Why are dentists selling these days?

Wes Read CPA, CFP®

PracticeCFO is coming up on six years since formation. During that time, we’ve worked with hundreds of dentists and learned a lot of lessons. One striking lesson we’ve learned during that time is that change is continuous. It’s always occurring. Indeed, its permanent.  The change that often comes unexpectedly to us is when a dentist decides to sell their practice.

One would expect the decision to sell to be predictable. In other words, a dentist runs a great career, sells their practice as age 65, then moves into retirement. However, I’m consistently finding that the older doctors are continuing to work longer; i.e. they’re not the one’s selling.  It’s actually the mid-career doctors that are selling.

Why are so many mid-career doctors selling their practices?  Here are some motives, to name a few:

  1. The Godfather Motive: They were made an offer they couldn’t refuse. And generally without a gun involved. This typically happens when a larger dental practice, or corporate DSO, wishes to add the practice to their platform. How can DSOs offer prices that are sometimes between 6-8 times earnings when the industry standard is so much less?  Because if they successfully add the new practice into their administrative systems, marketing, and culture, they can in turn sell their DSO to a larger organization at multiples of 12 times earnings.
  2. The Stress Motive: Practice ownership is demanding. If only you had a business degree to supplement your dental degree. But that’s unlikely. You’re only human. When you purchased the practice, you were thrust into the roles of employer, tenant, debtor, corporation owner, taxpayer (bigger one), practice manager, and bean counter. PracticeCFO creates organization and relieves our clients with some of this, but inevitably practice ownership can be stressful. Moving from owner to employee isn’t a bad proposition for many dentists who struggle with balancing the clinical with ownership, and maintaining a personal life all the while.
  3. The Physical Motive: If the IRS allowed deductions to dentists for physical therapy, chiropractic treatment, yoga, and wellness memberships, I’m not sure any dentist would be paying taxes. Why so much treatment and body care? Because (as I’m sure you know), dentistry is physically demanding. Repetitive motions, leaning, neck postures, and a lot of hand movement has led many dentists to work less. Because dentists have such high fixed costs (generally around 50% of their collections), they can’t afford to earn less. So what next? They often sell their practice. Ideally they would sell before their collections decline, since the value of their practice is a function of collections, declining collections can drastically lower the value of a practice.
  4. The Relocation Motive: These days, people relocate at about the same pace as changes in trade relations with China. Although a lot of jobs these days are location independent, dentistry is not one of them. We’ve had clients sell their practice, allowing them to relocate for personal and family reasons.

Regardless of your motive to sell, please consider these questions:

  1. What is your tax basis in your assets and how much will you take home based on the purchase price allocation after taxes, debt, and selling costs? Is that enough for your next move (or retirement)?
  2. Will you use a broker or not? Consider the advantages and disadvantages:
    • Advantages of a dental-specific broker (E.G. practicecfotransitions.com):
      • Aggregating a greater pool of buyers to find the right fit and best offer.
      • Navigating the conversation with seller, buyer, CPAs, and Attorneys.
      • Diffusing the emotions that often arise that prevent a successful transition.
      • Accelerating the process.
    • Disadvantages
      • Fees.
      • Some brokers aren’t adequately educated on dental transactions
  3. How will you protect the proceeds after the sale, especially with a volatile stock market?
  4. Are you emotionally ready to leave your patients, team, and give up what you’ve worked so hard to build?

Selling your practice is a career and life changing decision! Be sure to speak with your PracticeCFO advisor to understand the implications if you are considering it.

I hope you enjoy the newsletter. Many great words of wisdom from our team!

Wes Read

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