The Dental Practice Sale

In this episode, Wes Read, CPA and founder of PracticeCFO dives into one of the most important financial terms in dentistry: EBITDA. Whether you're planning to sell your practice or simply want to manage it better, understanding EBITDA is essential. Wes explains what it is, how to interpret it from your P&L, and why every dental professional—owner or associate—should know the business side of dentistry.This episode is designed to help you start thinking like a CEO of your dental practice. Because yes, it’s a practice—but it’s also a business, with payroll, debt, taxes, benefits, and financial planning responsibilities.Key PointsEBITDA is a key financial metric every dental practice owner should understand.Even associates benefit from learning the business side of dentistry.Your dental practice operates like any other business—complete with payroll, taxes, and budgets.Understanding financials helps you become an effective CEO of your practice.Unlike large corporations, dentists provide services (not products), but the financial principles still apply.#DentalBusiness #DentalPracticeManagement #EBITDA #DentalFinance #DentistryPodcast #DentalCEO #DentalAssociates #PracticeOwnership #DentalEntrepreneur #FinancialLiteracy #P&LExplained #BusinessOfDentistry

Selling a dental practice is one of the biggest financial decisions in a dentist’s life—and it’s easy to make costly mistakes. In this episode, Brian Hanks sits down with Wes Read, CPA and founder of PracticeCFO, to break down the top 5 most common mistakes dentists make when selling their practice. From bad timing to poor team assembly, Wes and Brian share the insights every seller needs to avoid leaving money (and sanity) on the table.Key Points:Why selling too late can hurt your practice valueThe hidden danger of “just listing with your CPA”What happens when your staff finds out too soonWhy selling to the first buyer is often a trapHow working without a strong team can sabotage your deal#PracticeSale #SellYourPractice #DentalBroker #DentalCPA #DentalFinance #PracticeCFO

Podcast Summary:In this episode, we delve into one of the most critical aspects of running a successful dental partnership: profit allocation. Drawing parallels between marriage dynamics and business partnerships, we explore three core models for distributing profits among dental practice owners. These models — the 50/50 Model, Associate-Owner Model, and Full Allocation Model — are unpacked to help you determine the best approach for your practice. Whether you're a seasoned dentist or exploring partnerships for the first time, this episode provides valuable insights into structuring financial success in your dental business.Key Points:Importance of Profit Allocation in Dental Partnerships:Financial arrangements impact business success and partner relationships.Three Models for Profit Allocation:50/50 Model: Equal distribution of profits, simple but less flexible.Associate-Owner Model: Combines individual production rewards with shared profits.Full Allocation Model: "Eat What You Kill" approach; rewards are based solely on individual contributions.Factors Influencing the Right Model:Production levels, time commitment, and practice type.Balancing fairness with incentivizing productivity.Practice CFO's Expertise:Years of experience guiding dental partnerships.Customized solutions tailored to practice-specific dynamics.Special Considerations:Family practices often favor the 50/50 Model.Adjustments for specialists or varying partner roles.The Importance of Financial Reserves:Maintaining at least one month’s expenses in working capital.Exploring Practice Orbit:Innovative platform for buying and selling dental practices.#DentalPartnerships #ProfitAllocation #DentalCPA #PracticeManagement #BusinessStrategies #EatWhatYouKill #AssociateOwnerModel #DentalBusiness #PracticeOrbit #DentistryInsights

