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Monday, March 22nd, 2021 | by James Ackerman

The Win-Win Practice Transition

dental-chair-equipment

The classic definition of a dental practice transition is when a doctor sells all or part of their practice to another dentist. The seller either retires shortly after, or phases themselves out over a period of time. Other names to describe a practice transition include: buy-out, associate buy-in, partnership, or practice sale. But, the transition that is the best deal in dentistry is the practice merger.

Just like a traditional transition, the merger can be structured in many different ways. Two of the most common are:

  1. It can be an outright sale, where the seller retires immediately.
  2. It can be a phase-out, where the seller merges their practice into the buyer’s and works for a period of time as the associate. This can be as short as a few weeks, or it can be a long phase-out over years.

So why would a buyer want to purchase a merger? Big business figured this out long ago: The quickest way to grow a business with the least amount of risk is through acquisitions.

You have heard the term “mergers and acquisitions.” Bank of America, Chase, and JP Morgan didn’t become massive banks through organic growth, they did it by buying and merging other banks. There are two main economic theories for this operation. First, there are synergies that are gained when you combine two similar operations. Redundant expenses and staff can be eliminated. The result is two gross incomes with one overhead.

Second, the immediate increase in number of patients.

Let’s take a look…

Buyer’s Practice – 1800 active patients Seller’s Practice – 800 active patients
Gross Income 600,000   Gross Income 384,039
Wages 180,000 Wages 136,135
Taxes 10,415 Taxes 13,518
Rent 36,000 Rent 24,000
Legal & Professional 3,000 Legal & Professional 1,935
Insurance 4,500 Insurance 3,208
Office Expense 15,000 Office Expense 2,412
Repairs 4,500 Repairs 2,169
Utilities 12,000 Utilities 5,269
Telephone 2,400 Telephone 2,819
Dental Supplies 36,000 Dental Supplies 24,000
Labs 30,000 Labs 29,051
Bank Charges 5,000 Bank Charges 3,758
Marketing 15,000 Marketing 3,000
Dues & Subscriptions 1,500 Dues & Subscriptions 1,500
Total Expenses 355,312 Total Expenses 252,774
Net Income 224,685 Net Income 131,265
Overhead 59% Overhead 65%

 

When a merger happens, all of the highlighted areas of the purchased practice go away. When you merge the practice into the buyer’s practice, you are only paying one rent, not two. You are only paying one accountant, not two. And so on.

 

Buyer’s Practice – 1800 active patients Seller’s Practice – 2600 active patients
Gross Income 600,000   Gross Income 984,039
Wages 180,000 Wages 225,000
Taxes 10,415 Taxes 11,502
Rent 36,000 Rent 36,000
Legal & Professional 3,000 Legal & Professional 3,000
Insurance 4,500 Insurance 4,500
Office Expense 15,000 Office Expense 15,000
Repairs 4,500 Repairs 4,500
Utilities 12,000 Utilities 12,000
Telephone 2,400 Telephone 2,400
Dental Supplies 36,000 Dental Supplies 59,000
Labs 30,000 Labs 59,201
Bank Charges 5,000 Bank Charges 8,000
Marketing 15,000 Marketing 0
Dues & Subscriptions 1,500 Dues & Subscriptions 1,500
Total Expenses 355,312 Total Expenses 458,850
Net Income 224,685 Net Income 525,189
Overhead 59% Debit Service on the loan 15,776
Net Income 509,413
Overhead 52%

 

When you look at the before and after of the combined practice, it’s like magic! The buyer picked up an additional 800 patients overnight. If you’re getting 10 new patients a month at your practice, it would take almost seven years to reach 800 new patients.

Chart showing 800 patient increaseWe have completed many “merger” deals and the buyers almost unanimously tell us they were successful. A few patients that once lived in the neighborhood and now travel, may take this opportunity to find a dentist closer, but the vast majority of patients transferred to the new office. As the “new” dentist, you have the opportunity to make a great impression on new patients and give them a good experience that will keep them as patients.

Once a dentist does one of these transitions, it’s not uncommon for them to call us a year later to inquire about other nearby deals and be put at the top of the list to call if any become available.

There is no better feeling, knowing that a transition was a win-win for all involved.

James Ackerman is a dental transitions broker with ADS Midwest. He can be reached at jim@adsmidwest.com or (314) 449-4517.


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