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  • TOP 5 Strategies for Transitioning Ownership of a Dental Practice

    Mar 28, 2016

    IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Rod Johnston of the Omni Practice Group:

    TOP 5 Strategies for Transitioning Ownership of a Dental Practice

    Often times, dentists are so caught up in their day to day grind of everything involved in running a dental practice that you do not have the time to figure out your exit strategy. You do everything from manage the staff to negotiate a new lease and, oh yeah, you also do dentistry in between. You are just too busy to even think about your transition.

    Until, one day, your back blows out, your spouse tells you to retire, or you just plain get tired of managing staff and dealing with insurance companies, cutting reimbursements, and health departments or state taxing authorities coming by for a “little visit”. You decide, it’s time! Maybe you want to continue doing dentistry at some level, either part time, or full time. How about selling a partnership? Maybe you want to be completely done. Here are the top five strategies you can think about before that time happens and where we have expertise in making it happen.

    SELL AND DON’T LOOK BACK – This is the option for those who are completely done and ready to either find another career, a good fishing hole, or favorite golf course. You can either attempt to do it yourself, or hire a broker to help you out. The pros of this are you are done, you get your equity out of the practice and you do not have to worry about staff, insurance companies or other problems again. The cons are that you do not know how your patients and staff will be cared for by the buying doctor.
    There may be an occasional re-do, but typically not too many. A favorite strategy for the retiring dentist moving far away.

    SELL AND TRANSITION – This approach allows you to sell your practice and stay on for a short or long term practice. The “staying on” part can be a two-hour drop in once per week for a couple of months, working back one or two days per week, or a more extensive two to four days per week for a year. It’s all negotiable and depends on the amount of production in your practice. This strategy is great for those who are closely tied to their patients and staff and want to see them well care for after the sale. It also ensures the patients will stay with the buying doctor if the seller is there for a bit after the sale. The pros are that it allows for a very smooth transition. The cons can be that the staff is still allegiant to you and the patients still want to see you. You need to be an impartial observer more than anything at this point and let the buyer be the owner and do his/her work.

    SELL AND WORK BACK – If you decide that you still enjoy dentistry, but just do not want to manage the practice anymore, then this is the strategy for you. In certain cases, you can sell your practice and work back. Often times, this scenario allows you to make more money. This can be done at an early age and does not mean you are retiring. I have several case studies where a 50-year-old dentist was tired of managing his staff and getting his reimbursements cut. We sold his practice for someone that wanted a satellite practice. He is working back full time making more money than he ever made. The buyer implemented marketing and other services to increase production. Pros are that you no longer manage your practice and you may make more money. Cons are that you may be selling to a small group or a large group that may require you to implement systems and procedures that are not what you may like. Be selective in who you sell to. I have found that smaller groups allow you more freedom.

    PARTIAL SALE – PARTNERSHIP – If your practice has enough production, you can sell a partnership in your practice and continue to work. There are numerous ways of structuring these deals. And, anytime you enter a partnership, I advise strongly you put everything in writing and have an attorney do their magic to make it legal and fool proof. You sell a portion of your practice, say 1/3, to a buyer. You continue to work and grow the practice. You can then either sell another 1/3 to another buyer or continue to grow, or sell out completely. The pros of this is that you harvest some of your equity while continuing to grow your practice. You then grow the practice some more and then you sell another portion. The cons are that it is like a marriage. You will probably have disagreements with your partner. Be sure and structure it right up front to reduce disagreements and to remedy them if there are.

    DEFERRED SALE – Also called an associate to own sale. This is where you bring on an associate who works in the practice. The associate may work one or two days to start. You can then sell the practice to the associate at an agreed upon time. The price can either be determined up front or at the time of the sale. The way we typically do a deferred sale is doing a valuation in the beginning and agree upon the price. We then do a valuation in the end and the buyer and seller split the equity to determine the final price. This can be a good way to transition as the staff and patients get to know the new doctor. It can go very smoothly. According to the ADA, these fail about 50% of the time. I typically see them fail when either parties changes the deal in the middle of the process, one party gets jealous of the other, or personalities conflict. We structure these so there’s a “dating” period and then we lock in the associate with a deposit.

    EVERYTHING IN BETWEEN – Now you know the top five strategies for transitioning out of your practice. We often get asked about how creative a transition can be. You can really be as creative as you want to be. The only challenge is finding a buyer who will be creative with you.

    So, think about where you are today and what your end goals are. We offer a free consultation to help you determine which strategy is best for you. You can trust that we will come up with a plan that will work for both you and a prospective buyer to make your transition as smooth for everyone as possible.

    If you have questions related to any component of this article, Rod Johnston, MBA, CMA of the Omni Practice Group would welcome the opportunity to provide additional information. Mr. Johnston can be reached at (206) 979-2660 or rod@omni-pg.com.

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