Looking Ahead to Next Year
By Thomas L. Snyder, DMD, MBA, Senior Director Henry Schein Professional Practice Transitions
2018 is drawing to a close, and for many doctors 2019 will be the year that practice transition plans are implemented. There are a few points to consider about our ever-changing dental marketplace which may influence your decision to move ahead now versus later.
As we have stated in prior year-end columns, for a number of years after the Great Recession many dentists were financially unable to retire, thus creating a huge imbalance between dental graduates and retirees. In recent years this gap has narrowed significantly, with dentists retiring at a greater pace the last seven years. The gaps between recent grads and retirees is still about 1,500 more grads than retirees annually. This means it is still a seller’s market in most areas of the country. How long this will last is anyone’s guess, but at some point there will be a crossover, with more retirees than dental grads. If you are looking near term for maximizing your practice’s value, you are in a good place.
The most important driver for higher practice values is still your location. Practice values continue to remain at record levels in many parts of the country. In many urban and suburban areas which are considered highly desirable for young dentists, practice sales ratios for general practices range between 70-80% of last year’s gross receipts. In several markets, general practices are selling at ratios in excess of 80%! For specialty practices, valuation ratios have a wider variance – anywhere between 60-78%, based on specialty type and practice location.
Conversely, if your practice is in a small town or rural area, this high practice value expectation will most likely not be met. Excellent practices in these areas cannot even recruit doctors to join the practice as an associate, let alone find a buyer.
In addition to the imbalance between retirees and dental graduates, another major contributor to higher practice value is the ever-increasing market penetration of corporate dentistry and large group-practice networks. With seemingly unlimited sources to capital, these entities are able to pay “top dollar” for your practice as long as certain conditions are met.
If you have a practice grossing in excess of $750,000 you may potentially be a candidate for a corporate or large group practice acquisition. As in any practice transition, there are many factors to consider other than a high sale price. Working post sale for several years under a corporate management structure and recognizing that you may have as much control as when you were an owner must be factored into your equation.
Another important point to consider (especially if you are solo practitioner) is that recent data indicates only one in five dentists under the age of 35 want to be a solo practitioner! Since the majority of dentists over the age of 60 are still solo practitioners, this can be a concerning statistic – as the pool of potential buyers for your practice may become more limited. Many solo practitioners may have to consider an alternative transition strategy, such as merging their practice into a large group practice or practice network.
On the dental lending front, interest rates will continue to rise in 2019 as the Federal Reserve is planning on several interest rate increases. Lender requirements relating to acquisition loan underwriting remain more stringent. For practices with higher gross revenues, some banks may require the seller to hold a promissory note for a portion of the sale price, as they want assurances that the purchaser can maintain the production levels of the seller. This note can be converted to cash within one to two years after the sale, providing that the purchaser meets the financial goals set by the banks. This seller “holdback” usually varies between 10-20% of the sale price.
For recent grads with significant dental education debt, some lenders are now requiring the seller to hold a note for a portion of the sale price. For practices with higher gross revenue, the “holdback” period may be several years, with the purchaser required to reach certain financial targets. Credit requirements continue to be stringent, so good payment history and decent FICO scores maintained by the purchaser are extremely important.
The trend of increased partnership formation continues to grow as the percentage of solo practitioners continues to decrease. Recent statistics from the American Dental Association show that as of 2017, 50.9% of all dental practices were considered solo practices. The inference here is that more doctors desire to practice together, so the trend of forming partnerships will continue to grow.
Multiple office ownership continues to increase. It is not just the continued growth of the Dental Support Organizations (DSO) impacting the dental profession, but also a big increase in the number of early and mid-career dentists desiring to own more than one practice. We do not see this trend weakening.
In summary, it’s hard to be totally “on target” with any prediction. Remember that sound financial and transition planning coupled with good practice fiscal management are key ingredients to your success, whether you have short-term or long-term transition plans.
