The year 2021 will g down in the books as our "rebound" year-the year the dental industry clawed its way back to the new normal after COVID. Most dental practices experienced a robust rebound as patients came back after long absence from treatment. This led to increase collections, full schedules and, oddly, a challenging labor market. We expect 2022 to continue this trend and remain a strong seller's market for those selling their dental practice. However, several risk factors could derail the trend. These include COVID resurgence, adverse tax changes/shortage, and global economic and political shifts.

While we don't expect another full dental shutdown like we experienced in early 2020, a COVID resurgence may cause patients to push pause on dental treatment. This will differ from 2020 when patients "couldn't" get treatment to a situation where patients "wouldn't" get treatment. Should this happen, we expect downturns to follow the weather, viruses historically being more active in the colder months of Q1 and Q4. Dental practices can attempt to insulate themselves from patient continuousness by promoting safety and protocols, being diligent about staying in contact and even upping penalties for cancelations. ON the flip side, dental practices may also experience further staffing strain due to COVID flare ups, whether staff become infected or fear exposure by being chairside all day. Offices should have clear COVID policies and double ensure that staff remain safe and comfortable. Retaining staff in your dental practice will be as important as unlocking the front door in the morning.

On the subject if staffing, office values can be adversely affected by loss if staff and even newness of staff. Dental buyers know that hiring new staff members is extremely challenging in the market with many staff members tempted to move for higher pay and/or locations more proximate to their homes. This is especially true with hygienists whose payrates have seen double digit increase in 2021. These payrates have seen double digit increase in 2021. These payrates may continue to increase as finding skilled hygienists remains challenging and doctors are reluctant to sit at the hygiene chair themselves. For buyers, considering a practice without a hygienist is almost a nonstarter. Other staff members are equally important. Doctors who are selling to relocate and attempt to take staff members with them will likely experience considerable downward pressure on the pricing.

Although Staffing will remain a challenge, possibly the greatest risk facing the dental transition market is capital, i.e., banking. While most do not consider a dental office as being global, most would agree that banking is. The recession of 2008 started in the capital markets when large pools of securitized loans (CMBS) could no longer be sold. This caused an immediate banking shutdown, which lasted for months. The world has since cautiously restarted the CMBS engine, but other events can and will affect banking, and banking could be considered the most important reason the sakes market is currently so strong. Buyers of dental practices can borrow below 3% right now-historic lows in most of our lifetimes. While we expect this to last for 2022, we are anxious about unrelated events that could cause banks to pump the brakes-events like China's faltering commercial real estate market or continued lag in the supply chain...among a long list of others. If banks pull back, practice sale will slow considerably, and lending may only be available to A+ credit borrowers. In these cases, we anticipate loan dollars receding from higher near 90% of collection to amore conservative range of 70%-80%.

We continue to encourage dentists considering a sale of their practice in the next 2-3 years to consider a sale sooner. With current market dynamics, many sellers of dental practices are being spoiled by multiple offers from eager...

What makes for a happy "business marriage" between two or three dentists? Why do dental partnership fail at frequently? Will a dental partnership help me compete more effectively in the dental market?

In this episode, we interview Bob Spiel and Bryton Nield, founders of Dentist Partner Pros (formerly Dentist Hiring Pros). Bob and Bryton spend most if their time helping a single doctor practice owner find, vet, and onboard partner. They outline the process of partnership that leads to a healthy, productive relationship in which one plus one equals three, both in professional enjoyment and financial reward. If you are in a dental partnership, or would like to be part of one, tune in. Lot of great content in this episode!

Episode Summary:

In this episode, we dive into the essentials of forming a successful dental partnership—a vital strategy in today's challenging economic landscape for dental practices. Our host draws on over 15 years of experience to highlight the financial benefits of partnerships, explaining how joining forces can alleviate cost pressure, increase profitability, and create a supportive work environment. Key discussion points include the importance of chemistry, shared clinical philosophy, and profit allocation between partners. Tune in to learn to navigate potential pitfalls and maximize the benefits of a dental partnership.

Key Points:

1. Benefits of Dental Partnerships - Understanding the economic advantages of sharing cost structures to boos take-home profits and enhance wealth-building.
2. Three Pillars of Successful Partnerships - Chemistry, shared clinical philosophy, and equitable profit sharing as the foundation for a harmonious business relationship.
3. Financial Insights on Cost Structures - Explanation of fixed vs. variable costs in dental practices and how partnerships can optimize expenses.
4. Navigating Challenges in Partnerships - The common reasons for partnership dissolution and the complexities of handling conflicts.
5. Evaluating Chemistry and Communication Skills - Why strong interpersonal skills and trust are crucial for long-term partnership success.