**If you are a Delta Premier provider and receive Delta Premier reimbursement rates, congratulations! ** You’re a seasoned dental practitioner who has been around a while! For those who might not know, Delta Premier is a grandfathered level of billing which Delta no longer offers to new dentists or to new owners of dental practices. The current top level of Delta billing, at least for those without Premier status, is Delta PPO.So, what happens if you’re a Delta Premier provider and are considering the sale of your dental practice? Does it affect your value? And, if so, how?The short answer is that it most likely will negatively affect the value. Let’s dig a little deeper.Let’s first note that if you are a buyer considering the purchase of a dental practice where the dentist is a Delta Premier provider, then you should take great care in understanding the financial impact to you after you become the owner. I am aware of a practice that was purchased for nearly $2,000,000 which went bankrupt in just over a year because of this issue. Buyer beware! It sounds ominous, but it’s not that bad if you understand it and plan for it. To really explain the effect of Delta Premier on practice value, we’ll look at it from the seller’s perspective.The heart of the issue is that Delta Premier rates of reimbursement will be reduced to Delta PPO rates of reimbursement when the new dentist gets credentialed. As sellers, you can expect savvy brokers, bankers, and buyers to estimate this reduction and subtract it from your collections. As we know, collections play a major role in the net operating income (NOI) of the dental practice. In other words, the higher the collections, the higher the NOI and the higher the practice value. The same is true when collections move the other way. In the case of Delta Premier rates, practices that have a heavy premier patient base will see higher offsets to their collections. That being said, calculating this reduction can be tedious and challenging. A listing broker should do their best to estimate this reduction; ultimately, however, the responsibility falls upon the buyer and the buyer’s consultants to determine the true effect of Premier billing. A rough estimate to calculate the premier reduction is to assume that 15% of the total collections come from Delta. Of those collections, 30% are rated as premier, so the math looks like this:Total Collections x 15% x 30% = Delta Premier ReductionIn the case of a practice collecting $1,000,000 and using this formula, the reduction would be $45,000. However, it would not be accurate to say that the value of the dental practice was reduced by $45,000. Reducing the collections and the NOI by $45,000 could mean $100,000 swing in value to the banks based on their underwriting standards.Of course, the formula above is just an estimate. A seller can show that the reduction might be negligible. For example, they might be able to prove that only 20 of 2,000 patients are rated as Delta Premier in their practice. In this case, the broker might not make a reduction and would just disclose in their marketing materials that the seller is a Delta Premier provider but that premier accounted for 1% or less of total collections.To sum up, both buyers and sellers should take time and care to understand the effect of Delta Premier billing on the value of a dental practice. Doing so will ensure a fair trade for both parties and protect against very unfortunate surprises.

Every dental office sale requires that dental buyers, dental sellers, and attorneys agree to several, major deal points within the asset purchase agreement. Keep in mind that these negotiated deal points come after both parties have agreed to price and timing, and, while most of them are typical in the business-selling world, some are specific to dentistry. Below are our top 10:1. Price AllocationThe buyer will most likely be purchasing the assets of the dental practice rather than the seller’s corporate stock (assuming seller is established as an S or C Corporation). For tax purposes, the purchase price of the practice will be broken down into categories including supplies, furniture & equipment, non-compete, personal goodwill and corporate goodwill. How the price is allocated to each of these categories impacts the taxes for the seller and the depreciation schedule (future taxes) for the buyer.As a general rule, approximately 75-85% will be allocated to goodwill, unless all of the equipment is brand new. Most buyers and sellers ask their accountants to provide and agree to the allocation.2. Account ReceivableBecause payment for work done by the seller prior to the sale will be received by the buyer, the parties must agree how this is to be treated. The easiest and cleanest way to do this is for the buyer to purchase the accounts receivable at the same time they purchase the practice. This is done at a discount using a sliding scale. For example, the buyer would pay 90% of A/R in the 0-30 day tranche, 80% of A/R in the 31-60 day tranche, etc. There are three reasons for the discount:The seller receives the money now rather than waiting.The buyer now assumes the risk of non paymentThe buyer will be paying staff in order to collect the funds.When purchasing the A/R, the calculation is customarily done one day prior to closing. If the buyer does not buy the A/R, the front desk will need to keep careful records of payments received, and buyer and seller will need to develop a method of depositing the seller’s money in the seller’s account. There is generally a 5% fee the seller pays the buyer for administering AR collections.3. Delta PremierDelta Dental has discontinued its Premier reimbursement rates for all new contracts. This means the buyer will only be able to receive Delta PPO rates, which are generally 25%-40% lower, depending on the sellers UCR schedule. If the seller is a Delta Premier provider, the buyer will most likely experience a reduction in collections for Delta patients (the difference between Premier and PPO fees). This is an important disclosure when buying and selling a practice and could make a significant impact on the value.4. Covenant Not to CompeteThe covenant not to compete ensures that the seller does not open a competing practice near the practice being sold. These covenants are usually for a specific period of time and specify a distance from the practice, 5 years and 15 miles for example. While these numbers are negotiable, the buyer should take great care in analyzing the impact of this covenant. This particular deal point should be addressed upfront on the letter of intent. Keep in mind that there is still some question as to the enforceability of this covenant in California.5. Non-solicitationSimilar to the non-compete covenant, the seller must covenant not to solicit the dentist’s office patients or staff from the practice being sold. Doing so would be detrimental to the buyer and the buyer’s success. When buying a practice, a buyer relies on the staff staying in place and all patients staying with the practice (except for those noted by the seller such as family and friends).6. Dental RetreatmentsRetreatments can be burdensome for a buyer. A clear understanding of how retreatments are to be handled post sale is...

