Get prepared to make the most of a dental practice transition during this unprecedented time.
Inevitably, there comes a time for every dentist to make a big transition in their career, whether it’s starting a new practice, joining a practice as an associate or partner, or selling outright. Life and big career moves aren’t put on hold during times like these. So, how can you be certain you’re making the right decision in selling your practice? Is now a good time to buy a practice?
Christy Ratcliff is a partner at National Dental Placements (NDP). The team at NDP focuses in the dental transition arena, helping both buyers and sellers through valuation and consulting service lines. Christy says right now is an interesting time for a practice transition, as owners balance priorities related to COVID-19 and some buyers attempt to use this time to strategize their leap into ownership.
“The industry had this feeling that everything would stop, that no one would want to buy or sell. But there is a share of the market who knows they are going to be owners eventually and want to use this time for diligence and making the right move,” observes Christy. “Overall, it’s been positive and we have seen that the majority of people have a lot of faith in private practice dentistry.”
For both buyers and sellers, Christy shares four tips to find success in any dental practice transition, both in times volatility and stability:
1. Understand the ups and downs of ownership
Small business owners are often so singularly focused on day-to-day operations they lose sight of the big ‘what-if’ scenarios. While a global pandemic is hard to predict and is unique in that it has impacted the world, Christy says this time allows owners to identify the strengths and weaknesses of their practice and plan accordingly in the event of another emergency scenario.
“Whether it’s more personal like a health issue, or centralized to your area geographically like a hurricane in Houston, a preparedness plan will take you a long way,” says Christy. “We clearly can’t avoid risk altogether, but you can take the time to understand your risk tolerance and have a plan for how to mitigate it.”
The good news about preparing for scenarios like these is that it puts you in a better position in a transition scenario and may make your practice more attractive to buyers. On the other side of the coin, if you’re a buyer, you’ll be better prepared to make a deal that matches your risk tolerance if you are prepared individually for unexpected events.
2. Consider the history and new trends
While it may be tempting to only look at or rely on the most recent months as performance indicators for a valuation or offer, it’s important to look at a variety of historical data to understand how a practice performed pre-COVID-19 and what the practice looks like as it opens back up. That’s important because it indicates overall health of a practice, and in these times the most recent months are likely not indicative of the future.
Sellers looking to transition during this time are in a unique position. While some see it as a negative, Christy says buyers are out there.
“Every practice is going to have its own set of factors that mitigate or create risks. And every buyer is going to have an internal level of risk tolerance,” says Christy. “Clearly all the things you do to manage your profitability during this time when cash flow is tight should be continued if you can once you reopen. That’s only going to increase your profitability and increase the opportunity to find a buyer.”
Buyers and sellers will need to take a hard look at expenses and cash flow for any dental practice transition, even more so in these times. Buyers will want to ensure the practice is doing what it can to get patients back in the door and will want to see an upward trend in scheduling and production toward pre-COVID levels.
With the right diligence and the right practice, buyers who are forward thinking could have a big advantage by becoming owners sooner rather than later.
3. Understand total value
For sellers, it may seem to be an easy move to simply sell patient records. However, don’t discount the value of other portions of your dental practice: everything has value.
“Most of the value in your practice is outside the patient records,” suggests Christy. “We’ve helped people sell their practice when it was supposed to only be patient records, allowing them to reap additional, unexpected benefit from their lifelong work.”
For example, an established, highly trained team that has excellent relationships with patients provides significant value to any buyer looking to retain patients and reduce costs in training new staff. For those considering a startup business, this kind of asset is a valuable runway, allowing the practice to hit the ground running with little disruption to patients or profitability.
Regardless of additional value, some practices will choose to sell their patient records and shut their doors. For existing owners, purchasing another practice’s patient records could be an incredible opportunity to expand your reach and grow your practice.
4. Be open to creative solutions
Creativity is encouraged for transitions during this time. “From the standpoint of a seller, it’s a moment where you also have to understand there’s no standard set of rules in a transition applicable to everyone. So, let’s think outside the box here,” adds Christy.
NDP clients are becoming more adaptable with deals so both buyers and sellers are comfortable with terms. For some it is as simple as pushing back closing, while others are re-evaluating workback agreements so the buyer has additional support.
Others are re-evaluating whether the traditional 100% upfront payment is appropriate, or if more seller involvement or holdbacks can be agreed to. The appropriateness of these outside-the-box solutions is wholly dependent on the practice and transition specifics, but creative solutions can enable both the buyer and seller to prove out the long-term value of the practice, mitigate risk, and build cash reserves.
“Lenders are also doing some great things for buyers right now,” notes Christy. “Some are giving six months of no payments and interest only to allow buyers to build up the cash they need to weather the storm again, whether COVID-19 or something else.”
Opportunities for success
Even in times of unexpected turmoil, the good news is your dreams do not have to be put on the backburner. This year can still be the one you purchased your first practice, or lightened your load to prepare for retirement. New challenges always accompany new opportunities.
Whether you’re a dentist in your early career with a passion to become an owner or simply looking toward retirement, Cain Watters and NDP have a number of resources to guide your diligence process and help you navigate the way. Together we can look at your practice and forge a clear path forward to achieve your personal and professional goals.
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