENNIALS” are people born between 1980 and 2005.1(p3) They’ve grown up in a much different world than previous generations and are already showing some very interesting tendencies as they enter the workforce.

I’ve been brokering dental practices for 28 years, and it was traditionally assumed that most young dentists would go into private practices for themselves. In recent years, I have been increasingly concerned that the millennial generation may be different. Do young dentists want their own practices? Can young dentists afford to purchase or start their own practices?

Student loan debt is one major factor in the changing behaviors among young dentists. The total outstanding student loan debt in America surpassed #1 trillion dollars in 2014, cause in part by a nearly 100% increase in tuition expenses and a dramatic drop in state funding for schools.1(p16) This is due in part to reduced funding to state schools from state sources (i.e., budget cuts), which schools have compensated for by tuition hikes. In 1989, revenues from state sources accounted for 52.2% of total revenue for universities, but the figure shrunk to 12.5% by 2012.2(p16)

Here’s the bottom line: The average dentist how has $247,000 in debt after finishing his or her education.2(p18) Young dentists with this much debt look at initial career choices in a different light that young dentists did 20 years ago.

These financial challenges have a great impact on millennial dentists’ ability to choose their preferred career paths. I believe that many do not want to spend their careers working for a conglomerate or large network. However, nearly 50% of recent grads say they will consider corporate dentistry as their first job.3

The recession also had a large impact on the personal finances of millennials. Their generation has significantly lower credit scores and more debt that previous generation, meaning they will require some serious financial counseling before they’re in a position to make purchases like a home or a dental practice.

The historic economic downturn of the past decades has also shown millennials that the job market is unpredictable at best. They’ve responded by starting their career later in life, not working while going to school, and remaining longer with their first employer after graduation.

Finally, the percentage of women in dental schools has been steadily increasing to where they now account for approximately 50% of graduates.1(p16) Women tend to give preference to a balanced professional and personal life, raising children and sometimes caring for elderly parents while also growing their careers. This means that owning a practice is sometimes not a top priority for them.

What does all this mean for the generation of dentists preparing to retire?

Statistics tell us that roughly 42% of the working dentist population is over 55, meaning there will soon be a greater number of retiring dentists looking to sell their practices.4 Selling a private practice could become a much more difficult task than it was a few years ago if the pool of buyers is shrinking while the number of practices available is increasing.

There are extraordinary changes that are going on in dentistry today, and they will affect the profession in significant ways and in turn the buying, selling, and valuing of dental practices. It will be interesting to see how millennial dentists respond to these changes. In spite of their student debts and regardless that half the graduates are women, I believe there will always be a sizable proportion of young dentists who want the freedom that comes with owning a dental practice. These dentists want clinical autonomy and realize that their growth potentials are truly unlimited by working for themselves.

REFERENCES

  1. 15 Economic Facts About Millennials. Washington, DC: The Council of Economic Advisers; 2014.
  2. Solomon E. The Future of Dental Practice – Dental Education. Dental Economics. 2015;105(1):16.
  3. Diringer J, Phipps K, Carsel B, Critical Trends Affecting the Future of Dentistry: Assessing the Shifting Landscape. 2013. Page 8.
  4. Solomon E. Dental workforce trends and the future of dental practices. Dental Economics. 2015;105(2):22.

GUY B. JAFFE, MBA, is a principal of American Dental Sales. He provides brokerage, appraisal, and consulting services in Illinois, Iowa, and Missouri. You can reach Mr. Jaffe at (800) 221-6927 or at guy@adsmidwest.com

Over the past several months, WE HAVE HEARD A GREAT DEAL ABOUT CHANGE. Change in any aspect of our life often creates some level of stress. However, some of us actually look forward to change and view it as an opportunity. One thing that is an absolute certainty is that change will happen in all facets of life. What about your dental practice, Doctor? Will it change in the months and years to come?

One of the most significant changes a practice will experience is undergoing any type of transition. It is worthwhile for each of us to spend time thinking about future transitions in our practices, because every last one of our practices will undergo some type of transition, sooner or later, whether we plan it or not. This is as certain as death and taxes.

