Well, It’s Happened Again

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.

Hopefully, your death will be long after your dental career has ended and you have had many, many blissful years enjoying your grandchildren and hobbies. But what about the possibility that life doesn’t work out that way? What position would you, your practice and family be in if you were to receive a terminal medical diagnosis today? While we would all hope and pray for a full recovery, immediate steps need to be taken to get the practice on the market. The sooner the practice can be sold, the better it will retain its value and more importantly, the less of a burden it will be to you and your family.

And what about the tragedy of sudden death? In our office, we have witnessed families struggling with disposing of practices after doctors have died from strokes, heart attacks, choking, motorcycle and auto accidents. You owe it to your family, staff and patients to prepare for this very real possibility. The list below, while probably not complete or all-inclusive, should give you a starting point for action.

  • Have a current will, estate plan and appropriate Power of Attorney and Medical Directives.
  • Obtain a quality disability insurance policy for your “own occupation” payable to at least age 65.
  • Obtain adequate life insurance that at the very least will cover any practice related debt, including real estate and operating expenses.
  • Tell someone where all of your documents are kept.
  • Meet with a dental practice broker. I know this sounds self-serving, but in spite of the fact that we all have attorneys, accountants and estate executors, I feel no one is better able to quickly get your practice valued and sold. A broker familiar with your practice and market will be in the best position to find a buyer and can even be helpful in finding temporary coverage while the sale is pending. Yes, you will have to pay a commission but perhaps we can save your practice.
  • Consider organizing or participating in a dental mutual aid society. John Cahill of Western Practice Sales has written extensively on the subject and has organized groups of doctors who will come to the immediate aid of a fallen comrade. A formal agreement between 6-10 doctors can provide peace of mind in knowing that your practice will immediately be covered in the event of your unexpected loss.
  • Have a Memo of Direction on file with your estate attorney and the transition specialist/broker to facilitate a quick sale of your practice.
  • On at least an annual basis, organize important information about your practice as if you were preparing for a sale. Financial statements for the last three years along with a current Profit and Loss statement, current lease, any contracts you are party to and a current list of major equipment would be a good starting point. The broker you meet with will be happy to provide a complete list for you.
  • Tell someone where your documents are kept. (This is not a typo – it is often the biggest reason for a delay in moving forward as no one knows where anything is kept.)

The brutal reality of sudden death or a medical crisis is something that none of us want to face but it seems to me that as many as half of all doctors or their families may at some point have some hard decisions to make. A little planning now will go a long way in insuring the continuation of your legacy.

Steve Wolff, DDS
UMKC Class of 1977

You Want How Much?!

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.

By now you have to be asking “How can this have anything to do with dental practice sales?” Ironically, the answer can range from “Not Much” to “Everything.” Let me explain.

At EMA, we are very proud of our appraisal track record. In 2014, our accuracy with regard to the appraised value versus the sales price is within 2%. Even at that, we don’t feel too bad. Since the market has been so strong, even when we’ve been off, we’ve been a little low.

A thorough review of the practice revenues, cash flow, assets, practice demographics and our catalog of historical data gives us a pretty good idea what the practice should be “worth”. Our standard of value for a practice appraisal is a number for which we think we could sell the practice given a reasonable length of time to present it to the market, and assuming that the business will remain under competent, consistent management.

All this being said, we do not control the market. A practice still sells for what a buyer will pay and a seller will accept. While both parties may think they know “the number”, many factors may influence their decision to act. The urgency of the sale, location of the practice, the seller’s health and family situation, comparisons to other opportunities and access to capital can all change a buyer’s and/or seller’s perspective. What seems like a bad deal to one potential buyer may seem like a bargain to the next. What a seller will accept in September may be considerably different from what they will accept the following April.

Perceptions of value can change. So do your homework, get qualified help, stow away your American Picker’smanual, and do your best not to get too emotional. In the end, everyone needs to walk away satisfied.

Dr. Steve Wolff

UMKC Class of ‘77

Write It Off? Not So Fast.

One of the services EMA offers is a pre-transition consultation in which we take stock of the potential seller’s practice and make recommendations about how to best position the practice for sale. This may include our opinions about the physical plant, current technology, service mix, PPO participation, staff size and general marketability. Inevitably though, that conversation will include a comment referring to “cleaning up your financials”. The logic is that practices with clean Profit and Loss statements and tax returns just “show” better to prospective buyers and consequently sell faster. Recent revelations from the banking industry though have caused us to reconsider how important this particular point may be in accomplishing a sale and transition.

Come on, we’ve all done things like putting a spouse and/or children on the payroll or buying “Dental Supplies” that ended up in the home pantry. Boats, airplanes, farm animals (yes, we have adjusted “Hay” from the supply bills), inflated rent to owner occupied real estate, artwork and furniture have all been written off as expenses through the practice. We are making no moral judgment here as we understand that small business owners need to take every available advantage of self-employment. In the past we have simply normalized those expenses in an effort to best estimate the true overhead costs and resulting profitability. Buyers and their accountants understood the process and analyzed the opportunity accordingly.

Here’s the game-changer; of late, lenders are not allowing those adjustments in their cash flow analysis. Unless you are willing to provide specific documentation for those non-dental or one-time expenses along with any and all family W-2s, those expense categories will be taken at face value and true office profitability will suffer. To quote a national market lender in the analysis of a recent deal; “We don’t normalize to industry averages.  We will adjust if we are provided something concrete relating to inflated expenses for personal or one-time costs”. Since those expenses were taken with the intent of reducing the practice net income and subsequent tax liability, the effect on a buyer’s ability to obtain financing should be obvious.

