Ready to start looking for a dental associateship? Here are some questions to consider.

When is the best time to start my search?

It can take a full year to find the right position, so you need to begin searching 6 months to a year prior to your availability. Even though it is just a job you are looking for, you will most likely be signing a contract which will prevent you from competing with that practice. You want to make sure that you are making an informed, thoughtful decision before accepting a position. This process shouldn’t be rushed and shouldn’t be taken lightly.

Should I look for a position close to home or where I want to live?

Keep in mind that you will most likely sign a non-compete when you accept a job working in a practice. If you want to purchase a practice in the future, you don’t want that non-compete to prevent you from buying a practice in an area that you want to spend your career at. We recommend that you look for a job a little further away from where you ultimately want to be. You could even spend time working in an under served area where you wouldn’t want to practice long-term. If your goal is to find an associateship in a practice where you can eventually buy-in, you might consider looking closer to home. However, most associateships don’t typically end up in ownership.

Do I need a C.V. and references?

Yes! Your C.V. will serve as your first impression to a potential employer. You will also want to create a cover letter to go along with your C.V. Having references ready from the beginning will help show that you are prepared. Make sure each person you put on your list knows that you have included them as a reference and are prepared to take calls from potential employers. Your references can be former employers, teachers, or co-workers. In addition to having a C.V. and list of references, be prepared to show your production numbers. If you are just getting out of dental school or still in school, a procedure log will work as well. This shows a potential employer what your skill set and experience is.

Are there options to work outside of Corporate Dentistry?

Corporate dentistry, or DSOs, spend a lot of time and money recruiting young dentists to work for them. Most offer competitive compensation packages that are very enticing for recent graduates that have lots of debt to pay off. However, there are plenty of opportunities if you prefer the private practice model. In private practice, you will most likely have a better opportunity to be mentored and the focus will be more on patient care then hitting production goals. Both models have their pros on cons, but if you are interested in going the private practice route, take the time to seek out those opportunities. They are out there.

The DSO Effect on Practice Transitions

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I received a call from a former client the other day asking me if we had any non-corporate dentists buying practices anymore. This was a client who had purchased her practice only 2 years ago and already thought that the transition landscape had changed so much that Dental Service Organizations (DSO) were now the only buyers for dental practices. I have been making it a point to talk about DSOs each time I present to a group, but until I got that phone call, I didn’t realize how big and widespread the misconceptions were and how important it has become to inform the dental community about their options.

The latest report from the Health Policy Institute regarding DSO trends, “How Big are Dental Service Organizations?”, shows that in 2016 the nationwide average of US dentists working for a DSO was 8.3%. That was up from 7.4% in 2015. It is no surprise that this number is moving higher, but I believe that is still much that can be done to curb it.

As a practice broker, I can use my influence to sell more or less practices to DSOs. Would it be easier to keep a stable of 10 DSOs to sell all of my practices to instead of maintaining a pipeline of hundreds of new and eager buyers? Probably. But, I am a strong proponent of private practice and the higher quality of patient care that they provide. Our nation is already struggling with a decline of small businesses; do I really want to be a contributor to that trend as well?

I have learned a lot from talking to dentists around the country. The information that is out there on DSOs as they relate to practice transitions varies widely and is much exaggerated. They have a huge marketing reach and are pounding their target audience with messages that are misleading and half-truths. No longer do you “sell” to a DSO; now you “affiliate” with them. No longer do you ”work” for a DSO; you “partner” with them. They realize that they have somewhat of a bad reputation and they are using the power of words to try to change that.

If you are a young dentist coming out of school, you are probably overwhelmed by the volume of DSOs courting you to come work for them. DSOs can offer a higher compensation than most private practices and typically provide benefits such as health insurance and retirement plans. I don’t find this to be too much of a bad thing, but it is sad to see private practice owners struggle to retain good talent because they can’t operate on the same margins as a DSO. However, most young dentists only spend a few years in the corporate world before they decide that they have had enough. Most of our buyers have paid their dues in this arena and have learned a lot about what they do and do not want to do in their future practice.

