Having been in the dental industry for over twenty years, I have spoken to many dentists wishing to buy or sell practices.
There are just as many reasons for wanting to sell as dentists wishing to buy a practice.
It all comes down to where you are in your life when these decisions are considered.
So without boring you too much with 1000 reasons, let’s look at the four most common conversation starters.
Selling a practice
- I have been approached by a third party or a corporate to sell my practice
- Managing staff and patients is becoming too difficult to bother with.
- The industry has changed too much for me to keep up at my age.
- I am over 60 and looking to retire now and or slow down.
Buying a practice
- I’m over working for someone else and getting paid a commission to build their goodwill.
- I’m not getting anywhere working as an associate dentist.
- I want the freedom to own my own practice.
- It’s the next step in my career
I am sure these few statements would resonate with most readers right now, there is a whole page of other reasons, but these are the ones I hear the most.
Let’s look at the first one in the selling column: “I have been approached by a third party or a corporate to sell my practice.”
This is the statement that I would like to discuss because it’s the one statement that is possibly causing the most concern not only in Australia but worldwide.
Consider for a moment that you are in your late 50s -70s and own a three-chair clinic, with fees around $1.6 – $2.5m per annum. You have at least three associate dentists, maybe two, a hygiene department, a support staff of at least six, and possibly a practice manager. Most of the support staff are casual in some form. The associate dentists probably work elsewhere and give you maybe one to three days per week.
So between the practice manager and the owner, much time and effort are used running a practice of this size.
In most cases, the principal is still chairside. Hence, having downtime is a luxury often not afforded to them or their family, and the daily grind continues normally until something breaks within.
That’s when my phone rings, with the conversation starting something like:
“I’m considering selling my practice after X years. I’ve had enough and would like to slow down. I have been or was approached by X Corporate a while back, advising they were interested in buying a practice nearby offering premium payment for quality practices like mine.”
In most cases, the owner is sick of having all the dramas now associated with running a modern practice when they have a PM that should take care of all that. Most owners are happy doing dentistry but hate the other bits, but most PMs can only do so much.
So the lure of being paid top dollar and NOT having to worry about all that admin, recruitment, stock, and so on is a great temptation.
Little do they know until it’s too late; the problems have only just begun. The lure of the bigger settlement looks great on paper. Still, part of that settlement figure is always attached to a three or four-year earnout or buy-out, which in turn is tagged to maintaining a specific net profit figure or EBITDA (Earnings before interest, taxes, depreciation, and amortization,) which is usually out of the control of the selling owner and can be manipulated by adding charges or expenses not necessarily in the P&L at settlement, so that could have cataphoric consequences on the owner achieving his target to receive the remaining settlement money outstanding. (Employing just one extra support staff member can be the difference between profit and loss)
In other words, in ninety per cent of cases, they need to work harder than before over the next three or four years to receive the full amount offered initially.
In reality, the true value of the practice is the up-front payment only, which in most cases is between 75% – 80% of the sale price. The earnout is always linked to the practice continuing to achieve at least the EBITDA or Net Profit when sold.
Returning to the initial conversation: “I’m considering selling my practice after X years. I’ve had enough and would like to slow down.
How will this owner achieve what they initially wanted during the next three or four years?
Nothing has changed. They still need to stay on the treadmill, control the day-to-day running of the practice with the PM, and stay at the chairside pumping out their share of the fees. If someone leaves, they have to make that difference up as well.
How does selling to a corporate make any sense in this situation?
- After how many years as the owner? Have someone else call the shots.
- Being tied to the practice for three or four years with little control.
- Being at the mercy of the unknown (COVID was a fine example)
- Losing control of the financial side of the practice as well.
- Being paid commissions only.
- The list goes on.
Over the years, I have heard more stories of horror than joy, more owners walking out before their time was up, not getting their final payouts and in most cases, they didn’t care.
Sure, the good stories are out there, but in most cases, their situation was different, and most of those owners were younger. That makes the difference, I believe.
I could go on and on. I’m sure you all know someone who has sold to a Corporate and has told you of their experience, good or bad.
From a practice sales broker and advisor with over twenty years in this industry, Corporates will stay around, and yes, they will change the face of this industry. But for those looking to get what your practice is truly worth without shackles attached.
Plenty of private buyers are willing to pay similar money for well-run practices.
After 50 years of self-employment, I know I couldn’t cope or wouldn’t want to cope with that type of change in my life, so why should you?
Sometimes it’s not always about the money, as many have conceded over the years.
If you know someone looking to sell their practice or are looking for straight-shooting, honest advice regarding this subject, forward this email. They may thank you in time
Kind regards
Jan Gray
