Yankee Dental Show Report: Dental practice market heats up

2007 11 12 18 17 48 706

BOSTON - Buying a dental practice these days is a lot like buying a house was a few years ago. The sale prices are high. There are lots of competing bidders. And it doesn’t seem like you can go wrong with your investment.

Unlike the housing market, though, the good times seem like they’re in no danger of going away. "It’s a seller’s market," Arthur Gordon, a practice broker with Northeast Dental Counseling, told dentists attending Yankee Dental Congress 33 here on Saturday. There are so many more buyers than sellers in some areas, he says, "you’ll have them knocking down the door to buy your property."

Gordon was one of five experts on a panel who shared key tips about buying and selling practices and entering into new partnerships.

Advice for sellers

With dental office revenues rising sharply in the last five years, dentists are finding that their practices are worth more than ever these days, Gordon says.

It’s not uncommon for dentists to gross more than $1 million a year these days. One Massachusetts practice went from $700,000 in gross revenues seven years ago to $1.7 million last year.

And nowadays, it’s not unusual for practices selling in big cities like Boston to fetch 80 percent to 90 percent of their gross revenues. In California, some practices are bringing in more than 105 percent, Gordon says.

Still, the panelists warn, sellers should think carefully before leaving their practice. "Don’t sell too early," Gordon says. "You don’t need to be pressured."

Even though the market is now bringing in great prices for dental practices, retired dentists may not be able to live off the proceeds of the sale. "You’ll always make more if you keep your practice," he says.

Once they've decided for certain that they want to sell, dentists should closely scrutinize the buyers' resume, clinical references, tax returns, credit reports, and academic records.

Also, just as in real estate, sellers will get the most out of their properties if they spend the time sprucing them up - even with just a fresh coat of paint.

Advice for buyers

Despite the high prices, there are good deals for buyers as well. Almost all dentists who buy out others’ practices wind up with successful businesses, Gordon says. Most dentists retain 95 percent of the practice’s patients, and many bring in lots of new patients, too.

To assess the value of a dental practice, buyers need to ask themselves three critical questions. Where do they want to practice? Are they clinically prepared for the practice? Are they emotionally ready to handle the responsibility of the practice?

Potential buyers should closely examine patient records, not just take a tally of how many patients are in the dentists’ computer files. Gordon suggested that buyers go so far as to determine what the dentists’ most common procedures are and how many of them they have performed.

The seller may say that the practice had 1,000 patients last year, but were half of them denture patients? If so, then repeat business will probably not be nearly as high as other potential practices.

If dentists want to start a practice with a partner, there are even more factors to consider. It’s almost like a marriage, says Jean Fallago, an attorney who specializes in dental practice sales. She advises dentists to look for more than clinical competence in a potential partner. "Make sure there’s compatibility," she says. For example, she urges dentists entering a partnership to make sure that a potential partner will take on some of the management responsibilities.

When buyers have decided that they are ready to purchase a property, they need to be prepared to give the seller a wide variety of information, says Kathleen Ells, who helps arrange financing for these dental deals. She suggests that buyers put together a portfolio with all the credentials and credit information the seller might want to see. That way, if a seller is inundated with offers, the buyer’s offer package will stand out.

Once the deal is made, buyer and seller need to work together to create a transition plan.

Ells and other panelists suggest that the departing dentist notify all his or her patients, and perhaps remain in the office for a short time to personally introduce the new dentist to some patients.

But Gordon warns that often, the shorter transition, the better. "That causes less confusion for patients and staff," he says.

Patients may be nostalgic for the old dentist, but they usually get over that pretty quickly, the panel agreed.

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