Preparing your dental practice for sale is much like selling any other business. When you increase income and decrease expenses, the value goes up. Conversely, if you have high overhead relative to your collections, the value of your practice decreases. High overhead might be attributable toStaff costs that exceed the dental industry average. For a general dentist, that would be approximately 28%. High staff costs don’t just happen overnight. They happen when you continually give pay increases without corresponding increase to your collections. In heavy PPO practice, this trend has been common over the past few years due to a loss in Delta Premier and general lowering of contracted rates.Facility costs (rent/maintenance) that exceed 10% of collections. We’ve found that practices with the highest value don’t correlate to practices with the nicest offices. And remember, you may only get 25 cents on the dollar, or less, of the value of a buildout/remodel when selling your practice. Hence, we don’t advice doing one within 5-7 years of selling your dental practice.General spending in other areas that don’t affect your collections.With that in mind, if selling is on the horizon, there are things that you can do now to prepare your dental practice for sale. Anything to streamline the health of your dental practice and your financial statement should be done as soon as possible. Buyers and banks like to see seasoning, or an amount of time to prove effectiveness. For example, you can’t just fire your staff one day and then expect to benefit from the savings the next. Banks usually use 3-year averages, so it takes time to make meaning adjustments.As mentioned, increasing collections is an obvious start in increasing dental-practice value. Chances are though that if you are considering selling your dental practice, you might be out of gas and not excited about taking on more advertising, attending more study clubs or learning specialized skills. You may have even seen collections start to trail off. If this is the case, I would recommend selling immediately. The last thing you want is a “falling knife” scenario where collections are trending downward, and no one can predict how far down they will go. But if you’ve got some fumes left in the tank, then work to get those collections up. Upward trending collections allow banks and buyers to put more weight on the most recent year, and this can be a good thing—like the COVID rebound most dentists experienced in 2021.Next, take a look at your expenses. Trim everything you can. Do you really need Netflix, Hulu and AppleTV+ in the office? Can you find a cheaper and comparable lab? There is always something. The largest portion of dental office expenses is in payroll. You’ll want to be careful here, especially in the current labor market. Finding good and devoted staff is tough. You may find that you actually need to hire staff, such as increasing hygiene days by hiring another dental hygienist or even looking for a hygienist with extended function to free you up to do more specialty work. Leveraging staff for higher collections is always a good thing.Lastly, consider tiding the place up. As mentioned above, I wouldn’t recommend a full remodel, but if the walls are chipped and dirty, paint them, if the floors and carpet are scuffed and worn, fix or replace them. Is your cabinetry a strange color from the 70’s? If so, consider a cost-effective way to update them by refinishing the doors, for example. As we know, these office cosmetic touches may not sway the banks since they rarely ever see a practice, but they will influence and motivate buyers. The more dental practice buyers you get writing offers, the higher the price will potentially go. So don’t hesitate to take action now. Just like regular brushing and flossing, hard work and effort will pay off in the future.