The Stress of Change

The stress cycle happens when we change jobs, churches, schools, neighborhoods, and especially dental practice ownership. Most of us wonder what will happen to the practice when we change ownership. I know I certainly did when I began my own practice transition several years ago. Ironically and surprisingly, one of the easiest changes to make in a practice ownership transition is that of the face of the doctor providing the dental treatment. Whenever a doctor sells or leaves the practice, for whatever reason, every patient in the practice will absolutely have a change in his or her dentist.

Transitions and Patients

If your transition has been planned and carried out properly, your patient base will not feel that anything bad has fallen upon them. Instead, patients will feel that you have considered them in your decisions and have done something very kind and considerate on their behalf. As a consequence of a well-planned transition, the face of the dentist will change with minimal stress to the patients, staff, and new owner. In many cases the new doctor brings a level of excitement and enthusiasm to the office that it may not have experienced in years. This in itself may be a welcome change.

Transitions and Staff

How does a change in practice ownership affect the staff? It is important to understand that most staff members do not want to change their place of employment when a practice transitions occurs. As a rule, the staff likes what they do, where they work, and with whom they work. Changing jobs is almost always a major stress creator, so why do such a thing when it is in everyone’s best interests to keep the staff intact? This stability greatly benefits the transition process because the staff members are the nurturers in the practice, the dear souls our patients look to for comfort and reassurance regarding their dental care. If, for whatever reason, some members of the staff don’t remain with the practice during and after the transition, patients will notice their absence. Suddenly, in the mind’s eye of patients, this will not be the practice where they once felt so at home. It is a wise new practice owner who understands the worth of existing staff, and who does all he or she can to assure them of their importance and value to the new practice.

Change for the New Doctor

New owner doctors often ask me, “What about changing the décor of the office when I take ownership?” Purchasing doctors will be wise to leave the “old digs” alone for at least two recall periods. Let the patients become used to you, surrounded by staff they know and trust, in surroundings they are used to and in which they feel comfortable. After this initial period of transition, you may want to redecorate or re-equip the office. Let ’er rip! You can even generate excitement and enthusiasm if you share the news of a pending office face-lift with patients through a newsletter or e-mail.

Remember that transitioning a dental office effectively, efficiently, and successfully requires the skills, advice, and experience of a seasoned transition specialist. Don’t sell your most valuable asset without professional assistance. A qualified broker can lead you through the process and provide you with a practice transition made perfect.

Max Wilson, DDS, is the founder of ADS Professional Practices, a full-service practice brokerage firm doing business in Oklahoma and Arkansas. He is a member of American Dental Sales, American Academy of Dental Practice Administration, American Dental Association, and Oklahoma Dental Association. He may be reached at (405) 359-8784 or mwilson@ppa-brokers.com.

The best way to sell a dental practice

If you are healthy and just want more free time, you are fortunate to have time to plan for a successful dental practice transition. If you are two to three years out from selling your practice, it is not too soon to meet with your ADS broker before selling your practice.

There is no one best ways to sell a dental practice because many factors affect the type of sale, the type of buyer, and the value of each practice.  This article will touch on the dental practice worth, types of successful dental practice transitions, and finding potential buyers.   If you own your real estate and wish to lease or sell your building, there are also a few suggestions.

Financial Planning:  In preparation for your retirement, you need to pay off your debts, make a list of your assets and your future sources of income, know or determine your monthly and yearly cost of living expenses, and decide on the hobbies, projects or your next job that will occupy your time after the transition.  Some dentists have the perception that their largest asset is their dental practice.  However, in many instances, the net gain after taxes from a practice sale is equivalent to working 1.5 – 2 years longer as an owner.  Get your financial house in order as you prepare to sell your practice.

Unless you have an exceedingly large practice, the income from the sale of your practice will not fund your retirement.  The income from the sale of your practice is the “icing on the cake” of retirement funds, not the cake.  It is important to remember that the profits from the sale of your practice are also subject to income tax.  An ADS broker can work with you and your CPA with suggestions to reduce the tax burden at the time of the sale.