So what should be your course of action? EMA is obligated to give you the IRS interpretation in determining legitimate expenses but at the very least, you need to have a heart to heart with your accountant to project which course of action best suits your personal finances. It may be determined that continuing to write off expenses may be a better strategy if you understand the effect it may have down the road on your business equity.

Dr. Steve Wolff

Class of ’77

The Perfect Listing? Not Yet!

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.

So what is the perfect practice in the mind of a young prospective buyer? Recently a fairly new grad was willing to share his list and I believe it would be helpful to our retirement-aged docs to know what dentists in this age group are thinking. It does not mean a practice cannot be sold if it doesn’t meet all of the criteria but hopefully serves as a reality check regarding the sale and transition of their businesses.

The original list   (My comments in red)

  • 4-5 operatory stations; updated equipment would be nice  (Digital Radiography is almost a given)
  • Collections around $600K+    (The” Sweet Spot” in the Midwest)
  • Low overhead (60-65%)   (55-60% even better because of student loan and acquisition debts)
  • 1300+ active patients (within the last 18 months)
  • 2000+ sq. ft.
  • We would be open to owning the building depending on the location/cost   (Generally no interest)
  • 2-3 Hygienists
  • 20+ new patients per month
  • Transitioning from someone with a similar dental philosophy  (I’m never sure what this means)
  • Ability to grow the practice in new areas (implant dentistry, molar endo, pedo, – I do not do ortho at this point)   (endo and pedo revenues are almost always available)

If every listing we took had to fit these requirements to be sold, we would be out of business. All of them are good things to aspire to and work towards but most buyers soon learn that the power of a dental license has created a lot of unique opportunities and that some flexibility will be required in order to ever find something to purchase. Some things are harder to work around than others (revenue below the level of sustainability and bad buildings, for example) but most will eventually find a match.

Should all potential sellers change their model to fit this list? No. There will be buyers that have a different plan. Just be aware that what has been a perfect fit for you may not suit every buyer. If you would like some help in making the pieces fit, please do not hesitate to give us a call.

Steve Wolff, DDS

Exaggerated Rumors of the Demise of the Solo Practice

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.

With that as a backdrop, I’m convinced that our profession has its “life cycles” as well. I recently read an article in Dentaltown magazine that proved to be especially interesting because it was a round table type discussion about the future of dentistry. As I read the article, I had one of those deja vu experiences. I was sure I had seen similar discussions many years ago about the future, and even the demise, of the private practice of dentistry. (I have searched in vain for a picture I’ve seen – circa 1980s – of a family in a museum, looking wistfully at a display of what a “dental operatory” looked like, now that they no longer existed.)

I think a case can be made that we are again in a cycle in which it is timely and pertinent to discuss the future of private practice. This cycle has been revisited, in large part, because other professions, particularly pharmacy and optometry, have changed to much more of a franchise model, with large corporate ownership. In the same magazine, Dr. Howard Farran, in his monthly column, makes a very good point, asserting the following:”Let’s talk about the reality. Dentistry’s unique selling proposition is surgery. We work in an operatory. Our hands and fingers are in someone’s mouth. It’s not the same as a pharmacy or an eye clinic. It takes human hands and human eyeballs to perform dentistry.”

Because I have a sense that I’ve heard much of the pessimism before regarding the ultimate death of the private practice, I recall the statement credited to Mark Twain, when he is purported to have said, ” Reports of my demise have been greatly exaggerated.”

I do think we’ll see changes in the field of dentistry in the coming years. But I firmly believe there will always be an important role for the solo practice.

Dr. Brad Babcock

The Perfect Listing? Not Yet!

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.

So what is the perfect practice in the mind of a young prospective buyer? Recently a fairly new grad was willing to share his list and I believe it would be helpful to our retirement-aged docs to know what dentists in this age group are thinking. It does not mean a practice cannot be sold if it doesn’t meet all of the criteria but hopefully serves as a reality check regarding the sale and transition of their businesses.

The original list (My comments in red)

4-5 operatory stations; updated equipment would be nice (Digital Radiography is almost a given)
Collections around $600K+ (The” Sweet Spot” in the Midwest)
Low overhead (60-65%) (55-60% even better because of student loan and acquisition debts)
1300+ active patients (within the last 18 months)
2000+ sq. ft.
We would be open to owning the building depending on the location/cost (Generally no interest)
2-3 Hygienists
20+ new patients per month
Transitioning from someone with a similar dental philosophy (I’m never sure what this means)
Ability to grow the practice in new areas (implant dentistry, molar endo, pedo, – I do not do ortho at this point) (endo and pedo revenues are almost always available)

If every listing we took had to fit these requirements to be sold, we would be out of business. All of them are good things to aspire to and work towards but most buyers soon learn that the power of a dental license has created a lot of unique opportunities and that some flexibility will be required in order to ever find something to purchase. Some things are harder to work around than others (revenue below the level of sustainability and bad buildings, for example) but most will eventually find a match.

Should all potential sellers change their model to fit this list? No. There will be buyers that have a different plan. Just be aware that what has been a perfect fit for you may not suit every buyer. If you would like some help in making the pieces fit, please do not hesitate to give us a call.