Episode Summary:In this episode, we dive deep into the intricacies of valuing dental practices, particularly in the context of partnerships. We break down key valuation concepts for general practitioners (GPs) and how factors like cash flow, overhead, and goodwill contribute to a practice’s overall worth. We also explore different partnership models, including associate buy-ins and common pitfalls when transitioning from associate to partner. Gain insight into how practice owners and associates can fairly assess and negotiate valuations to build equitable and sustainable partnerships.Key Points:Understanding Dental Practice Valuations: Importance of cash flow, overhead, and goodwill in determining a practice's value.Associate Buy-In Models: Different approaches for associates buying into a practice, including up-front 50% buy-ins and phased purchases over time.Calculating Ownership Value: Methods for estimating buy-in costs for associates and considering contributions to the practice’s growth.Equity Distribution and Decision-Making: Pros and cons of 50-50 ownership versus minority stakes, and how these impact authority and motivation.Potential Pitfalls in Partnerships: The need for clear agreements around patient distribution, revenue sharing, and equity to avoid conflicts and financial imbalances.Importance of Professional Guidance: Engaging accountants, attorneys, and other professionals to ensure fair valuations and sustainable partnership structures.#DentalPracticeValuation #DentalPartnership #AssociateBuyIn #DentalBusiness #DentalFinance #PracticeGrowth #DentalPartnerships #Goodwill

What makes for a happy "business marriage" between two or three dentists? Why do dental partnership fail at frequently? Will a dental partnership help me compete more effectively in the dental market? In this episode, we interview Bob Spiel and Bryton Nield, founders of Dentist Partner Pros (formerly Dentist Hiring Pros). Bob and Bryton spend most if their time helping a single doctor practice owner find, vet, and onboard partner. They outline the process of partnership that leads to a healthy, productive relationship in which one plus one equals three, both in professional enjoyment and financial reward. If you are in a dental partnership, or would like to be part of one, tune in. Lot of great content in this episode!

Valuing Dental practice is one part science and one part emotion. The science is the numbers—what the bank sees and uses to calculate the amount they will loan. The emotion part is everything else—the location of the dental office, condition of the equipment, the patient base, the recall program and many factors. As mentioned in the previous post, because bank make 100% loans for dental practices you can reasonably assume that Loan Dollars = Purchase price; i.e. the selling price is generally close to whatever the bank will lend. This makes understanding how banks approach valuations extremely important and how the emotion piece factors in with buyersRarely do bankers visit the practice in person. Typically, bankers review and loss statements, tax returns and production reports to make their decisions, and the emotion piece rarely factors in. In doing their assessment, banks try and determine what the true income and expenses of a dental practice will be for the buyer. This process requires them to strip out certain income and expenses that the buyer will not earn or incur. They call this income and expenses "add backs". For example, if the dental practice received $50,000 in government stimulus (e.g. PPP loans) and it shows on the profit and loss statement under income (collection), they will reduce income by $50,000 since that is no recuring, expected income in the future to the buyer. Similarly, they will go line by lone through the seller's financial statements looking for expenses that the buying dentist or, more specifically, the dental practice will not have to pay. These often includes the things like the selling dentist salary, associate pay if the buyer is going to cover the associate's production, loan interest, depreciation, travel, cell phone, auto, kids on payroll, etc. Once the bank has generated a profit and loss statement with add backs, they can apply their underwriting formulas to the collections and profit to determine the amount of the loan. A general rule of thumb for the banking formulas is 85% of collections and 2.2 times the profit. Where this two formulas intersects is approximately the value of the practice...at least in the mind of the bank. And more specifically, banks calculate a "Global Debt Coverage Ratio". This ratio is calculated by taking the expected net profits of the dental practice and dividing it by the sum of (1) all debt payments in the practice and (2) all debt payments outside if the practice. If the buyer does not have a home loan, the bank will impute an estimated rent. If the net cash flows are at least 1.25 times the global debt payment requirements, then they will generally commit to that loan.Now, it is not entirely accurate to suggest that dental lenders are mere robots with simple inputs and outputs. They do consider other factors such as the total amount of debt the buyer has and whether the buyer's clinical skills and production matches those of the seller. Do they care if the chairs are new from A-dec or used from 1976? Not so much. This is where emotions comes in. I call it emotion, but it is more the characteristics of the dental practice that motivate buyers to want to buy it. For example, would you rather have a 3-op practice in Coronado? The characteristics of the dental practice also paly into value. not so much on paper, but in the actual process of selling it. These are the things that generate tours, get people talking, motivate dental buyers to write offers and competes for the opportunity. More ops, nicer equipment and better locations allow me to push value while fewer ops, older equipment and tertiary locations sometimes leave me wondering if the practice can even be sold. In special cases with special dental practices, I have even had buying dentists offer to pay more thank the bank will lend. Why? Sometimes good practices are hard to find and when you are trying to be picked as the buyer it makes sense to write a check.To sum up,...