Types of Dental Transitions:

The size of your practice and the overhead of your practice may determine your dental practice transition plan.  The simplest practice transition is a ‘Turn Key Sale’ where the seller walks out as the buyer takes over.  This is more common with practices having a gross income under $700,000.  Larger practices can choose to hire an associate now and sell later, sell now, then be an employee, or to divide the practice and sell a portion creating a partnership or solo group practice.

Dentists owning more than one location may wish to sell one of two locations or both locations.   An ADS broker will help you wade through the possibilities stress free after examining your profit and loss statements to determine what type of transition works best for you and meets your desired goals.

Dental Practice Valuation

Is your dental practice ready for a profitable sale? Do you know how much your dental practice is worth? Don’t settle for an informal, DIY practice appraisal. A skilled ADS broker will perform a dental practice valuation to price your practice correctly provide insight on how to increase the value of your dental practice.  Valuation is not a simple multiplication of your gross income.   Practice value is based on location (rural or urban and area of the country), demographics and dentist/population ratio, local economy, education levels of the population, practice income, and practice overhead.   Post-sale employment of the seller and insurance mix, (PPO, HMO, Capitation or Medicaid) also affect the value.

Most “for sale by owner” sellers chase off the best prospects by asking too much or they lose money by undervaluation of their practice and sell themselves short.   An ADS broker will give you suggestions on preparing your practice for sale and coach you on negotiating a practice sale.   In our dental , we explained that one myth of sellers is that they are selling potential and potential should bring a higher price.  Potential is a selling point, but it does not increase the value.  The Cash Flow (income stream or profit margin) is usually what is being sold.  An ADS broker will help you maximize the cash flow for the best possible fair price.

Getting your facility ready for sale:

Buyers are attracted to nice facilities and new equipment, but if a seller purchases new equipment in order to sell his practice, he will not recover dollar for dollar the new equipment expenses in an increased price of the practice.  In the year prior to the sale, it is usually beneficial to clean up and spruce up your facility, but it is not wise to purchase new equipment expecting a return on your investment.

The purchase of new equipment is only done if you still have time to get some use of that equipment. Purchase or upgrade based on a timeline.

2 years or less

  • small upgrades and equipment repairs

3-5 years

  • Strongly consider digital radiography
  • If something old breaks, consider replacement

5 or more years

  • Digital radiography at a minimum
  • Computerize your office and treatment rooms
  • Larger equipment purchases start to make sense

Advertising and screening for your potential buyer:

The buyer must be able to pay the practice overhead expenses, pay the note to the bank and still have enough profit to pay his or her personal living expenses.

Unless you are in a very rural area and are willing to owner finance, your best buyer is not going to be the new dental senior with no experience and a mountain of debt.  There may be the exceptional student with no debt, a savings account and the hand skills and know how to run a practice, but this is the exception, not the rule.

ADS brokers advertise your practice using the national website, local websites, state and local dental newsletters and by staying in touch with dentists and vendors in the industry. Letters, e-mails, phone calls and postcards are also utilized to reach potential buyers.  Because of the constant advertising, ADS brokers are in touch with dentists looking for a practice to purchase.  In addition, an ADS broker has the skills to screen the buyer and not waste your time with “shoppers” who have no ability to obtain financing.

Dentists who attempt to sell their own practices often seek out an ADS Broker after they see the mounting costs of advertising and experience the frustration of fielding phone calls from “shoppers”.   Offers to purchase your practice are usually contingent upon financing.  A full price offer from someone who cannot get the loan is worthless. Weak buyers waste your time.  ADS brokers have the skill and expertise to qualify buyers for purchases early in the transition process.

Financial documents required and buyer funding:

Lenders look at two things when loaning money to a buyer.  The first is three years of your practice income tax returns and your most recent profit and loss statement.  If you own more than one location and are selling one or both separately, the lender will require separate financials for each location.

The buyer’s history is also an important part of obtaining financing.  If your buyer just purchased a home and a car, has high credit card debt or large student loans, has no savings or has declared bankruptcy in the past, it may take a lot of work to find a loan for the purchase of your practice.  Your ADS broker will know how to navigate these hurtles and will also guide you when it is time to seek a more qualified buyer.

