The Dental Practice Sale

In this episode of the Dental Boardroom Podcast, host Wes Read, CPA and financial advisor at Practice CFO, and Chris Marshall break down some of the most important warning signs dentists should watch out for when evaluating a dental practice for purchase. Drawing from real client cases and common deal-flow patterns, they discuss the financial, operational, and clinical red flags that often hide beneath the surface of seemingly attractive listings.Listeners will learn how to interpret declining numbers, inconsistent hygiene schedules, sudden production increases, PPO manipulations, risky seller behaviors, and gaps in patient flow. By the end of the episode, you’ll understand how to look past broker language and identify the true health or weakness of a prospective practice.Key Takeaways1. Declining Production or Collections Are a Major Red FlagIf collections or production drop year-over-year even slightly it signals deeper issues. This could mean a declining patient base, ineffective ownership, poor systems, lack of demand, or mismanagement.2. Hygiene Department Instability Signals Deeper ProblemsLarge swings in hygiene revenueInconsistent recall schedulesDeclining hygiene visitsThese typically indicate poor systems, weak re-care, or a lack of organization affecting long-term revenue.3. Sudden, Unexplained Production Increases Are Often ArtificialA seller spiking numbers in the year before the sale is a common tactic. Examples include:Over-treatmentRunning unnecessary proceduresPre-billing treatment A buyer should be cautious: inflated numbers ≠ sustainable revenue.4. PPO / Insurance Manipulation Is a Growing ConcernPractices sometimes:Drop PPOs before sellingSwitch PPO participationAdjust fee schedules to appear more profitable Understanding the insurance environment is essential to projecting true cash flow.5. Seller Behavior Tells You Almost EverythingPay attention if the seller:Wants to leave immediatelyAvoids answering questionsHas incomplete recordsShows disorganized systems These behaviors often align with financial or operational decline.

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

In this episode with Wes Read, CPA and founder of PracticeCFO, we explore a topic that is absolutely foundational to the financial success of your dental practice—your financial statements. Host [Your Name] (or "I") breaks down the importance of understanding your Profit & Loss Statement (P&L) and how it reflects the economic health of your practice.Whether you’re preparing to sell your dental practice or simply want to make smarter financial decisions, this episode will help you interpret your numbers and transform your P&L into a powerful decision-making tool.Key Points:Financial statements are your practice’s financial X-rays. They tell the story of all your effort.P&L (Profit & Loss) shows income and expenses; it's key to understanding your monthly performance.Balance Sheet shows assets and liabilities—important, but covered in a future episode.Your P&L should be reviewed monthly—ideally by the 15th–20th of the following month.Understand Net Operating Income: what's left after operational costs but before debt, taxes, and personal draw.A well-structured P&L is essential whether you're managing or selling your practice.Tools like QuickBooks Online and REACH Reporting can improve report clarity and benchmarking.#DentalPodcast #DentalFinance #DentalPracticeManagement #ProfitAndLoss #PracticeCFO #DentalBusiness #DentalAccounting #DentalSale #PlandL #BalanceSheet #DentalOwners #FinancialFreedomDentist #DentistLife #SellYourPractice #DentalConsulting

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

Your credit score may not seem like a daily concern, but as a dentist, managing debt is an unavoidable reality. Whether it's student loans, a practice acquisition, or buying a home, your credit score can be the deciding factor in securing favorable loan terms. In this episode, we break down the essentials of credit scores, how they impact your financial future, and key strategies to improve and maintain a strong score. Learn why debt, when used correctly, can be a powerful tool for financial growth and how to leverage it wisely.Key Points Covered:✅ Why credit scores matter for dentists and practice owners✅ The role of debt in wealth accumulation and financial leverage✅ Common misconceptions about credit and debt management✅ The five key factors that determine your credit score✅ How to strategically use debt to build wealth and avoid financial pitfalls✅ Why leveraging assets like a dental practice can create long-term financial success✅ Practical steps to improve your credit score and increase lending opportunitiesResources & Links:💡 Learn more about financial planning for dentists at PracticeCFO.com💡 Check your credit score and track your financial health with AnnualCreditReport.com#DentalFinance #CreditScore #DebtManagement #DentalPractice #FinancialFreedom #WealthBuilding #DentistLife #PracticeOwnership #SmartInvesting #FinancialPlanning