You like the Rolling Stones? I like the Rolling Stones too! Great, you’ll be a perfect buyer for my practice!Maybe that’s a bit of a stretch when addressing this topic but finding the right fit when selling a dental practice is more than just a few common interests. Finding a great fit is equally important for both buyer and seller. Let’s break down why for each.SellerOne of the questions I get asked the most by dental practice sellers is “How will I know if the buyer will take care of my patients and staff?” Let’s face it, selling something you’ve spent years growing, nurturing, and shepherding becomes more than just a business transaction; it becomes personal and emotional—like handing your child over to a new parent. “Will they immediately fire the staff?” “Will patients like the new doctor?” “Are their clinical skills similar to mine?” These are questions that are often more important to sellers than “How much is the offer?” or “What can I expect to keep after taxes?” Because of this, finding the right buyer becomes more than just who is paying the highest price. This is why I’m a big proponent of introducing buyers and sellers as soon as possible, and why I feel sellers should lead practice tours. Being involved from the beginning gives sellers the opportunity to ask questions, compare notes, find common ground and start trying to envision having someone new take over their sandbox. More often than not, the successful buyer of the practice is discovered during the initial tour and not when offers are submitted. When sellers feel like they have found the right buyer, it is a special event and one that almost always results in a massive weight being lifted off the seller’s shoulders.BuyerDental practice buyers can sometimes be characters, like the time one told me, “You need to find Barbie for this one. The patients are not going to like a hairy guy like me.” As the broker, I wasn’t quite sure how to tackle that concern, so I suggested a full-body wax. Actually, I think I jokingly told him to just wear more PPE and no one would know. But, eventually, I had to take his word for it and put him down as a pass. When leaving jobs and taking out huge loans to buy a practice, Buyers want to know that 1) the staff won’t revolt and 2) the patients will not leave. This is another reason why I like sellers to lead the initial tour. Buyers can really like a practice on paper, but it is not until they meet the seller and start asking questions that it really gels. Plus, most of the initial questions buyers ask are clinical, so I’m basically no help at all. When buyers tour a practice, they make mental notes like the distance from their home and the flow of the office. They almost always struggle to balance their time envisioning themselves in the office with firing questions at the seller—all of which is sometimes difficult to do in 30-45 minutes. Much like the seller who may not be so concerned about the financial aspects of the sale, buyers, if they feel like they fit, will more or less leave the bank to sort the finances and will focus more on the transition.So what are some areas that determine fit:Personality and DemeanerClinical approachCommunication styleLeadership styleOffice culture philosophyThe more dental buyers and sellers align in these areas, the more natural the transition.So, does all this mean that fit is more important than money? After having sold many practices, I would have to say is a close competition, and this is because of the nature of the thing being sold. Practices are not cars, extended warranties, lemonade, or stocks, they are an entire chapter of a person’s life—especially for those who have spent decades treating thousands of people who often evolve from patients to friends. The right fit in a transition will almost always lead to future success of the practice, and that success is

