Advanced Practice Management, LLC (APM) is the leading upper Midwest dental practice management consulting firm. Since 1990 it has helped hundreds of dentists and their teams organize and prosper. APM delivers more consulting services to dentists in this area than all other practice management companies combined. This gives APM an adept and wide frame of reference in advising dentists on all aspects of practice management, including practice transitions. We’ve built our reputation on being reliable, results oriented and true to our word. You can call us anytime for an informal 20-30-minute telephone consultation to discuss your situation.
- Over 26 years in the dental industry
- Extensive experience over the past 20 years in the ongoing management of hundreds of dental practices including:
- Practice Mergers
- Practice Acquisitions
- Practice Sales
- Associate Management
- Day-to-Day operations
- Staff Training
- Augsburg College Minneapolis, MN
- U of M Duluth, MN RDH
Bill Rossi has over 35 years of experience in dental practice management. He and his associates are actively involved in the ongoing management of over 250 practices. They deliver more results to more clients in the upper Midwest than all other consulting firms combined. Bill says, “Each month we monitor over 30 million dollars worth of dental activity. Each year we do over 600 on-site consultations. This gives us a deep and wide frame of reference.
“Our clients expect straight talk and good results and that is what they get. We know how to bring out the best in you and your staff to get things done. We promise we will never pressure you or ask you to pressure your patients. You will never be locked into a contract. You will not be subjected to boring meetings and canned programs. You will receive top-notch management support. You will be in control of what happens in your practice.
WHAT TIME AND WHAT TRANSITION IS BEST FOR YOU?
Remember your first years in practice? The optimism, hard work and courage it took to start, join or buy a practice?
By now, you’ve built something of considerable value. Your next five or ten years can be as important as your first! How things are handled will affect how your patients are cared for, how your team does, and of course, your retirement.
Sometimes you can be sitting right in the middle of a situation and not see the opportunities available for you. Now may be a good time to work through your options. What transition scenario will work best for you?
- Have you added or are you considering adding an associate with eventual buy in? Can your practice support an associate?
- Do you want to sell your practice “Lock, stock and barrel” or are you considering “Move and Merge?”
- What are the most effective ways to maintain or enhance practice value; e.g., “stage” a practice for sale?
- How much is your practice worth?
- Do you want to retire out right or sell and work part time for a number of years?
SELLING YOUR DENTAL PRACTICE?
The Payoff is Not Just the Price!
By Matt Lahn
Obviously when it comes to finally selling one of your\ largest assets, you want to feel assured you are receiving a fair price. However, price is only one of many
variables that make up the total “sum of the sale.” Most practice sales are written up with an APA or asset purchase agreement. This assigns value to tangible assets like equipment, supplies, computers, etc., and non-tangible assets like Goodwill (patient records). This is where thousands of dollars can be lost or, worst yet, given to the IRS unnecessarily!
In most cases, goodwill (blue sky) makes up the majority of the total sales price. This is taxed at a lower rate (capital gains) than the remaining tangible assets, which are generally taxed at ordinary income rates. So, depending on income and sales prices, getting this part right is critical to rounding out the deal.
Moreover, if the selling Doctor plans on working for the buyer after the sale, negotiating a good compensation formula or other favorable working conditions can sweeten the deal and can be considered in the “sum of the sale!”
If the seller owns the practice facility and can get a fair sale price and/or an attractive lease agreement, this can also enhance the payoff.
Last but certainly not least: with the right deal and successor, you know that the patients you have known and served for years will have excellent ongoing care and your legacy and reputation will be preserved.
How Long Will it Take to Sell Your Practice?
By Matt Lahn
What we are discussing here are practices, typically solo, that are just outright selling… not bringing an associate in for a staged sale. Of course, if your practice has enough of a patient base to support two Doctors, or a Doctor and a half, the staging method is best. You get to groom the buyer, have the benefits of having an associate for coverage, profitability, etc., and get a good price for your practice.
However, in some cases, an outright sale is called for. Assuming your practice is appropriately priced for the marketplace, most Metro Area practices will sell in 6 to 12 months. Outstate practice sales time have great variability, with some taking up to 2 years to find a buyer, if ever. Generally speaking, the further outstate you go, the harder it is to find a buyer. In Metro Areas, “Corporate Dentistry” helps drive up prices. However, most of the larger groups that buy practices, such as Park Dental, Metro Dental, and Midwest Dental tend to stay within an hour or so of the Metro Area (with some exceptions). That’s because it can be difficult to keep dentists in far-flung places, especially if they don’t have ownership. We recommend that you plan on about a year to sell your practice and if you are in a rural area, two years.
Don’t Assume Your Hometown Banker is the Best Deal
By Matt Lahn
Naturally, you want to keep business with your friends and in your community. However, there are banks that have deep experience with dental practice sales and therefore are often a better choice.
