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Never give up on your dream of practice ownership!

There is no greater reward in your dental career than working in your own practice.

The unabated enthusiasm and passion for dentistry displayed by senior dentists who started their own practices attests to this. Many are still going strong after 30 years in the business because they enjoy working in their own clinic. Owning your own practice gives you the freedom to choose your location, staff members you get along with and the types of patients you enjoy treating.

Given the huge upside of practice ownership, why don’t more dentists take the plunge?

The reason is that there are only a few decent practices available for purchase right now. It is a seller’s market and about 80 per cent of practices are snapped up at premium prices in private sales to individual dentists or large corporate purchasers.

The alternative of building a clinic from scratch, is too scary a prospect for most new dentists.

However, given current market conditions, there has never been a better time to set up your own practice. A startup clinic can easily generate 50 new patients each month and produce a positive cash flow in year one.

Here are the main reasons for starting up on your own.

  1. By designing and building your own clinic, you have an opportunity most people never enjoy—the ability to shape your work environment You get to make the call on everything, including the operatories you work in, the dental chairs your patients sit in and even the floor upon which you walk.
  2. You invest in your own clinic, rather than someone else’s as an associate.
  3. You can set up shop in a community with a growing patient base.
  4. You control your time, the patient experience and every other aspect of your practice operation.
  5. The ability to build your own team of assistants and administrative staff.
  6. The ability to build wealth quickly; a new patient base is worth on average $500,000 after your first year!
  7. More take home pay. The cash flow of a startup is on average 60 per cent of gross revenue, compared to 40 per cent for a practice purchased from someone else.
  8. Being the boss, you have greater flexibility to set your work hours, which translates into a work-life balance that suits you.

The task of building your own clinic can seem daunting. Fortunately, it is not as overwhelming as it seems. The key is to surround yourself with a team of professionals who have the experience to help you create a successful startup. These top professionals offer a full scope of services from location search, lease negotiations and business plans, to bank financing, design, and construction. They also offer startup services including website design, marketing, accounting system setup and staff hiring.

Never give up on your dream of practice ownership!

There is no greater reward in your dental career than working in your own practice.

The unabated enthusiasm and passion for dentistry displayed by senior dentists who started their own practices attests to this. Many are still going strong after 30 years in the business because they enjoy working in their own clinic. Owning your own practice gives you the freedom to choose your location, staff members you get along with and the types of patients you enjoy treating.

Given the huge upside of practice ownership, why don’t more dentists take the plunge?

The reason is that there are only a few decent practices available for purchase right now. It is a seller’s market and about 80 per cent of practices are snapped up at premium prices in private sales to individual dentists or large corporate purchasers.

The alternative of building a clinic from scratch, is too scary a prospect for most new dentists.

However, given current market conditions, there has never been a better time to set up your own practice. A startup clinic can easily generate 50 new patients each month and produce a positive cash flow in year one.

Here are the main reasons for starting up on your own.

1. By designing and building your own clinic, you have an opportunity most people never enjoy—the ability to shape your work environment You get to make the call on everything, including the operatories you work in, the dental chairs your patients sit in and even the floor upon which you walk.

2. You invest in your own clinic, rather than someone else’s as an

associate.

3. You can set up shop in a community with a growing patient base.

4. You control your time, the patient experience and every other aspect of your practice operation.

4. The ability to build your own team of assistants and administrative staff.

5. The ability to build wealth quickly; a new patient base is worth on average $500,000 after your first year!

6. More take home pay. The cash flow of a startup is on average 60 per cent of gross revenue, compared to 40 per cent for a practice purchased from someone else.

7. Being the boss, you have greater flexibility to set your work hours, which translates into a work-life balance that suits you.

The task of building your own clinic can seem daunting. Fortunately, it is not as overwhelming as it seems. The key is to surround yourself with a team of professionals who have the experience to help you create a successful startup. These top professionals offer a full scope of services from location search, lease negotiations and business plans, to bank financing, design, and construction. They also offer startup services including website design, marketing, accounting system setup and staff hiring.

Slaying the overhead monster

Creeping practice overhead is one of the biggest problems facing the practice owner today. Before you look at strategies to reduce the overhead, you need to know first of how to calculate it. And most dentists are not sure what the true overhead of the practice is. This lack of knowledge is not the dentist’s fault. The accountant prepares the income statement purely for tax purposes and not as a management tool for the dentist. In addition, knowledge about controlling overheads in practice management courses is generally not part of the dental student education curriculum.

How do you calculate the true overhead of your practice?

Firstly, calculate the collectible practice revenues, after making all the fee adjustments.
Secondly, tally the expenses that are directly related to the operation of your practice, including lab fees, dental supplies, staff salaries, facility costs, office expenses, marketing costs, clinic insurance, bank charges, and accounting fees. Remember to exclude financial costs, such as bank loan interest and lease payments. Discretionary expenses (i.e., continuing education, salaries to “non-working” family members, auto expenses, and travel) are likewise not part of the overhead calculation. Also, exclude the non- cash items of depreciation and amortization, all of which are purely an accounting calculation. By dividing the overhead costs into the revenue figure, you now have the true overhead percentage of your practice.

How do you reduce the overhead percentage?

