Three simple rules for passing on your dental practice

Passing-down-you-dental-practice

They say you can’t take it with you. And it’s certainly true of dental practices.

Whether you plan on passing it on to family members, selling to a corporation or even another practitioner, there are three simple rules to keep in mind.

Rule 1: Value does not equal price. Value is an estimate of the financial worth of a practice determined by formulas. Price, however, is determined by the careful dance between how desperate a seller is to sell and how determined a buyer is to buy.

At present time, most of the dentists I know above the age of 60 cannot wait to sell their practice. Typically, the dental practice is one of their largest assets and is generally considered the best way to ensure a happy and  secure retirement.

Rule 2: Gross production is not what you want to purchase. A much better determinant of the value of a practice is really net income. So whether you’re considering selling your dental practice or making a purchase, it’s critical that you look at net income from the seller’s tax returns related to the practice. What a buyer should look for before making the purchase is the dental practice’s ability to make a profit. So as a seller the number one goal is to make the practice as profitable as possible before putting it on the market. The more profitable it is, the more valuable it will be to a would-be purchasers.

Rule 3: Never buy a practice’s potential, only the present or historic value. Future profits can be uncertain. Many times I’ve had someone say to me, “Dr. Coughlin, I’m thinking about buying a practice. It has great potential.” You really want to make your purchase price based on today’s value, not what tomorrow’s value might or might not be.

I cannot emphasize enough that even if you feel you’re not interested in selling your practice or you’re not considering buying a practice you should be prepared to sell at any point in time.

If you are considering buying a practice or selling your own practice, I may be able to help. My coaching services leverage over 30 years of real experience growing my business from one practice to 14.

Contact me today and let’s make sure you make the best and most profitable decisions based on your current situation.

Corporate dentistry not friend or foe

What’s the fastest growing segment of the dental health care industry? No, not actual dental care methods like braces and tooth replacements. It’s actually corporate dentistry: the organizational DNA of the industry.

Although many of us are aware of the accelerating incursion of dental chains into our industry, it’s worth mulling over the facts for a moment and why it matters.

As a catchall term, corporate dentistry is growing at almost 40 to 45 percent each year. These Managed Service Organizations (usually chains) or Dental Service Organizations (same, except a DSO can be a stand-alone operation) can be owned or invested in by venture capital or equity firms.

It can be argued that such a financial relationship is problematic in practice. Equity firms typically invest short-term so when they get involved in dental firms they’re trying to triple or quadruple their money over a 3 to 7 year timeframe. When they get out and sell to another finance firm, this can be disruptive to the dental operations in that they may have to financially modify or change their models.

Most of these dental practices are run like franchises. Some have a universal look and feel along with strict franchise practices and branding. Others, usually existing dental practices, are allowed to retain their own unique character and feel, with the franchising instead focussing on suppliers and general business practices.

Keep in mind that like with all things there are excellent corporations, less than excellent corporations and poor corporations. The critical aspect is what is their short and long term goals are. And that should be your focus when considering bringing your practice under their system.