A Seller’s Market – Tips on Transitioning Your Dental Practice

By Katie Hines, Katie Hines Office Transitions

It appears we are currently experiencing a seller’s market in the business of dental practice sales. This means elevated values and better overall conditions for those entering the market of dental practice transitions. Why now? Several circumstances are contributing to the current market trends, including limited supply, increased demand, and low-interest rates.

Supply vs. Demand

Following the 2006 recession, doctors nearing retirement age were forced to continue working as a result of lost retirement savings and fear of the stock market’s future. There was also an increase in available dental practices due to many “short sales” of failing practices further contributing to decreases in overall practice values. Many potential buyers experienced difficulty obtaining financing due to tighter lending requirements during this time forcing them to wait until the market rebounded to be eligible to purchase a dental practice. Additionally, the number of graduating dentists has increased in subsequent years. These combined factors have contributed to a low supply/high demand for available dental practices, which has started to create a “seller’s market.”

How long will this trend continue? In the near future, the market will shift, and there will inevitably be an increase in the percentage of sellers, as the Baby Boomers face retirement. With that in mind, don’t wait to transition your practice when the increased supply will drop practice values.

Below is a list of things you will need to consider when preparing your practice for the transition.

• Increasing numbers of qualified buyers and new graduates resulting in an increased demand for dental practices.
• Doctors near or at retirement age holding onto practices due to the recession have resulted in a decrease in available practices. There will likely be an influx of practices on the market within the next couple of years.
• The high cost of start-ups and the increased debt of new grads make purchasing an existing practice desirable.
• Currently, interest rates remain low and are anticipated to increase within the next five years.

Most doctors invest countless hours and valuable resources in developing their dental practices. They cultivate strong relationships with patients and staff, and inevitably, they want to ensure their patients and business will be properly cared for when they are no longer doing it themselves. By recruiting a dental practice broker, you can identify the best buyer for your practice and ensure a smooth and prosperous transition.

Establishing Your Sales Team

Dental practice brokers are networkers with deep-dental community, as well as the professional environment. Their solid network allows for strong connections between buyers and sellers and provides access to a skilled team of professionals who aid in a dental transition, including attorneys, lenders, business consultants, and accountants. Most dental practice brokers possess a thorough understanding of the local market, which allows them to properly position your practice, advertise the sale, and obtain the best value for your practice.

Determining the market value of the practice, finding the right buyer, negotiating the purchase price, formulating the transition plan, assisting the buyer in negotiating the lease assignment, and obtaining practice financing are a few of the areas a practice broker can prove invaluable.

Expect a dental practice broker to help you:

• Identify goals and formulate strategies based upon the seller’s unique needs, wants, and desires.
• Construct a detailed marketing profile and cash flow analysis.
• Create unique and individual marketing strategies that meet the needs of the seller and target specific buyers.
• Strategically and confidentially market the practice on a local, state, and national level using a variety of methods including print advertising, web advertising, seminars, and trade shows.
• Determine the best strategies to manage unexpected occurrences which lead to the need for immediate dental practice sale.

By contacting a practice broker, and planning in advance, you can choose a dental transition strategy that best meets your individual situation, make necessary modifications to enhance your overall practice value, and avoid mistakes that can reduce the practice value and marketability.

Positioning Your Practice

Two ways to effectively position your dental practice for a successful sale:

1. Keep your practice profitable and current. Confirmation of profitability is key, so start minimizing expenses, increasing revenue, and whatever you do… don’t slow down too soon! If you are in a position where you must reduce your workload, consider hiring an associate.
2. An expressed earning potential is also desirable. It can be based on several factors, including practice location, demographics, existing internal and external marketing strategies, the possibility for expansion/ additional operatories, and the ability to offer more in-office procedures/treatments. 

Be realistic when evaluating your practice. Would you want to buy it? Evaluate the equipment, the décor, the condition of the building, and the location. Oftentimes small improvements can be made cosmetically to enhance curb appeal. Peer through the lens of your potential buyer and consider what they will be looking for:

• Increases in revenue and production in recent years.
• Low overhead that reflects industry standards.
• Increase in new patients and steady active patient flow.
• Effective internal and external marketing strategies.
• Updated equipment and décor.
• Fees that are usual and customary for the location.
• Clean accounts receivable.

Katie Hines Office Transitions (KHOT)has transitioned dental practices in Phoenix for over 15 years. KHOT provides a personalized approach to practice sales by getting to know each client’s specific needs and desires.