What can I expect once a credit worthy buyer is found?

Creditworthy savvy buyers will perform chart audits because patients are the biggest assets of the practice.  The buyer wants to determine if the seller and buyer have a similar treatment philosophy.  The buyer also wants to establish an active patient count, confirm if treatment plans are present, and determine if there is dental work in the practice.   The buyer may also want to test the equipment, meet the staff, and generally “kick the tires” of the practice.  Your ADS broker will guide you on the proper time for each of these steps.

Real Estate

If you are selling real estate, each state has laws and rules that govern the sale.  Do not sign with a realtor to sell your building if you are planning on selling your dental practice.  The building may or may not be required for the transition.  Meet with your ADS broker first to examine the options.  If you do not own your building and have a lease, your lease should be transferable and you should have several options to renew.

Bank Loan:


Your ADS broker has screened dental lenders and knows which banks will provide the funds and get the job done and which banks will still be requesting documents a year from now.  Your broker will also let your or your CPA know which documents are required by the bank to make a successful transition.

Attorneys– Some ADS brokers are attorneys and will provide the documents for the sales.  Other ADS brokers will provide sample documents or recommend an attorney who is knowledgeable of dental transactions.  Follow your broker’s advice on attorneys and do not make the mistake of using an attorney friend who is not knowledgeable about dental transitions.

Selling your own practice to save money is like going to your banker for a haircut.  The baker may be well educated in his field, and he may get the job done, but the results will not be pretty.   Last week at a state dental meeting, a dentist stopped to tell the story of his “for sale by owner”.  His profits from the sale were all used up in post-sale litigation.  He stated, “I was a good and honest dentist, and I thought I was up to the task, but it is hard to avoid cliffs that you do not know exists”.  Another seller came by to say that in order to save money, he signed up with a broker who represented both sides.   He said, “Looking back, it would have been worth double the full fee to get the job done correctly”.

Your ADS broker will be happy to let you speak with previous clients for references.  It will be one of the best phone calls you will ever make.

WHAT THEY DIDN’T TEACH YOU IN DENTAL SCHOOL


Most of us graduated from Dental school with little or no training in basic business principles. Some of us may have taken a year or two of business classes (as I did) and others may have even graduated with a business degree. Even then, there was usually little practical training on how to evaluate the typical decisions all of us must make at various points in our dental careers. Most dental schools do try to educate the senior class on these matters, however, most senior dental students are too preoccupied with getting enough credits for procedures to graduate and often skip these “optional” classes.

When I graduated from Dental school, I followed in the footsteps of a few graduates that migrated to the Phoenix area. In fact, I replaced the associate position that my colleague vacated when he left to start up his own successful dental practice from scratch. In turn, I also left after 2-3 years and did my own scratch-start practice. At the time, I never even considered purchasing an existing practice. Even if I had, I possessed no knowledge on how to properly evaluate my options. This article will provide some basic concepts to help dentists begin to think more like accountants and businessmen.

Starting a Dental Practice

The problem that most of us have is that we assume that just having a DDS after our name will ensure our success. For the most part, this is actually true! For example, I just ventured out, surveyed a new growth neighborhood and selected a highly visible, easily accessible corner to start my dental practice. Eventually everything worked out well and my practice became highly successful. However, an astute businessman would have “crunched the numbers” to ensure that he would get the best “return on his investment”. When all things are equal, without extraordinary growth, the economic gains of a practice purchase outpaces the gains of a new scratch start practice. Price, rather than generating cash flow is often the major concern of most buyers. Some buyers will comment that a practice costs too much, without even knowing what the profit of the practice is! Cash flow and return on the investment should be king!

The Dollars and Cents

The following discussion will be a comparison of cash flow and profit between (a) scratch start practice (2 operatory set-up) (b) the purchase of a moderate practice (3 – 4 operatories) and (c) the purchase of a large practice (5 or more operatories). Several assumptions based on historical data are applied in the flow chart labeled Illustration 1. The industry average loan for a scratch start practice equipped with two operatories is $500,000. The purchase price of existing practices historically falls between 60 to 75 percent of gross receipts. In an effort to give our start up the best chance of success upon comparisons, we have used a multiple of 80% of the gross receipts of a typical practice purchase. Therefore, the purchase price of our $500,000 gross receipt practice and our $1,000,000 gross receipt practice will be $400,000 and $800,000 respectively. As you can see, it actually costs less to buy a medium sized practice than to start a dental practice from scratch, even if you have to upgrade some equipment.

