Practice Ownership is Declining
There is a steady decline of practice ownership, especially amongst male dentists. Approximately 80% of dentists currently own practices. Rising student debt, the emergence of corporate dentistry, shifting work-life balance preferences were just a few examples of why there is a decline in ownership. One of the big questions brought up is whether the trend is a big deal. It was pointed out that practice ownership is highly coveted and one of the reasons that dentists got into dentistry in the first place. All else being equal, owner dentists earn more than non-owner dentists. The question is, is practice ownership no longer as coveted as it used to be by younger, early career doctors?
The decline in practice ownership will continue for years to come. A comparison to the decline in ownership by physicians, which is now below 50%, was used as a comparison. Hospitals and groups have taken over the ownership of physician practices. The study states that physicians’ net hourly income is significantly higher than for dentists; Although, I would say that the annual income is higher for dentists, all things being equal. The author also claims that physicians are happier as a result of not being an owner of a practice. With reimbursements continuing to decline, dentists will be asked to do more with less. An emerging emphasis on quality and value will spur changes in dentistry.
If you have not read the article, I recommend you take a look. Email me at rod@omni-pg.com and I will send you a copy. You can also go to jada.ada.org and search for “Practice Ownership Is Declining.”
Building Your Team
The first team member you need to bring on board is someone who can help evaluate a practice. That can be an accountant, consultant, or broker that specializes in dental practices. Those last four words of that sentence are critical. Specializes in dental practices. They have to know what they are doing and how to analyze and value a dental practice. I once was representing a seller who had a practice collecting $800,000 with a net income of $300,000. The buyer’s consultant put together an offer of $280,000 when we had it valued at $550,000. The consultant ruined the deal. The seller was so upset with the buyers low-ball offer that the seller refused to even work with that buyer even with a higher offer.
The second team member is the attorney. Again, use an attorney specializing in dental practice transitions. It’s critically important. Do not use your cousin, friend, neighbor etc., who are divorce, bankruptcy or personal injury attorneys who took a contract class in law school. I’ve seen “friends” charge the dentist $25,000 for a review of a contract where a dental attorney would charge around $5,000.
You also need a dental CPA to help you with the numbers. They can help with the valuation, analyze the payroll and tax returns, help with the purchase price allocation and set up your legal entity.
Fourth is your banker. There are a number of banks that finance practice acquisitions and startups, and they all have their pros and cons. It’s important you work with someone you trust who will give you a fair deal. Sure, banker B may have a slightly better rate, or a cool toaster give away for new accounts, but go with someone you like and can build a relationship with. They’ll be there in the good times and the bad times to help you out.
If you need some names of good team members, let us know. We work with a lot of CPA, attorneys, consultants, bankers and brokers. We have a good feel for who will be looking out for your best interest and will do a good job for you. Give us a call and we’ll help you build your team for your practice acquisition or startup.