Valuing Dental practice is one part science and one part emotion. The science is the numbers—what the bank sees and uses to calculate the amount they will loan. The emotion part is everything else—the location of the dental office, condition of the equipment, the patient base, the recall program and many factors. As mentioned in the previous post, because bank make 100% loans for dental practices you can reasonably assume that Loan Dollars = Purchase price; i.e. the selling price is generally close to whatever the bank will lend. This makes understanding how banks approach valuations extremely important and how the emotion piece factors in with buyers

Rarely do bankers visit the practice in person. Typically, bankers review and loss statements, tax returns and production reports to make their decisions, and the emotion piece rarely factors in. In doing their assessment, banks try and determine what the true income and expenses of a dental practice will be for the buyer. This process requires them to strip out certain income and expenses that the buyer will not earn or incur. They call this income and expenses "add backs". For example, if the dental practice received $50,000 in government stimulus (e.g. PPP loans) and it shows on the profit and loss statement under income (collection), they will reduce income by $50,000 since that is no recuring, expected income in the future to the buyer. Similarly, they will go line by lone through the seller's financial statements looking for expenses that the buying dentist or, more specifically, the dental practice will not have to pay. These often includes the things like the selling dentist salary, associate pay if the buyer is going to cover the associate's production, loan interest, depreciation, travel, cell phone, auto, kids on payroll, etc. Once the bank has generated a profit and loss statement with add backs, they can apply their underwriting formulas to the collections and profit to determine the amount of the loan. A general rule of thumb for the banking formulas is 85% of collections and 2.2 times the profit. Where this two formulas intersects is approximately the value of the practice...at least in the mind of the bank. And more specifically, banks calculate a "Global Debt Coverage Ratio". This ratio is calculated by taking the expected net profits of the dental practice and dividing it by the sum of (1) all debt payments in the practice and (2) all debt payments outside if the practice. If the buyer does not have a home loan, the bank will impute an estimated rent. If the net cash flows are at least 1.25 times the global debt payment requirements, then they will generally commit to that loan.

Now, it is not entirely accurate to suggest that dental lenders are mere robots with simple inputs and outputs. They do consider other factors such as the total amount of debt the buyer has and whether the buyer's clinical skills and production matches those of the seller. Do they care if the chairs are new from A-dec or used from 1976? Not so much. This is where emotions comes in. I call it emotion, but it is more the characteristics of the dental practice that motivate buyers to want to buy it. For example, would you rather have a 3-op practice in Coronado? The characteristics of the dental practice also paly into value. not so much on paper, but in the actual process of selling it. These are the things that generate tours, get people talking, motivate dental buyers to write offers and competes for the opportunity. More ops, nicer equipment and better locations allow me to push value while fewer ops, older equipment and tertiary locations sometimes leave me wondering if the practice can even be sold. In special cases with special dental practices, I have even had buying dentists offer to pay more thank the bank will lend. Why? Sometimes good practices are hard to find and when you are trying to be picked as the buyer it makes sense to write a check.

To sum up,...

In this week's episode , we have Dr. Jared Lee and his wife Kristin on the show to discuss their journey toward their 10-year goal of financial independence. Dr. Lee and his wife give a great perspective on important course corrections and their move to Juneau Alaska in search of a great (though challenging) opportunity.

You like the Rolling Stones? I like the Rolling Stones too! Great, you’ll be a perfect buyer for my practice!

Maybe that’s a bit of a stretch when addressing this topic but finding the right fit when selling a dental practice is more than just a few common interests. Finding a great fit is equally important for both buyer and seller. Let’s break down why for each.

One of the questions I get asked the most by dental practice sellers is “How will I know if the buyer will take care of my patients and staff?” Let’s face it, selling something you’ve spent years growing, nurturing, and shepherding becomes more than just a business transaction; it becomes personal and emotional—like handing your child over to a new parent. “Will they immediately fire the staff?” “Will patients like the new doctor?” “Are their clinical skills similar to mine?” These are questions that are often more important to sellers than “How much is the offer?” or “What can I expect to keep after taxes?” Because of this, finding the right buyer becomes more than just who is paying the highest price. This is why I’m a big proponent of introducing buyers and sellers as soon as possible, and why I feel sellers should lead practice tours. Being involved from the beginning gives sellers the opportunity to ask questions, compare notes, find common ground and start trying to envision having someone new take over their sandbox. More often than not, the successful buyer of the practice is discovered during the initial tour and not when offers are submitted. When sellers feel like they have found the right buyer, it is a special event and one that almost always results in a massive weight being lifted off the seller’s shoulders.