Most dental offices usually run at approximately 60 percent overhead expenses so we have used 40 percent as our bottom line cash flow before debt service. Again, this favors the success comparison of the startup practice as profitability percentages go up with increased production. A reasonable interest rate for a loan in today’s market is about 5 percent over ten years which is reflected in the debt service column corresponding to the start-up cost or the purchase price of the practice. The net profit (before taxes) is the cash flow minus the debt service. In addition, we will also assume some fairly good start up numbers and good growth for our scratch start practice as compared to the existing practices.


Illustration 1 will then reveal the net profit before taxes for each of the seven years the practice is in debt. Also note that we did not make any additional debt service adjustments to reflect additional leasehold expenses and equipment purchases for the scratch start and moderate practices to actually produce the same numbers of the larger practice. It would cost well over $100,000 to build out and equip the scratch start practice from 2 operatories to 6 operatories. Therefore, we have given almost every advantage to the scratch start practice. In fact, when I give this presentation to large groups, many dentists in their beginning years of a scratch-start practice will despondently ask if they are supposed to be doing as well as the projections on Illustration 1.

Many dental practice owners may be quick to point out the flaws in the assumptions of Illustration 1. That is not the point! Adjust the many variables to fit the complexities of your own situation. Perhaps you never want a million dollar practice or you feel that you can turn a thousand patients into two thousand relatively quickly. The point is to take this template and work up your own analysis for your particular situation.

Illustration 2 shows the Total Profits after debt service (before taxes) in this scenario at the 3, 5 and 7-year totals. As you can see, the difference in potential lost income for the scratch start practice is significant and increases year by year until theoretically you reach your full potential in your own practice. Depending on the circumstances, you can see how the decision may cost you well over $1 million dollars over several years!

We need to touch upon another variable that further solidifies the case for buying an existing practice. The main reason for buying an existing practice is the patient base. Theoretically, the larger the patient base, the larger the gross receipts and the higher practice purchase price.

Use the Skills You Have

Therefore, if you possess the special “people skills” and practice management skills that can result in quick growth when starting a dental practice, it is more advantageous to be able to apply those skills to an existing patient base. If you do not possess those special skills that result in high growth, you definitely have a better chance for success if you buy an existing patient base.

In any event, do not just assume that you are making the best decision when the time comes to open your practice. Work out your model based on an honest evaluation of your own circumstances.

Marketing

Most practice management gurus will state that internal marketing is superior to external marketing. Many of us are familiar with Network Marketing, which is based on the concept of “friends telling friends” about a service or product. The premise is that if one friend talks to two people, and those two talk to four, and those four talk to eight, which will result in exponential growth and success. The Dentist in a scratch start practice opens his practice with relatively few patients and depending on marketing strategies, the practice will hopefully grow (SeeIllustration 3).

Using this same application with an existing practice, one can apply the same marketing strategies and techniques to a base of perhaps a thousand or more patients right off the start when opening for business! (See Illustration 4).

Obviously, a network marketing phenomenon in this case would produce very high growth. In reviewing the Profit Analysis, (Illustration 1) we had assumed very small growth for the large practice and that practice still showed the highest return on investment. Just imagine the differences in net profit between the scratch start practice and the practice with the existing patient base that is properly marketed and managed! In short, purchasing an existing practice historically produces quicker growth than a starting a dental practice.

This is not to say that buying an existing practice is a guarantee of success. Regarding successful practices, there are many factors that must be addressed and evaluated in a practice purchase as well as a scratch start practice. In subsequent articles, we will discuss the attributes of dental practices and the importance of proper due diligence based on the needs, expectations, opportunity and personal qualities of the dentist. We will discuss essential issues on transitioning a practice as well as the sale of your practice at retirement. Until then, do what you do best!