Assuming you are not overstaffed, it is difficult to trim expenses. Even if you manage to cut your dental supply costs by 30% from 10% of gross to 7%, the overhead is only reduced by 3%.
For a drastic drop in overhead, you need to increase revenues rather than making cuts. If you increase your volume from $800,000 to $1 million, your 70% overhead will drop down to 60%. By doing so, you will increase your income by 60% from $240,000 to $400,000. In this illustration, I assumed that all costs remain the same except for the variable expenses of dental supplies and lab at 20% of gross revenues.

Want to be a successful practice owner? Start with a mission statement

Your financial success of owning your practice is not determined by how much you work in your practice i.e. performing the actual dentistry but how well you work on your practice; that is building relationships with patients, managing staff, handling negotiations with landlords, bankers, and dental suppliers.

When Christopher Columbus set sail for what became known as America, he did not know where he was going, nor did he know where he was once he got there. Many dental practitioners suffer from the Columbus syndrome. Their practices lack a clear direction and sense of purpose. Remember, if you don’t know where you are going, any road will take you there.

The first building block for a successful practice ownership is the mission statement.

Many dentists believe preparing a mission statement for the practice is a waste of time. That is unfortunate! Having a mission statement gives you and your staff a sense of purpose and stirs the passion for success. A mission statement collecting dust in your desk drawer is of course worthless. Don’t make it your best kept secret in the office. Every member of your staff should take ownership of the practice’s mission statement, and everybody in the office should know it by heart.

Here is an example: “To give all patients an exceptional experience, to provide an inspiring work climate for all team members, and to maximize opportunity and value for all the stakeholders.”

With an increasing number of dentists surrendering to the temptation of over-treating and over-charging patients, I recommend you include the equivalent of the Doctors’ Hippocratic Oath in your mission statement. It basically states that you will conduct business and specifically treat your patients with the absolute highest ethical standards. Integrity is the foundation of your practice. It must be part of the office culture and one that every member of your staff adheres to.

Prepping for a successful practice sale

Here is a checklist to help you to get ready for a successful practice sale.

1.Meet with your financial and tax advisors.
Check with your financial advisor and accountant whether or not you are retirement ready and can afford to sell the practice. Get your accountant involved in planning the sale with the goal that you will be eligible to claim the $800,000 capital gains exemption on the sale of your practice. Make sure you plan at least 2-3 years before the anticipated sale date.

2.Do not slow down.
A decline in production lowers the practice value and it raises concerns with the prospective purchaser regarding the future profitability of the practice. Maintain your production at 180 days per year and never let the production drop at least two years before the sale.

3.Consider increasing fees.
Prepare a fee analysis and comparison to the fees charged by other offices in your community. If your fees are below average consider increasing the fees. The chances are that your patients will accept the increase and by boosting the income, you also increase the value of your practice.

4.Review the lease for the premises.
The purchaser ideally would like to have a lease term including renewals covering a 15 year period. If your lease is less than 15 years, obtain the consent of the landlord to offer additional renewal periods. Many leases have a demolition clause, which can be a deal breaker. While you may not be able to remove this clause, get the landlord to agree that the building will not be demolished for a specified number of years.

5.Upgrade your office
If you are planning to sell within the next few years you should not make any large expenditure unless absolutely necessary. However you should enhance the curb appeal, including new carpets, newly painted offices, landscaping etc., which do not cost a lot of money but will give the purchaser a good first impression.

6.Review the Associate agreement
If you have an associate with you, make sure that you have an associate agreement in place containing a restrictive covenant as well as a non-solicitation clause. Many deals collapse because of a lack of an associate agreement.

Closing the Deal

 If you are planning to sell your dental practice here are some tips to maximize the sales proceeds.

  1. Allow lots of time. Don’t rush to buy your retirement home in Palm Springs. And don’t wait until health problems force your hand. Purchasers are astute. They can sense very quickly if you are in a hurry to retire, all of which may be reflected in a lower offer.
  2. Update your business systems. With a tougher economic climate for practices, purchasers pay a premium for an administrative system which keeps revenues growing, ensures maximum utilization of staff, and keeps the overhead at 40%. Consider using our affiliated company Becker Practice Management to help you fine-tune your systems.
  3. Never let billings slip. It does not matter how much money you made in the last 15 years; the revenues and the cash flow in the year of the sale is what counts. A practice with slipping profitability is a hard sell.
  4. Be involved. Unlike a home sale, where the broker does all the work and the purchaser does not really care if he ever meets you, in a practice sale, you are the best salesperson. When you and the prospective purchaser “hit it off”, you can bet that the practice sale will go smoothly. Personal bonding is that the glue which will keep the deal together.
  5. Put some lipstick on. Make sure that your practice has curb appeal. It means that your office is in good repair with fresh paint and clean carpets.
  6. Be realistic. Set a reasonable price and have it backed up with a professional practice valuation.
  7. Minimize post sale commitments. Make sure that your liability for staff severance does not exceed 90 days. Ensure that the lease for the premises can be assigned and without your continuing personal guarantee.
  8. Prepare professionally looking documents. This would include a practice and patient profile, as well as up-to-date financial statements and billing records. If you are in a group practice, make sure that the cost-sharing and buy- sell agreements are up-to-date.
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