COSTS ARE GOING UP, and profit margins are shrinking. What’s a practice owner to do in order to stay competitive? How are you going to keep the doors open, keep the staff happy and productive, keep the new patients coming, and still manage to keep some money in the bank at the end of the day? Or at least until the end of your career? This article is about decisions that can dramatically affect the sale of your practice within the next five years.
You read and hear about a lot of “silver bullets” and wonder if they will work for you. Some of these are sharing space with another doctor, buying or starting a satellite office, or the old standby, hiring an associate and hoping the person will help build your practice for you so it will be worth more when you sell.
Let’s take a look at one of these options, space sharing, and examine just how viable it might be. But first, let’s take a look at your timing. If a transition is looming in your not-too-distant future, the answers will be different, and they might surprise you.
Saving money is good, right? Camaraderie is also good, and it’s lonely out there as a solo practice owner. You could share the cost of new equipment, share some staff, and possibly even build in your buyer. Or you could render your practice virtually impossible to sell.
Space sharing, not to be confused with partnerships or practice mergers for this example, can take several forms:
- Buying or constructing a building with another solo practice owner;
- Practicing alongside another solo practice owner in his or her building; or
- Inviting someone to use excess capacity in your own building, perhaps temporarily.
The big question is, will you retain your own separate space and independent practice? If you’re hoping to sell in the near future (zero to five years), this is not only recommended, it is critical! Even then it might be very tough for you to sell when the time comes. Unless you have agreements in place from the outset that require your spacemate to purchase your practice at the end of the arrangement, or agree to sell simultaneously, you may find yourself virtually unable to sell. Suffice it to say that space-share agreements need to be well thought out and well written. This is definitely not a do-it-yourself endeavor.
We’ve recently worked with several shared-space practices. In almost every instance, one doctor was ready to sell and the other was not. But neither wanted, or was required, to buy the other out. Even when the two practices were totally separate and shared only a panoramic x-ray machine, buyers were understandably wary of jumping into a situation where they did not know the other owner.
In instances where the two doctors shared all of the equipment, it proved virtually impossible to find a buyer or financing. When the other owner realized he would face the same impediments when the time came for him to sell, both doctors in all but one case decided to sell to a single buyer. That worked out well and allowed us to attract strong buyers. In the other case, the outcome was not so rosy. It affected not only how long the sale took, but also the price a buyer was ultimately willing to pay.
The positives of a well-structured space-sharing arrangement where there is independently owned equipment and an obligation to purchase, or where both doctors agree to sell simultaneously, are obvious. Savings on fixed costs and new equipment, especially high-tech equipment such as CAD/CAM and CBCT, can make this a very viable option. If you’re thinking about entering into a space-sharing arrangement, be sure to get professional guidance and have good, solid agreements in place. Also, make sure you have many years left before you must figure out how to make your practice sellable.
If you’re currently in a space-sharing arrangement and planning to transition soon, it’s time to have a heart-to-heart with your spacemate. DE
WENDY HIRAI is senior practice broker with ADS Northwest Consani Associates Limited, a dental brokerage firm covering Idaho, Montana, Washington, Alaska, and Hawaii. Wendy lives in Boise, Idaho, and can be reached at (866) 348-3820 or firstname.lastname@example.org.