The demand for dentistry services is up—which means that the demand to buy dental practices is also up. Dental service organizations (DSOs) are among the most enthusiastic buyers of existing dental practices, and they can bring an economy of scale that allows these practices to operate more inexpensively (and in more areas) than before.
For dentists who are hoping to retire soon, or who just want to have a complete picture of their available options, it's a good idea to take a few steps to make your practice more appealing to a potential DSO purchaser. Below, we'll discuss how you can begin to plan for a potential sale, value your practice, and assess your sale options.
Though DSOs make up a significant portion of potential dental practice buyers, they need to earn your sale like any other buyer. Some reasons you might consider selling to a DSO can include:
Regardless of why you might consider looking for a DSO buyer, it's important to find one who makes you feel comfortable about the future of the business you've worked so hard to build.
Although DSOs are all different, they tend to have a few key traits they're looking for when they consider purchasing an existing practice.
Some dental practices may need only a few minor tweaks (if any) in their operations to be an attractive option for a DSO buyer. Others may need to make more substantive changes if they want to get multiple competitive offers.
In either event, it's important to start planning early. Even if you decide you don't want to sell for a few more years, the steps you put into place now can make your business more valuable (and improve your cash flow in the meantime), no matter when you decide to sell.
Many dental offices tend to operate on "banker's hours," which can mean chairs are empty more often than they're filled. A DSO will want to see a practice that is operating on at least a full-time basis; if you tend to be seeing patients less than five days a week or less than eight hours a day, you may want to consider expanding your hours. Increasing the number of patients you see on a weekly basis is the key to increasing the potential value of your business.
In some cases, it can make sense to take on a part-time dentist or hygienist (or two) under a contract arrangement. This can allow you to increase your patient hours without spending more time at the office; and when patients don't need to wait weeks for an appointment, it can be easier to attract new ones. (Having more than one dentist in the office can also improve your ability to take on higher-paying emergency cases.)
If your office has had the same décor for years, it's probably time for an update. Worn carpets, chipped countertops, or dated magazines can make your business appear shabby and dated.
These improvements don't need to involve an extensive renovation; something as simple as a few bright prints on the walls, a rug to cover problem areas on your carpet, or clean, sleek furniture can give your office a much more modern look.
It's also worth considering what (if any) upgrades you'd like to make to your dental equipment. It doesn't always make sense to purchase expensive equipment you'll only use for a few years before selling your practice; but to the extent this equipment can allow you to see more patients or perform more extensive procedures than before, it may be a good investment.
What's your per-patient production rate? Your case acceptance rate? The average number of minutes spent on each patient? The percent of accounts sent to collections?
Although not every dental practice will have all these figures at their fingertips, a DSO will want to know the statistics on your patients and the services you provide. There are a number of different software programs that can help you categorize and track your hours worked, patients seen, procedures performed (and billed), and collection rates. Once you begin tracking these measures, you'll also be able to spot and highlight improvements over time—something a DSO will love to see.
For many practices, one of the main parts of preparing for a potential purchase involves expanding your patient base. In the age of social media, this can be easier than ever—some well-placed social media ads, referral discounts, or discounted rates for initial exams can go a long way toward bringing in new clients.
But it's often far easier to keep an existing patient than it is to find a new one. If you have some patients who haven't been in for a while, sending out a reminder postcard or email can prompt them to make an appointment. Ask patients for feedback, and be receptive to anything your patients have to say about things like wait times, staff friendliness, and the overall atmosphere of your practice.
One rule of thumb for valuing your dental practice is the 80 percent rule—your practice is worth 80 percent of what you billed last year. But this, like all general rules, doesn't account for the many variables that could increase or decrease your practice's value.
If you have significant overhead costs that can't be reduced, the value of your practice may be lower than average. Meanwhile, dental practices with especially low overhead costs can be more valuable. If, like many dentists, your practice was impacted by the COVID-19 shelter-in-place restrictions, your 2020 income may not be representative of a more normal year; you may instead need to average the last several years. The 80 percent rule is meant only to provide a starting point for more detailed valuation approaches.
Other valuation methods include:
Although DSOs purchase their fair share of private dental practices, a DSO sale isn't your only option.
If you do end up going with a DSO, seek out multiple offers if at all possible. Not only will this help you know whether the offers you're getting are fair, but it can provide you with some leverage if the buyer you're leaning towards isn't the one offering the highest price.
For answers to your questions about selling your dental practice, or for help in navigating the sale process, get into touch with Dental & Medical Counsel to schedule a complimentary consultation with attorney Ali Oromchian.
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