Timothy G. Giroux, DDS

In my career of helping dentists acquire their practices, obtaining financing is one of the bigger tasks.  In previous years, I was dealing with the commercial brick and mortar banks that you pass on the way to wherever you go.  These banks are required by federal law to make sure that any loans that they do are collateralized, or backed by something of value that the borrower pledges to them.

Naturally, newly graduated dentists, and actually many associate dentists of long standing, did not have hundreds of thousands of dollars saved up in cash, or expensive homes that were paid off, or a very sizable investment portfolio.  That made the bankers unhappy because doing a loan for someone with no collateral could get the banker in serious trouble.

Your Existing Investment

I was always quick to point out, but to no avail, that the young dentist did have an incredibly valuable asset – a dental degree and a dental license.  It is not unusual for me to see dental school debts of $400,000 and even more.   I would tell the banker of this sizable investment, all the time knowing that it would not impress them because they could not put a dental license in their vault.

When a person makes that huge commitment to apply to dental school, they are also making a huge investment in themselves and in their future.  Considering an outlay of $400,000 or more requires that there be a significant return on that investment. By that, I mean a significant profit that is over and above the cost of that investment.  Just paying back the investment is not a success, but paying it back and making multiples of profit from the investment is the only justification for the considerable risk of getting that dental degree.

The Return on Investment

How then does a dentist find and measure that return on investment?  Many times, new dentists are intimidated by the debt they have accrued, and change from being risk takers – the person who applied to dental school in the hopes that they would graduate and pass a dental board – to becoming very risk adverse – avoiding the risk of purchasing  and owning their own practice.

In an effort to avoid the risk of further debt and management responsibilities, dentists will frequently choose to work for corporations or other dentists as associates.  This feels like the safest choice and the lost opportunity that they suffer is not even apparent to them.

But if we are to maximize the investment of getting that dental degree, we have to find the source of that return on investment.  Quite simply, the only source of that profit is ownership.  Ownership has many rewards – control, security, choices, but mainly profit.  Consider the dentist who chooses to work for a corporation.  They receive a commission for the work they do.  Period.  Consider the dentist who owns their own practice.  They receive a commission also for the work they do, but in addition to their commission,  there is also a profit component.

Maximizing Your Investment

How does that work?  In examining one actual practice that is currently on the market in North Carolina that has a gross of $700,000, the net income of the practice after all expenses is $393,000.  Let’s break down that net income because it is neither all profit nor all salary.  The salary component, based on 30% of the owners personal production (compared to as little as 25% that associates may be paid) amounts to $165,000.  But in addition to this commensurate salary for the work the owner did, they will also receive in addition, a profit, or return on their investment, of  $252,000, a 59%  rate of return on their investment (practice price) of $430,000, which was borrowed at that.

You’re thinking that is too good to be true, but in this practice, those are the facts.  The alternative is to go to work for someone else, makes a lower percent commission, and then try to invest some savings in the stock market and hope for an average of 7% , as seen in  the period 2008 through 2014.  Meanwhile, the owner of this practice will make a 59% profit each and every year.

Owning a Practice

Many dentists would agree that the idea of owning this practice is wonderful, but that it’s not practical and not possible, and certainly not affordable.  However the dentists who will look very closely at practice acquisitions usually discover that they cannot afford not to purchase their own practice.

Buying

The first concern is that they cannot “afford” to buy a practice.  My answer is how can you not afford to make a 30% commission for the work you do, and receive an additional $252,000 in pure profit?.  Another concern is that they cannot afford the payments to buy a practice.  The payments for this $430,000  practice price plus an additional $35,000 in working capital plus the  $164,000 for purchasing the building amount to annual payments of $93,000!   That is a huge amount and how could anyone ever pay that?  The answer is to simply use part of the $252,000 profit to pay that $93,000 debt service, still leaving $159,000 of profit to invest and live on.

Renting

Then some buyers will say, I can’t afford to pay $164,000 for a building while I’m paying $430,000 for the practice too.  But if the dentist does not buy the building with a $1,300 per month mortgage payment, they will have to pay $2,000 in monthly rent, which will increase annually.  So the choice is pay $1,300 per month for 180 months and own something, or pay $2,000 per month forever, which will increase every year, and own nothing.