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

Summary:In this episode, we explore the financial and legal intricacies of dental partnerships. Learn about the pros and cons of various legal structures, including S corporations and partnerships, and why selecting the right setup is crucial for tax efficiency and liability protection. Our host also shares tips on payroll, 401(k) planning, and navigating IRS requirements. Plus, discover how PracticeOrbit.com simplifies dental practice sales and connects you with expert advisors.Key Points:Importance of tailored tax planning for dental practices.Understanding 401(k) plans and payroll management.Legal structures for dental partnerships: S corporations vs. partnerships.Why dentists should avoid C corporations due to double taxation.Role of the K-1 in S corporation tax filings and FICA tax savings.Legal setup advice: consulting dental-specialized attorneys.Selling a dental practice through PracticeOrbit.com.#DentalPartnerships #TaxPlanning #DentalPractice #SCorporation #PracticeOrbit #DentalBusiness #401kPlanning #TaxEfficiency #SmallBusinessTips #FinancialFreedom

**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.

Dealing with a short term lease in the sale of of a dental practice requires some extra effort, but it is not an insurmountable issue. The target for banks who are funding a loan for the buyer of the practice is at least 5 years of term on the lease, with many dental leaders requiring 10 years. The requirement from these lenders can be met by the current term (firm term) on the lease or a combination of the current term plus any lease options. The lender just wants to know that the buying dentist can remain int the same location during the term of the loan. They know that a displaced dentist may suffer a financial setback and, consequently, not be able to make his or her loan payments.Customarily, the lease assignment is handled by the attorney of the dentist buying the dental practice. This generally occurs simultaneously with the drafting of the purchase and sale agreement. The selling dentist will notify the landlord of the proposed sale and introduce the buyer and buyer's attorney to the landlord. The buyer's attorney will then work with the landlord to provide qualifying information about the buyer and coordinate the drafting of the assignment and as often is required, the personal guaranty. When the lease has less thank 5 years of current term, the buyers attorney will also negotiate a lease extension as part of the assignment is finalized, the buyer will not only take over the lease but will have enough extended lease term to satisfy the bank. This is why dental lenders will always want to review both the final purchase contract and final lease documents prior to the drafting loan documents and funding the loan.Should a dental broker be involved in this process? The short answer is sometimes. While dental attorneys are good at memorializing agreements, they may not be knowledgeable at negotiating market terms of the lease. What if the buying dentist could get concessions such as free rent or tenant improvements as part of the lease extension, or even a lower rate? A dental broker who negotiates leases and is in touch with the market conditions would know how to negotiate the best terms of the lease. But, introducing a broker to the process means that someone is going to have to pay a brokerage fee, and landlords generally don't like to pay brokerage fees when they already have a tenant. The reality is that the lease assignments are generally just headaches for the landlords because they are basically swapping one tenant for another and are likely not benefiting much financially. Because of this, lease assignment can take longer than expected as landlords often put them on the "back burner". On top of that, if a broker is introduced into the mix, the landlord may become even more reluctant to work through the process.To sum up, yes you can still sell you dental practice even with just a few months left on the lease. If you are going to sell you practice, I would not recommend extending your lease prior to the finding a buyer. Doing so means you could be liable for the lease payments over the entire new term. A better strategy is to find a dental buyer first and then have the attorneys negotiate an extension for the buyer. This will most likely to result in you, the seller being removed as a guarantor of the lease in the shortest amount of time.

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...

In this weeks episode, we talk with Dr. Landon Libby and his wife and right arm in the practice, Nichole Libby. In five years they've purchased three dental practices, rolling each new practice into their own. Through leadership and culture management, they've built  a premier practice. Listen and learn how they did it. 

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.

In today’s show, we interview Dr. Nick Marongiu. Nick owns and operates a very large, single-location multi-specialty practice in La Jolla California called Scripps Center for Dental Care. We learn about Nick’s journey from Loma Linda, where he graduated in 2010 to stepping into a strong practice in 2013 as a partner and then doubling it by the time he purchased the remaining equity in 2019. With 11 operatories and 10 providers, many of who are specialists, it truly is run as a multi-specialty practice. Learn about how Nick branded his company separate from himself, how he’s working into a position where leadership and management are even more important than his clinical production, and how he’s created a purpose-driven practice built on detailed business processes. If you’re interested in growing and branding a practice that’s bigger than you, tune in. There’s great content for you here. 