If you would like additional help, email Dr. Snyder at firstname.lastname@example.org
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What Your Office Manager Needs to Know to be Successful
By Sally McKenzie, CEO
I’ve seen so many dentists make the same mistake. They finally decide it’s time to hire an Office Manager, but instead of conducting a proper search to find the right person, they hire one of their star employees instead.
The problem? All-too-often these employees simply don’t have the necessary skills or temperament to excel. So instead of the Office Manager helping the practice run more smoothly, the days get even more chaotic. Employees become frustrated and stressed, leading to low team morale and hurting practice efficiencies.
Remember, the Office Manager role is unlike any other in the practice and isn’t one you should rush to fill. You need to find someone who’s comfortable taking on the responsibilities and daily stressors that come with the title. What does it take to be an effective Office Manager? Read on to find out what your Office Manager needs to know to be successful.
• How to be a leader. The person you hire to be your Office Manager will serve as your Chief Operating Officer. That means strong leadership skills are a must. There’s a lot your Office Manager will need to deal with on a daily basis, and he or she must be comfortable addressing the difficult issues that come up in a practice – including disciplining and firing team members.
For some, leadership comes naturally. Others have to work at it. Offering proper training and education will help your Office Manager become a more confident, effective leader.
• How to problem solve. Your Office Manager is the first point of contact for both team members and patients when problems arise. This person must be comfortable handling difficult situations and have the ability to problem solve. Otherwise problems will just get worse, which could result in lost patients and/or team conflict.
• Your expectations. Just like with every employee you hire, it’s important to create a detailed job description that outlines the Office Manager’s duties as well as your expectations. The job description will serve as a roadmap to success, eliminating any uncertainty about the role.
• How to actually do the job. That’s where training comes in. Providing proper training will help your Office Manager become more confident and effective. Not prepared to provide this training on your own? I offer an Office Manager Training Course designed to help these employees excel.
• How to work with numbers. This is a key part of the Office Manager position. If you hire someone who isn’t comfortable working with numbers, it will lead to misery for you, the employee and everyone else in the practice. Keep in mind this team member is responsible for overseeing practice overhead, accessing and understanding various practice reports as well as managing all the practice’s business measurements. This job simply isn’t for someone who struggles with numbers, no matter how well they perform their current job.
• How to be both personable and efficient. While working with numbers is a large part of this role, so is human resources. That means your Office Manager also has to be good with people. He or she will be in charge of recruitment, hiring, firing, performance reviews, schedules, grievances, raises, salary reviews, employee policies and team meetings. If that list makes the person you’re considering for the role uncomfortable, he or she simply isn’t the right fit.
Because this job requires working with numbers and people, your Office Manager should exhibit a good balance between thinking and feeling in his or her temperament type. I’ll explain. Let’s say your Office Manager scores high on the “thinking” scale. That means the employee is task-oriented and could even come off as demanding to the rest of the team. If your Office Manager scores high on the “feeling” scale, on the other hand, it will likely be difficult for him or her to deal with HR tasks such as holding team members accountable and maintaining practice policies. Either way, it’s not good for your practice.
• How to handle pressure. The Office Manager’s job can be stressful at times. This team member is constantly pulled in different directions and must be comfortable multi-tasking. The days can get pretty chaotic, so you need someone who is calm when the pressure is on. If your Office Manager gets flustered easily or is quick to anger, it will only lead to trouble and even more stress for you and the rest of the team.
Office Managers do so much more than answer phones and fill the schedule. This employee helps you run the business, taking on tasks you’d rather not do so you can focus on the dentistry. You can’t hire just anyone for the job, even your star employee. Make sure the person you bring on has the temperament and skillset needed to excel. Once you have the best person in place, your days will be more streamlined and less stressful, and you’ll finally start meeting your full potential.
Sally McKenzie is CEO of McKenzie Management, a nationwide dental management, practice development and educational consulting firm providing knowledge, guidance and personalized solutions that have propelled thousands of general and specialty practices to realize their potential. Learn more practice management tools from Sally’s “on-demand” webinars, 24/7, complimentary for Dentists and the Team. Start here.
Interested in speaking to Sally about your practice concerns? Email her at email@example.com or call 1.877.777.6151
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