(Sneak Peak! A slightly edited version of this article is scheduled to appear in the May issue of Dental Economics.)
As more and more practices established in the 60’s, 70’s and early 80’s come on the market, it seems likely that a good number of them will need to be merged into existing practices in order for the retirees to perpetuate care of their patients and maintain custody of records. With enrollment to local dental schools in our market more than a third less than previous levels, a significant number of retirement age doctors will not find buyers to sustain their practices into the next generation. Positioning their practices for a merger into another may well prove to be the best of exit strategies. As we gain more experience with this model, certain factors contributing to the marketability and successful transition of these practices seem to bubble to the top.
Retaining one or more key staff people: It is no secret that many patients will have more connection with the office manager, assistant or hygienist than they do the doctor and having one or more come to the new office has a very powerful effect on patient retention. Besides their familiarity with the patients, a willingness to promote their new boss goes a long way towards acceptance of the changes the new office and doctor may present. Pre-appointed hygiene visits can be “money in the bank” for the new doctor if properly handled.
I’m disappointed to say that only a small percentage of calls we get about the potential sale of a dental practice is about creating a transition plan. Most of the time the practice owner calls because they have decided that “the time has come” and wants to know if we can help. The decision to call was not the result of a carefully crafted exit strategy but rather the realization that they are tired of working, want to make a change in their lifestyle, or in some cases declining revenue has taken the profit out of their practice. The lack of a plan often leads to a declining value of the practice and in some cases, the practice is unsellable as an ongoing business. While we try to be as accommodating as possible (otherwise we would be out of business), sometimes it’s too late for us to help.
Bo Burlingham’s book, Finish Big, makes the case that how and when a business is transitioned should be a part of the start-up business plan.
There is no doubt that one of the best days of our year is the day we get to speak to the students at the University of Nebraska Medical Center College of Dentistry. The culture of the school and the hospitality of our host, Dr. David Dunning, always make for a great experience. While the fact that Dr. Wolff wrote the chapter on practice valuation may contribute to the attentiveness of the students, the respect shown by the school to outside resources is exemplary. This program is one of the finest in the nation and others should take notice.
No, Dr. Wolff is not trying to sell anyone a classic car. The picture was used as a conversation starter about the concept of Subjective Valuation.
Probably nowhere is it easier to illustrate this concept than to ask various members of the class to give their dollar value of the 1957 Chevy convertible shown in the picture. Prices ranged from $30,000 to $250,000. Color and engine type made a difference as did originality. Emotion, history and sentimentality were also factors. While the current market price for such a vehicle might be in the $75-100,000 range, the student’s numbers reflected exactly what was asked; what is this car worth to you? Some were ambivalent while others thought it was iconic.
Not many books found in the business section of the bookstore are written about the exit strategy of small business owners. While you will find countless texts on Marketing, Management, Growth and Development, seldom is much consideration given to the financial, social and psychological implications of ending a career. Bo Burlingham, a frequent contributor to INC. Magazine and author of the book, Small Giants, has taken up the cause with his new book which will be reviewed and discussed in a series of articles on this site over the course of 2015. While dental practices do not usually conform to the definition of Small Businesses (receipts greater than $2.5 million), the experiences of general business entrepreneurs are very similar to dental practice owners. I would suggest that anyone who cares about the future success of the transition of their business to the next generation should pick up a copy of this book and a highlighter and begin a little honest evaluation of your exit strategy.
To those who know me it should be no surprise that one of my favorite NPR shows is Car Talk by the Magliozzi brothers, Ray and Tom. After about an hour of nonsense mixed in with a little bit of advice about everything from transmissions to bread recipes, the signoff begins with the line; “Well, it’s happened again. You’ve wasted another perfectly good hour listening to Car Talk. Our esteemed producer is . . . .” I couldn’t help but think of that line upon hearing of another colleague in my territory that went down unexpectedly and left his family unprepared about what to do with his practice and patients. It seems like this happens way too often.
I recalled an article posted on this site a few years back and believe that it is still on point. A portion of it follows below. For years we have had a Memo of Direction available on our website for those that need a little assistance in getting started with some practice continuation planning. We made it a WORD document so that it can be changed to suit your needs. I will not even be offended if you take our name out and put in another’s. I would prefer someone else be designated rather than no one.
One of Debbie’s and my monthly pleasures is shopping at a local Kansas City antiques center which is only open during the “First Friday” weekend. This particular store epitomizes the word eclectic, and has been the source of numerous purchases. Recently I noticed a couple of 50’s era stools which, although I had no need for them, I thought were really cool. They had been marked at $85 each, but having noticed them not selling for a couple of months, I thought I would flash my negotiation skills and see if I could buy the pair for about $120. Imagine my surprise in finding them not in the usual display but positioned in one of those out-the-door bargain locations for $25 each. Interestingly, though I would have been proud to have bought them for $120, I found myself a little reluctant to hand the cashier $50 for the pair. What happened? Why did it no longer seem like such a good deal?
Obviously the chairs had not changed, nor did the store change their marketing format. The fact is, my perception of their value changed. The chairs went from being kitschy, industrial décor to clearance sale items. Ultimately, I did buy them, but the feeling of victory was tainted.
I have always felt that one of the real blessings and privileges of holding a license to practice dentistry was the ability to control your work environment. You can practice where you want, with whom you choose, at the pace you prefer, doing procedures within your comfort zone and for patients you enjoy treating. Believe me, not many other types of employment allows this sort of flexibility. When you combine this with the lack of oversight (my barber is subject to annual unannounced state inspections of his shop), the practice of dentistry creates a lot of business diversity.
The flip side of this is that very few practices are the same, and from a marketing standpoint, that presents some challenges. While sellers are understandably proud of their businesses, they have created practices for their personal benefit, style and performance level, and prospective buyers often have a different vision. The result is that when the young doctor tells me they are looking for the “Perfect Opportunity”, the sad fact is that I don’t have any in our inventory. Truth be known, I have yet to have a listing without some sort of flaw when compared to the buyer’s wish list. Whether it is the location, staff, revenue, procedure mix, insurance participation, Medicaid, parking lot, bridge construction, curb appeal, lease, technology, geography, equipment, or patient base, something is always at issue. Surprisingly, if properly appraised, price is usually way down the list of concerns.
Having graduated from dental school in 1977, I’m closing in on 40 years of serving and observing our profession. From this perspective, I’m becoming more and more aware of how much of life runs in predictable cycles.
Thinking of myself and many of my peers, I see that our personal lives are very similar to each other in many ways. With some notable exceptions, most of us grew up in somewhat stable home environs, made it through college and dental school, married, had children, and found that dentistry provided a reasonably rewarding career for many years. Now we can see the same cycle repeating with our own children.
I was recently asked to serve on the Sustainability Task Force at my church. It seems that many churches, non-profits and businesses in general are asking members and constituents to sit down and focus on what factors may influence the long term survivability of their organizations and to make plans and recommendations to deal with those issues. This trend is not so much about organizational goals and mission statements as much as it is about the ability to physically survive into the future. Maybe the recent pain of the Great Recession has taught us a few lessons. Topics of discussion might include changing demographics, staff succession plans, physical property needs and management of the organization’s endowments. It occurred to me rather quickly that dental practices could certainly benefit from a similar introspective process.