Gateway to Private Practice Excellence – What You Need to Know When Selecting an Opportunity

It can seem daunting to start the hunt for the right dental practice to acquire or take a position as an equity owner. Having visited hundreds of different practices each year (for the past 19 years) and worked with hundreds of practice owners and owners to be, I have a unique perspective on where to find true practice opportunity gems and what situations to avoid.

Let’s face it, time is our most valuable asset, and we all want to optimize our time in daily life. It takes time to get comfortable with the process to find the right practice, and no one wants to miss the boat on a solid opportunity. Classified ads for practice opportunities in the digital age can seem cryptic and uninviting due to confidentiality constraints. However reading between the lines, I can give you a few tips as to which ones may be worth pursuing. For example:

PRACTICE #7750: Long established general practice now available due to owners planned retirement. Collections steady at $600,000 per year. Strong hygiene department, production mix 50-percent hygiene, 50-percent doctor. Four treatment rooms, leased space with favorable terms, located in college community.

To me this ad screams “Practice Goldmine” interpretation, stuffed with reliable hygiene patients, a doctor who is working at a moderate pace and room for a new owner to comfortably take over and not get clobbered with expensive occupancy costs. Definitely worth looking at, even if some equipment may possibly need upgrading.

PRACTICE #8845: Ultramodern state-of-the-art practice with all the bells and whistles. Ten treatment rooms, a prime location,

new patient flow averaging 30 per month, 85-percent insurance, long term lease with assignability provision near major medical center.

This is worth a look if one is interested in owning a large practice and having associates. But you should ask why the owner

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is selling or offering an equity position. How readily available are associates for hire? If the owner is offering an equity position, how much debt is there on the practice? Occasionally, we find some practice owners are highly leveraged with debt load from new office build-out and equipment. Their motive is sometimes to find someone to buy half the practice and share the debt load. Caution: if there are not enough patients in the practice or a strong marketing protocol, this can be financially burdensome and stressful for all parties involved.

PRACTICE #9230: Well-run, rocksolid modern solo practice, profitable nets 45 percent to the owner. Excellent work schedule, four days, FFS (Fee for service). Annual gross revenues approaching $1.5M, two full-time RDH, state-of-the-art technology, six treatment rooms. Dream practice in desirable community.

2013 Practice Tax Returns

Interpretation: “ Success Haven.” This practice is going to sell for a premium. Additionally, I guarantee you the seller/owner digs dentistry, may possess an advanced skill set, has exceptional management systems, a superb staff and marketing protocol in place. With six treatment rooms, there is enough room for the owner to stay on and do a role reversal as an associate for the new owner if that is the desire of the purchaser. These practices are worth paying a premium for, as all the kinks have been worked out and the owners want to see their successors do well. They are likely willing to thoroughly educate them on practice management systems and all the other success nuances.

ADJUSTED NET INCOME:

Sample Financing Scenario:

Finance practice $550,000 for 10 years

@ 5.25% interest = $5,901.06/mo.

I always suggest that new dentists visit as many practices as possible that spark their interest to develop a

great frame of reference to narrow down the final selection. The next phase in the process is what I call the Fit, Feel and Finances. If a practice opportunity has a similar practice philosophy or if it is what a new doctor aspires to achieve, generally it is going to be a good fit. If the practice tempo or philosophy feels alien, it might be best to pass and look at other situations before rushing into making a decision to move forward with it. The final qualifier is financially related. The big question I hear from dentists is, “What is left over for me to live on if I buy this practice?” With the practices I represent, I always run a realistic sample cash flow scenario to show a potential buyer what is going to be left over to live on while the practice is being financed. Sometimes the bottom

line is the pass/go qualifier.

Similarly with searching for an associate position, one wants to feel comfortable and supported in the work environment. Are there ample patients to support a fully scheduled day for a new dentist in the practice? Or are you required to go out and build your own patient following? If doctor compensation is tied to collections, is the staff doing a great job collecting revenues on a timely basis?

Illustrated below is a fairly normal looking sample cash flow scenario looking at a 2013 practice tax return and seller interview answers on personal items expensed in the practice:

Cash Flow Analysis - Practice ME2292

Gross Receipts: $792,678

Net Profit $26,162

Officer Compensation $210,900

Depreciation: $1,508

Pension & Profit Sharing plan 70% $51,139

Travel $974

Amortization $157

Seminars $2,020

Meals & Entertainment $1,381

Spousal Salary $32,240

Total Adjusted Net Income: $326,481

Annual payments = $70,813

2013 Adjusted Net Income = Dollars available to new doctor = $326,481

Minus Annual Loan Payments = -$70,813

Remainder for new buyer = $255,668

I have observed over the years that the most successful practices have a totally engaged owner who is committed to being a successful business owner dedicated to the delivery of dental care. This translates to cultivating the best staff possible. Most of the practice owners I interview attribute their practice success to their dental team. They deeply appreciate their staff members who support their mission. They have effective systems and processes in place to take excellent care of their patients and attract new ones. Hang with the bright stars, and you will be a bright star too! The company one keeps is important. Many of the successful practitioners actively participate in study groups, mentor programs, share and teach what they learn to others.

of arriving at the asking price, procedure mix, patient attraction methods, marketing, staff mix, benefits, pension plan, scheduling, new patient flow, demographics, practice management style, staff meetings, handling financials accounts receivable (who applies the cash) and accounts payable (who pays the bills). Ask about the occupancy. Is there a lease available? Is relocation necessary, or can building be purchased? Also be sure to ask the practice owner what their timetable is for transitioning out of practice or bringing someone in. Assess your own goal timetable and see if there is alignment or misfire. As always, the devil is in the details.