Banks with dental experience tend to be more likely to finance the entire amount, or ask for less down, or generally be more flexible with their terms. It is a competitive market so take advantage of that.
They usually can expedite financing more quickly since, in many cases, they know the baseline dentistry better than your hometown banker will.
So, give your hometown banker a shot at it, but make sure you do some comparison shopping, too. Many thousands of dollars are at stake and, more importantly, your time and energy.
We are familiar with the bankers that are the most active play
Associate Expectations of Buy-In Timing
By Matt Lahn
Some advisors feel that when an associate starts, the practice value should be set, and a strict timeline laid out. There are times when this
makes sense, but we prefer another approach.
An associate should be a partner in reality before they are a partner legally. You want to ensure the associate’s success, their involvement in the practice, and that their production is ramped up. To do this, it’s likely you’ll invest in the practice’s facility, advertising, management of staff, and other resources. Most importantly, you are investing your reputation in steering patients to “the new Doctor.” Also, between the time an associate starts and buys in, there may be significant equipment purchases or other important improvements in the practice.
Next to your marriage, your associate relationship will probably be the most important one you have! We feel it’s very important to have a long enough courtship phase to ensure mutual compatibility. You can’t really force an associate to buy in within a set period of time, so you shouldn’t really be committed to sell during that time.
We also feel the practice value at the time of buy in should be the value of the practice at the time of the buy in! Some advisors recommend setting the value of the practice when the associate starts, and then at the time of buy in, and splitting the difference. There are other variations on these themes, too. It is negotiable.
Bottom line: Assure your associate that you will do all you can to help him or her have a good future in your practice. Do everything you can to support his or her success. From the very beginning, set expectations that the buy-in timeline will be 3-5 years and that the associate won’t be put off indefinitely. Recognize that predicting the course and pace of practice development in advance can be a very expensive gamble for either one of you.
Practice Transitions and Your Peace of Mind
By Matt Lahn
Of course, your (and our) goal when transitioning a practice is to get you a good price. But there’s much more than that involved:
- The ongoing care of your patients
- Your team
- Your reputation
- Your legacy in general
Probably the smoothest practice transition is when a senior Doctor sells to a junior associate Doctor. They know each other, the junior Doctor is worked into the practice and its culture, and he or she knows what they are buying. In general, there will be good practice continuity.
But some providers don’t have the temperament or the practice situation by which they can groom an associate to buy. If you’re in that position, it will probably be an outright sale where someone essentially takes your place.
Naturally, any buyer has an interest in retaining the maximum number of patients. To do so, they need to maintain continuity as much as possible. That means no rapid change in PPO participation, schedules, staffing, practice names and even treatment planning. It also means taking on the practice’s culture – at least initially. All these things can eventually be changed (and often are), but for the sake of your patients, your practice, and the buyer, they shouldn’t happen too rapidly.
Sometimes buyers and sellers are just too far apart philosophically. That’s why we advise the buyer and seller get to know each other a bit. It makes sense for them to have conversations about practice philosophies, treatment planning, long-term plans, and so on. However, these conversations should never veer toward negotiating price or terms. No talk about numbers, terms, special conditions, etc. Leave that up to your practice sales facilitator and the buyer’s representative. One of the main reasons it pays to engage a professional is to handle those sorts of details tactfully, representative to representative, and reduce the friction and (possibly) animosity between the buyer and seller.
We’ve seen situations where a quick sale led to a decent pile of cash but miserable consequences otherwise. That’s why it’s important to have someone who knows your practice – and that you are true to yourself – when you make these transitions.
The Extended Practice Appraisal
By Matt Lahn
Many Doctors 2-5 years out from their practice like to have an idea of what their practice is worth. This helps financial planning and planning the timing of retirement.
Yet, if you get an appraisal now, it’s likely not going to be accurate when you eventually put the practice up for sale. Recognizing this, we offer APM clients the “Extended Appraisal.”
That is, we do a formal appraisal now. That’s not a back of the envelope type thing. It’s a formal appraisal, just like when you are putting the practice to market. Then, when you put your practice up for sale, we will do another completely updated appraisal based on your practice and the market conditions then.
These are formal appraisals based on industry standards and are respected by any credible broker or banker. It beats the heck out of over-simplified rules of thumb like, “Your practice is worth 65% of your collections.” That’s only one of many other important factors in the reality of the marketplace.
There is another useful reason too for getting an appraisal done well before retirement. When you look at your appraisal, you understand how practices are valued and that will help you in making decisions to increase the value of the practice between now and when you sell. It’s sort of like planning for the eventual sale of your house. Adding a swimming pool doesn’t help the value but new siding or a driveway does!
