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:
It can be an outright sale, where the seller retires immediately.
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.
We 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.
This entry was posted on Monday, March 22nd, 2021 by James Ackerman and is filed under
Merger,
In most life situations, people use specialists to help them obtain the help they need. People go to their dentists to obtain dental care. They go to a medical doctor to obtain medical care. They seek the services of insurance agents to help design an insurance program to meet their needs. They seek the help […]
Today, if you are a dentist and do not own all or part of a practice, the question is not Why?, but Why not? Naturally, there are some compelling reasons why individuals choose not to own their own practice. However, the current environment makes the benefits of ownership so overwhelming, it is difficult to understand […]