Making the Payments

Then some dentists will feel that they will have to work too hard to make those monthly payments for the practice, working capital, and building which will total $7,800 per month in the case of this practice.  I can understand that, so I prefer to let the hygienist pay for the practice and building for me.  The profit from the hygiene department in this practice, after paying the hygienists’ salaries, is $9,200 per month, so the hygienist is paying off the practice and building for the buyer.

Taking the Risk

Still need more incentive to consider the “risk” of ownership and extremely high salary and additional return on investment?  Consider that Uncle Sam has agreed to pay one third of the practice price for you.  In virtually every practice purchase sold, the entire price of the practice is tax deductible.  For the dentist playing it “safe” and working as an associate rather than purchasing this practice, they will pay $155,000 more in taxes to the IRS.  For the dentist buying this practice, they will pay $155,000 less in taxes, and that can be applied to the price of the practice, or more wisely, invested in a retirement plan for future growth.

Many dentists are under the false assumption that they cannot get financing to purchase a practice.  In today’s world, there are a plethora of companies that finance dental practice acquisitions.  Why do you suppose that is?  It is because these lenders have discovered that dental loans are over 99.5% successful.  If a dentist can avoid the three d’s – drugs, divorce, and depression – they have a 99.5%  probability of success. Sometimes with newer graduates, the Small Business Administration may even be involved, but for a dentist who will not take no for an answer, I can almost always find the money for the purchase.

Purchasers feel that they are taking on a huge risk when it comes to borrowing money for a practice purchase, but consider that all the risk is really on the lender’s part.  Lenders are putting up every penny for the acquisition and working capital, while purchasers rarely if ever put up any money.  A huge advantage of using lenders is that they are very experienced and very skilled at assessing risk, so if a lender agrees to finance a practice for a borrower who they have not even met, that means the lender is expecting a very high probability of success for that purchaser.

Running a Practice

But what about the dentists who don’t know how to run a practice?  Again, if you buy a practice, you are in luck.  First of all, most sellers are happy to coach and advise buyers on how to handle staff, patients, and the other management elements.  For the buyer who doesn’t want to learn the seller’s mistakes – they are marbled in his wisdom like fat in a steak – there are management consultants who can advise owners in how to produce more income with less stress.  If you’re concerned about the cost of these consultants, they invariably pay for themselves and much more. And for the owner who wants nothing at all to do with management, there are organizations that will take over all management of the practice for the owner, leaving them with just the task of dentistry.

A Successful Practice

Still need more convincing to be super successful?  Practice owners, while they will complain about how tough they have it, are the happiest, most successful, and highest paid dentists in the profession. Owners have security.  They choose who works in their practice and the tone and personality of their practice.  They choose the labs and supplies that they want to use.  They choose the vendors and contractors that they want.  Owners can choose what benefits they want the practice to provide for them and their staff.  They can choose retirement plans, health insurance, long term care insurance and if incorporated, can enjoy tax benefits for these and many other benefits.  They can choose their continuing education and what direction they want to enhance their skills and knowledge and practice direction.  Owners can also hire other dentists to help increase their practice revenues and add that precious business profit to their own bottom line.

In my previous article, we learned how a practice owner can retire with fourteen million dollars more in savings than a dentist who practiced as an associate for an equivalent thirty year career.  But there’s an even more noble reason to own your practice, and that is so that you can own your profession.  We have seen in other professions that when the professionals and new entrants will defer to the large corporations that the profession ceases to exist and is replaced by a business, whose only obligation to satisfy is to the shareholders, the recipients of the profit that the workers provide. So I urge anyone considering becoming an associate or working for big business to be your own shareholder, and recapture that investment you have made in becoming a dental professional, and not forfeit it to anyone else.


Earl M. Douglas is the author of many articles on dental transitions.  He has also authored software for the financial analysis of dental practices.  His company, ADS South, LLC, is engaged in the valuation and sale of dental practices in the Southeast.   He can be reached at 770-664-1982 or earl@adssouth.com