If you are already a practice owner, you have probably received hundreds of postcards and letters from various DSOs about receiving the maximum value for your practice and the freedom to enjoy a work-life balance if you sell to them. It has been my experience that very few sellers actually get what those marketing pieces promise. The DSOs are only willing to pay top dollar for a very specific practice. Most practices don’t fit that criteria. If they don’t, the DSO will probably still make an offer, but it won’t be as much as their advertisements suggest they usually pay for practices. Since most dentists have never sold a practice, they don’t have the knowledgebase to realize that the offer from the DSO is not the best offer that they can get.

People forget that there is more to an offer besides just the purchase price. Is the DSO paying the entire purchase price to you at closing? Will it be a mix of cash and stock in the company? Will you be required to owner finance a portion that only gets paid out if you meet certain production goals? How long do you have to work after the transition? What are the penalties if you leave early? How much will you be paid? Are the accounts receivable part of the purchase price or do you get to keep them? The answers to these questions are instrumental in determining the overall value of the package being offered to you.

If you are willing to explore the option to sell to an individual dentist, you will find them better tailored to your situation. When we work with a seller, the first step is to come up with a transition plan that meets the needs of the seller and then we go looking for the right buyer for that seller. When you work with corporate buyers, you are forced into their requirements. When you work with someone like me, you are the mold and we find the buyer that fits into it.

Individual buyers can be flexible with the seller’s post-sale plans. Do you want to walk away? Do you want to transition over 3 months? Do you want to work part time for two years? They can pay up to 90% of revenue for the right opportunity. With a less than 1% default rate, banks love lending money to them! And wouldn’t it be more gratifying to hand your patients over to a younger dentist ready to make your practice his home for the next 30 years?

Interested in a blend of a DSO and an individual buyer? There are many dentists entering the small group practice space. These are dentists that are interested in owning more than one practice, but don’t typically grow beyond 10. They are better suited than the first-time buyer for the higher grossing practices, as they have the skill set needed to operate such a practice and can typically offer a higher price because the banks will look at their overall revenue when determining how much to lend. Also, these small group practices typically offer a competitive compensation for the dentist that stays on to work and won’t have any post-sale production requirements.

The sky is not falling. You do not have to become a DSO, sell to a DSO, or work for a DSO. The Corporate space is growing, and growing faster than we’d like, but that doesn’t make it your only choice. If you are considering buying or selling a practice, it pays to look at all of your options.

5 types of buyers in the market for a dental practice

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Curious to know who are buying dental practices right now? Want to know who could potentially buy yours if you were to sell? Here are five types of buyers currently in the market for dental practices.

1. New Buyer

This is the most common buyer. Most first time practice buyers are 5-10 years out of dental school, have been working as an associate in a large practice, and have decided it is time for them to be their own boss. Wanting control over how to treat patients and how to manage the office are the main reasons the new buyer enters the market for their very own practice. Buying a practice for them is like fulfilling a lifelong dream, so finding the right practice is very important to them. They understand that when acquiring a practice, they are acquiring someone else’s family of staff and patients and tend to treat it accordingly.

2. Partnership Buyer

Someone that wants to buy into a practice, instead of buying the whole practice, tends to be a buyer that enjoys collaborating and working as a team. This buyer also likes the idea of another provider in the office to cover for them if they want to take time off. A partnership is like a marriage and it can be very difficult to match up two people that will happily work together for the foreseeable future. Keep in mind, also, that a practice needs to have enough patients to support both providers for this scenario to work out. If the patient base is too small, the new partner will struggle to make a living and pay off the loan that enabled him to buy into the practice in the first place.

3. Merger Buyer

A merger buyer is someone that would like to add more patients to their practice through buying a nearby office and putting the two together. This can happen through the seller’s practice moving into the buyer’s location or vice versa. If the seller is moving to the buyer’s practice, the seller would need to stay on for a year or two to transition the patients to the new location. This is a very smart business decision for the buyer, as the fixed expenses of their practice don’t change but the new revenue can dramatically increase the bottom line.