The prospect of selling a dental practice can be a bit daunting, but, like selling houses or cars or your old CBCT, if you know the process and what to expect it becomes much easier. Many times, doctors are selling dental practices that they have spent the better part of their lives building and nurturing. They wonder “What will happen to my staff?” and “Will the new doctor take care of my patients?” among a hundred other questions that come with selling something that means more than just what the accountants and suppliers see. So, let’s break down the basics of selling a practice. Understanding the basics will, hopefully, alleviate the fear of and potentially help prepare for that eventual day.Step 1: What is the Value of My Practice?Valuing a dental practice will be the topic of a future post, but the basics are this: banks are a major decider in the value of a dental practice. You might be on Main and Main and have all the top-of-the-line equipment, but the reality is that bankers rarely ever see any of that. What they see is income and expenses. Because most buyers will need a loan to buy your practice, they will rely on banks to fund 100% of the purchase. This generally means that Loan Dollars = Purchase Price, which is why banks play such an important role. Understanding the value of your practice is a key first step in selling. Brokers who specialize in practice sales and have relationships with bankers who fund practice loans can help with this and should be able to help free of charge.Step 2: Do I Hire a Broker?Practices have been sold with and without a broker. Not using a broker will save in selling costs and may be appropriate in certain circumstances. However, the sale of a small business such as a dental practice is complex and much less standardized then selling a home for example. Too often I see dentists who want to save the brokerage fee by trying it themselves. This often leads to longer-than-normal transition times, stress and failure. Because a transition involves many parties (buyers, sellers, bankers, attorneys and escrow agents) an experienced practice broker will be able to manage the transition process much more efficiently and with much more success. Brokers get paid when the deal closes, so they are motivated to keep everyone on task and moving towards closing. In addition, brokers will have a Rolodex of possible buyers, which means the practice gets exposed broadly to the market and will likely achieve a price that more than makes up for a brokerage fee. By the way, those fees range from 7.5% - 10% depending on the size of your practice, i.e., the bigger the practice the lower the fee.Step 3: MarketingIf you’ve decided to hire a broker and have signed a listing agreement, the next step is preparing the marketing materials. Marketing materials can include things like a simple 1-page flyer with a few highlights, a postcard, and a detailed 30+ page prospectus outlining pertinent details of the practice. The goal of marketing materials is to generate tours. The more prospective buyers you get through the door, the more possibilities you have of receiving offers. Marketing time ends when an offer or “Letter of Intent” (LOI) is accepted. This can take as little as a few days or many months with the average being 1-2 months. Remember my comment above about Main and Main and all the top-of-the-line equipment? While these attributes of a practice may not affect the value with the banks as much, they will motivate potential buyers and reduce marketing time. Buyers love modern practices with $800,000+ in steady or increasing collections in good locations with 4+ operatories and strong hygiene programs. The more of these attributes your practice has, the less time you can expect to be on the market. Also, during the marketing period is when prospective buyers will tour the office and, hopefully, meet the seller. Some brokers try and keep buyer and seller...

In this episode of The Dental Boardroom Podcast, host Wes continues his deep dive into dental partnerships, focusing on the potential downsides. Following the previous discussion on the advantages of partnerships, Wes now addresses key challenges such as decision-making conflicts, differing mission statements, profit allocation issues, and the complexities of new patient distribution. Whether you're currently in or considering a dental partnership, this episode equips you with the knowledge to approach these arrangements with your eyes wide open, avoiding potential pitfalls that could lead to costly disputes down the road.Key Points:Decision-Making Conflicts: Partnerships require mutual agreement on critical decisions like hiring, spending, and tax planning, which can lead to friction.Differing Mission Statements and Values: Misalignment on long-term goals and practice strategies can create tension between partners.Profit Allocation Complexities: Properly distributing profits is essential, and failure to do so transparently can lead to significant conflicts.New Patient Distribution: Mismanagement of new patient allocation, especially when a new partner buys into the practice, can be a major point of contention.#DentalPartnerships #BusinessTips #Dentistry #DentalPractice #DentalBoardroom #SmallBusiness #PracticeManagement #DentalProfessionals #ProfitAllocation #BusinessStrategy