Dental practice buyers can sometimes be characters, like the time one told me, “You need to find Barbie for this one. The patients are not going to like a hairy guy like me.” As the broker, I wasn’t quite sure how to tackle that concern, so I suggested a full-body wax. Actually, I think I jokingly told him to just wear more PPE and no one would know. But, eventually, I had to take his word for it and put him down as a pass. When leaving jobs and taking out huge loans to buy a practice, Buyers want to know that 1) the staff won’t revolt and 2) the patients will not leave. This is another reason why I like sellers to lead the initial tour. Buyers can really like a practice on paper, but it is not until they meet the seller and start asking questions that it really gels. Plus, most of the initial questions buyers ask are clinical, so I’m basically no help at all. When buyers tour a practice, they make mental notes like the distance from their home and the flow of the office. They almost always struggle to balance their time envisioning themselves in the office with firing questions at the seller—all of which is sometimes difficult to do in 30-45 minutes. Much like the seller who may not be so concerned about the financial aspects of the sale, buyers, if they feel like they fit, will more or less leave the bank to sort the finances and will focus more on the transition.

So what are some areas that determine fit:

1. Personality and Demeaner
2. Clinical approach
3. Communication style
4. Leadership style
5. Office culture philosophy

The more dental buyers and sellers align in these areas, the more natural the transition.

So, does all this mean that fit is more important than money? After having sold many practices, I would have to say is a close competition, and this is because of the nature of the thing being sold. Practices are not cars, extended warranties, lemonade, or stocks, they are an entire chapter of a person’s life—especially for those who have spent decades treating thousands of people who often evolve from patients to friends. The right fit in a transition will almost always lead to future success of the practice, and that success is

In episode we have guest and client, Dr. Chad Foster, join us for an in-depth perspective of what it takes to run a successful orthodontic practice.

The prospect of selling a dental practice can be a bit daunting, but, like selling houses or cars or your old CBCT, if you know the process and what to expect it becomes much easier. Many times, doctors are selling dental practices that they have spent the better part of their lives building and nurturing. They wonder “What will happen to my staff?” and “Will the new doctor take care of my patients?” among a hundred other questions that come with selling something that means more than just what the accountants and suppliers see. So, let’s break down the basics of selling a practice. Understanding the basics will, hopefully, alleviate the fear of and potentially help prepare for that eventual day.

Valuing a dental practice will be the topic of a future post, but the basics are this: banks are a major decider in the value of a dental practice. You might be on Main and Main and have all the top-of-the-line equipment, but the reality is that bankers rarely ever see any of that. What they see is income and expenses. Because most buyers will need a loan to buy your practice, they will rely on banks to fund 100% of the purchase. This generally means that Loan Dollars = Purchase Price, which is why banks play such an important role. Understanding the value of your practice is a key first step in selling. Brokers who specialize in practice sales and have relationships with bankers who fund practice loans can help with this and should be able to help free of charge.

Practices have been sold with and without a broker. Not using a broker will save in selling costs and may be appropriate in certain circumstances. However, the sale of a small business such as a dental practice is complex and much less standardized then selling a home for example. Too often I see dentists who want to save the brokerage fee by trying it themselves. This often leads to longer-than-normal transition times, stress and failure. Because a transition involves many parties (buyers, sellers, bankers, attorneys and escrow agents) an experienced practice broker will be able to manage the transition process much more efficiently and with much more success. Brokers get paid when the deal closes, so they are motivated to keep everyone on task and moving towards closing. In addition, brokers will have a Rolodex of possible buyers, which means the practice gets exposed broadly to the market and will likely achieve a price that more than makes up for a brokerage fee. By the way, those fees range from 7.5% - 10% depending on the size of your practice, i.e., the bigger the practice the lower the fee.

If you’ve decided to hire a broker and have signed a listing agreement, the next step is preparing the marketing materials. Marketing materials can include things like a simple 1-page flyer with a few highlights, a postcard, and a detailed 30+ page prospectus outlining pertinent details of the practice. The goal of marketing materials is to generate tours. The more prospective buyers you get through the door, the more possibilities you have of receiving offers. Marketing time ends when an offer or “Letter of Intent” (LOI) is accepted. This can take as little as a few days or many months with the average being 1-2 months. Remember my comment above about Main and Main and all the top-of-the-line equipment? While these attributes of a practice may not affect the value with the banks as much, they will motivate potential buyers and reduce marketing time. Buyers love modern practices with $800,000+ in steady or increasing collections in good locations with 4+ operatories and strong hygiene programs. The more of these attributes your practice has, the less time you can expect to be on the market. Also, during the marketing period is when prospective buyers will tour the office and, hopefully, meet the seller. Some brokers try and keep buyer and seller...