4. Satellite Buyer

It is common for dentists who enjoy the business side of dentistry to want to own multiple offices. When a dentist is looking to purchase an additional practice, they look for opportunities where the seller is willing to stay on after the sale. This is important because the buyer is probably already working full time in another location or is busy enough managing the business side of the operation. This is a great opportunity for the buyer to grow their portfolio of practices and the seller to fund his pension plan while continuing to practice dentistry on his patients with much less stress.

5. Corporate/DMSO Buyer

The corporate/DMSO buyers are snatching up practices as quickly as possible. Although they are not all the same, what they look for in a practice is very similar. They want a practice with revenues over $800K with the seller willing to work for at least two years after the sale. They also typically want the seller to hold a note for 20% of the purchase price, to be paid out over the two years of post-sale employment. They do this because it is imperative that the seller continue to keep the practice producing until they can at least find a comparable associate. However, they would prefer to have the seller stay on indefinitely.

Every buyer is unique, even within each category. They all have different dreams, desires, and needs. Not all sellers have a strong preference to who buys their practice, but when selling goodwill, most dentists want to make sure their patients are going into good hands. When thinking about your transition plan, put some time into “who” you want to transition your practice to, and not just the price you want to sell it for.

Here are 5 things buyers are looking for right now

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Thinking about putting your practice up for sale? Here are five things buyers are looking for in a practice.

  1. Space Most new buyers are used to working in large dental practices with multiple providers. Typically, these practices are high volume and require the associate dentists to work out of up to three rooms at a time. When these dentists are ready to purchase their own practice, they can’t imagine how a dental practice can operate out of any less than four treatment rooms. If your practice has only three chairs, but room to add a fourth, you might consider doing that before putting your practice on the market. If your practice doesn’t have room to add a fourth, it will have a negative impact on the value of your practice and limit the number or purchasers willing to entertain it. However, a physically small practice could also be a good candidate for a merger into another, larger office nearby, depending on the lease.
  2. Visibility Long gone are the days when dentists want to be tucked away in professional buildings with no road signage. Buyers are very concerned about new patients and most feel as though it is imperative to have good visibility. If potential patients are driving by your office and have no idea you are even in there, buyers will have some concerns to work through. However, don’t run out and build out a new space down the street to gain more visibility. Just understand that it might take a little longer to find the right buyer for your practice.
  3. Procedures As most dentists near retirement, they begin referring more procedures out. This is a good thing to buyers! They want to make sure that, not only can they do the procedures done by the selling dentist, but that there are a few that they can add to the practice. Adding procedures to the practice allows the buyer to increase revenue without having to add a single new patient to the practice. This is the kind of potential buyers can easily understand.
  4. Cash flow What the practice owner takes home after paying all of the practice related expenses is considered the cash flow. Although revenue is important, buyers are more concerned about what they will put in their pocket if they buy your practice. It is good to understand if your overhead is in line with industry standards or if you need to make some adjustments. Not sure what those benchmarks are? Ask a transition expert or your CPA. Keep in mind though, most buyers will use your last tax return to determine cash flow, so this could take some time to really change. Banks will also look at the cash flow to determine how much they will lend someone to purchase your practice. Not having enough cash flow could potentially leave you having to carry a note or walking away from a good buyer.
  5. Lease If you are leasing your space, it is a good idea to have it reviewed by a real estate specialist to make sure it is fairly priced and the terms are reasonable. Most buyers are concerned about paying too much in rent and a bad lease could cause you to lose many qualified buyers. On the other hand, if your lease is coming up, it might be a good time to consider a merger. Mergers are a great way for established dentists to increase their patient base, and a great way for a seller to be able to stay on and work after the sale. If you choose to renew your lease, you might consider hiring a lease negotiator to handle it for you. You would be surprised how much more favorable the terms can be when a real estate professional is working on your behalf. Best of all, most of them don’t charge the tenant a dime!

This article was published in the September 2016 issue of the GDA Action.