The fee for an “Extended Appraisal” is $3,500. Basically, a two for one. We are proud to offer this extra level of service to our clients.
To get started on your appraisal, call Wendy Nelson or me at 952-921-3360.
Four Ways to Add to Your Practice’s Value
By Bill Rossi
Just like realtors “stage” a house, there are things you can do to fairly quickly add to practice value and desirability in the eyes of a potential purchaser.
- Keep you fee schedule up to date including balancing your PPO participation: Low fees and a low collection percentage can turn off buyers. If you are collecting less than 80%, it’s well worth checking into whether are participating with too many PPOs. Our research shows that at a certain point, additional PPOs doesn’t mean that you get or keep more patients, they just essentially, in effect, bring your fees down.
- Keep the Hygiene Department Pumped Up: Most appraisers and buyers take a look at the “Excess Income” a practice earns. That is, assuming the owner dentist became a worker and was paid about one third of their production, how much profit is “left over” after paying the doctor(s). The biggest factor in how much of this income there is, is hygiene productivity. Although the range of hygiene pay in our area runs from about $27 to $37 per hour typically, the range of hygiene productivity is from $110 to $200! If a full-time hygienist increases their production by just $10 per hour, practice revenues go up about $20,000/year, mostly profit. Practice value then may go up by $80,000! Having good patient flow and up to date hygiene protocols can add more to your profits and practice value than almost anything else. So, if you have not updated or refreshed your hygiene protocols lately, now is the time.
- Keep Things Fresh, Including Your Head: The longer you practice, the more you are likely to be “house blind” to pending patients’ needs. The patient and you get into a groove and then one day you retire, and the next doctor gets to do all of the crown and bridge that you’ve been “watching.” More to the point, the crown and bridge you don’t do when you are practicing, affects your practice gross, profitability and value. The #1 determinant of how good your case acceptance will be, is how excited you are. So, keep up with your Continuing Ed. Lead your team in closing the gap between what you can do for patients and what they choose to have done.
- Timing: If you are going to be selling out right and you are leasing your practice in a professional space, timing is going to be important. Ideally, you put the practice up for sale one year before the renewable lease ends. This gives the buyer(s) the option of renegotiating the lease and signing on or moving the practice. Many practice sales nowadays involve a “merger” and those buyers do not necessarily want your facility. They are most interested in the patient flow. If you have an associate on board that’s buying, the timing here is important too. You want to make sure that the associate is a partner “in reality” before they are a partner legally. In other words, don’t rush the buy in but give the associate a definite future and help them ramp up. This also ramps up the value of the practice.
SIX THINGS NOT TO DO:
- Don’t buy a lot of expensive equipment within two years of trying to sell the practice. Your investment in high ticket, high tech items such as Cerec, Lasers, Cone Beam will not likely be recovered. Here the analogy is adding a swimming pool to your home. It doesn’t necessarily add to the value and for some buyers, it will actually detract from it.
- Don’t let the practice become run down and threadbare. Keep the paint, carpet, countertops, etc. fresh.
- Don’t sign a 10-year lease when you plan on selling in 3 to 5 years! (see above)
- Don’t hang on to underperforming staff members. It’s very common to see Doctors late in their career, out of compassion and general mellowness to keep too many staff people around or inefficient team members. I often see overstaffing by at least one member in a solo practice. This can bring down the practice value by multiples of the staff costs because the #1 determinant of practice appraised value is net income. $25,000 in “excess” wages can decrease your sale price by $100,000. Overstaffing or underperforming staff is the #1 cause of high overhead as a percentage of collections.
- Don’t let your website get out of date. This has to be up to snuff too. Any buyer nowadays is going to go to the website first thing. If it’s out of date, they are going to think that your practice is out of date. Avoid Clip Art and pictures of empty operatories. Show the rooms and patients in the rooms with your team. This is good for your website in any case and helps add to the curb appeal of your practice.
- Don’t place blind ads. If you’re looking for an associate with potential buy in or you are putting a practice for sale DYI, don’t be vague, “Southern MN practice seeking associate.” Who wants to apply to something that general? The candidate would not know if they are applying to a corporate dental or even to a friend of their current employer. So, make sure that you say, “Confidentiality Assured”, who you are and where you are. If you’re in a small town and don’t want word to get out that you’re thinking of selling, then you can leave your name out but you still want to get more specific in the space. “Small town outside of Rochester”, etc
“We had been working on getting a buyer and a deal for over two years. Then we switched to Matt and he got a deal done in a couple of months. I am very pleased with how he handled the transition.”
“Bill, I want to thank you and Matt for the good job you did in helping me with my practice transition. It has worked out very well for me and I feel my patients are and will be well taken care of.”