Time is precious and opportunities abound. It is my personal mission to help dental professionals be successfully self-employed. I am here as a resource to assist those in transition. I wish every reader of this article continued success!

When investigating practice opportunities, ask the practice owners as many questions as possible pertaining to the metrics of the practice, such as the process

ADS HAS THE LOCAL MARKET EXPERTISE AND A HISTORY OF OVER 2.8 BILLION DOLLARS IN PRACTICE TRANSITIONS.

START YOUR PRACTICE SEARCH WITH A PROVEN PARTNER.

TO BEGIN YOUR PRACTICE SEARCH

Find ADS listings and more at adstransitions.com/buyer

PRACTICE LISTINGS

ADS Dental Transitions (888) ADS-4237 www.ADStransitions.com

ADS is the nationwide leader in dental practice sales, associateships, buy-in/buy-outs, partnerships and appraisals. ADS is comprised of the industry’s most experienced professionals, including dentists, attorneys, and CPAs. We can help you with each step of your next transition. To view a complete list of practice opportunities available in your desired area, visit us at ADStransitions.com. Please see our ad on page 17.

ADS South is the premier dental transition organization in the Southeast. We provide associateship placement, dental practice sales, appraisals, and expert testimony services. Our company was founded over 26 years ago by Earl M. Douglas, DDS, MBA, BVAL, and we continue to control the cutting edge of transition technology. Please see our ad on page 5.

At Aspen Dental we recognize that our success is a direct result of empowering and supporting ambitious dental professionals. We provide a professional, fast-paced, entrepreneurial work environment based on a mutual respect that keeps our interests aligned together, we build and develop successful, patient focused dental practices. Please see our ad on page 9.

Comfort Dental www.comfortdental.com

The Best of Both Worlds At Comfort Dental, we combine the old-style neighborhood dental practice with today’s modern group practice. Equity ownership, autonomy, management of your own business, and long- lasting relationships with your patients is combined with our economics of scale, prime locations, mass marketing, and overhead control. It truly is the best of both worlds. See our ad on page 15.

Henry Schein Nationwide Dental Opportunities is the perfect solution for your Dental Associate recruitment needs. Call 1-866-409-3001 today to learn more about improving your opportunities or success. See our ad on the back cover.

Henry Schein Professional Practice Transitions (PPT) is the practice sales division of Henry Schein, Inc. Our affiliation with the largest dental supply company in the country—intent on servicing the practice buyer’s future supply, equipment and service needs, makes PPT the only company with a vested interest in the buyer and a career long trusted relationship with the seller.

IgniteDDS 716-912-7970 david.rice@ignitedds.com

Building the bridge between dental school and tomorrow’s most successful, quality-conscious private practices Mission: Fueling Passions Beyond The Classroom for dental students, new dentists and new dental team members Description: igniteDDS empowers the next generation of dental professionals with the knowledge and resources you’ll need for tomorrow’s treatment and practice decisions!

MacPractice, Inc (402) 420-2430 MacPractice.com MacPractice DDS is the leading practice management and clinical application for dentists who prefer to use a Mac, featuring electronic insurance submission, Mac native digital radiography and photos, charting, Electronic Dental Records, Kiosk, Web Interface, iPhone Interface, speech dictation, and Mac stability and ease of use. Please see our ad on page 27.

At the Medicus Group, we help our dentist clients throughout the country build robust, impenetrable balance sheets. Our Unique planning approach coupled with our specialized knowledge of the dental industry, helps us create significant value and measurable bottom line growth for our clients, all while protecting their most valuable assets. Please see our ad on the inside back cover.

Offices located Nationwide. PARAGON offers professional consultation and related services to healthcare professions with primary emphasis on the dental profession: comprehensive dental practice valuations (including a written valuation and analysis report); practice sales; pre-retirement sales; practice acquisitions; practice mergers; associateships; partnerships; practice consolidations and practice management. References available by request. Please see our ad on page 29.

Patterson Dental Supply Inc. is a full-service distributor of a complete range of dental products and services to dentists, dental laboratories, institutions and other healthcare providers throughout North America. As one of the nation’s largest dental distributors, Patterson Dental sells consumable dental supplies, digital and other dental equipment and practice management software. Please see our advertisement on the inside of the front cover and page 1, and page 21.

Business Beyond

the Classroom

CEREC AC from Sirona is the most advanced dental CAD/ CAM system available. With its Bluecam, capturing fast, precise digital impressions and then creating high quality esthetic restorations is a reality. CEREC AC delivers access to efficient, precise, scalable and affordable solutions, including CEREC Connect. Call 1-800-659-5977 or visit www.cereconline.com. Please see our ad on page 29.

The Artist Evolution is a full service, strategic marketing and design firm with a passion for helping practices around the country to communicate effectively with their target patients, to develop an identifiable brand, and to meet their objectives in a cost-effective way. Please see our ad on page 25.

Wells Fargo Practice Finance provides customized financing supported by experienced specialists and practical planning resources to help dentists acquire, start and expand their practices. The only practice lender selected especially for ADA® members and endorsed by ADA Business ResourcesSM, we understand the business of growing successful practices and are here to help you achieve your goals. Please see our ad on page 7.