5 types of buyers in the market for a dental practice

,

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

,

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.