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

The year 2021 will g down in the books as our "rebound" year-the year the dental industry clawed its way back to the new normal after COVID. Most dental practices experienced a robust rebound as patients came back after long absence from treatment. This led to increase collections, full schedules and, oddly, a challenging labor market. We expect 2022 to continue this trend and remain a strong seller's market for those selling their dental practice. However, several risk factors could derail the trend. These include COVID resurgence, adverse tax changes/shortage, and global economic and political shifts.While we don't expect another full dental shutdown like we experienced in early 2020, a COVID resurgence may cause patients to push pause on dental treatment. This will differ from 2020 when patients "couldn't" get treatment to a situation where patients "wouldn't" get treatment. Should this happen, we expect downturns to follow the weather, viruses historically being more active in the colder months of Q1 and Q4. Dental practices can attempt to insulate themselves from patient continuousness by promoting safety and protocols, being diligent about staying in contact and even upping penalties for cancelations. ON the flip side, dental practices may also experience further staffing strain due to COVID flare ups, whether staff become infected or fear exposure by being chairside all day. Offices should have clear COVID policies and double ensure that staff remain safe and comfortable. Retaining staff in your dental practice will be as important as unlocking the front door in the morning.On the subject if staffing, office values can be adversely affected by loss if staff and even newness of staff. Dental buyers know that hiring new staff members is extremely challenging in the market with many staff members tempted to move for higher pay and/or locations more proximate to their homes. This is especially true with hygienists whose payrates have seen double digit increase in 2021. These payrates have seen double digit increase in 2021. These payrates may continue to increase as finding skilled hygienists remains challenging and doctors are reluctant to sit at the hygiene chair themselves. For buyers, considering a practice without a hygienist is almost a nonstarter. Other staff members are equally important. Doctors who are selling to relocate and attempt to take staff members with them will likely experience considerable downward pressure on the pricing.Although Staffing will remain a challenge, possibly the greatest risk facing the dental transition market is capital, i.e., banking. While most do not consider a dental office as being global, most would agree that banking is. The recession of 2008 started in the capital markets when large pools of securitized loans (CMBS) could no longer be sold. This caused an immediate banking shutdown, which lasted for months. The world has since cautiously restarted the CMBS engine, but other events can and will affect banking, and banking could be considered the most important reason the sakes market is currently so strong. Buyers of dental practices can borrow below 3% right now-historic lows in most of our lifetimes. While we expect this to last for 2022, we are anxious about unrelated events that could cause banks to pump the brakes-events like China's faltering commercial real estate market or continued lag in the supply chain...among a long list of others. If banks pull back, practice sale will slow considerably, and lending may only be available to A+ credit borrowers. In these cases, we anticipate loan dollars receding from higher near 90% of collection to amore conservative range of 70%-80%.We continue to encourage dentists considering a sale of their practice in the next 2-3 years to consider a sale sooner. With current market dynamics, many sellers of dental practices are being spoiled by multiple offers from eager...

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!

Episode Summary:In this episode, we dive into the essentials of forming a successful dental partnership—a vital strategy in today's challenging economic landscape for dental practices. Our host draws on over 15 years of experience to highlight the financial benefits of partnerships, explaining how joining forces can alleviate cost pressure, increase profitability, and create a supportive work environment. Key discussion points include the importance of chemistry, shared clinical philosophy, and profit allocation between partners. Tune in to learn to navigate potential pitfalls and maximize the benefits of a dental partnership.Key Points:Benefits of Dental Partnerships - Understanding the economic advantages of sharing cost structures to boos take-home profits and enhance wealth-building.Three Pillars of Successful Partnerships - Chemistry, shared clinical philosophy, and equitable profit sharing as the foundation for a harmonious business relationship.Financial Insights on Cost Structures - Explanation of fixed vs. variable costs in dental practices and how partnerships can optimize expenses.Navigating Challenges in Partnerships - The common reasons for partnership dissolution and the complexities of handling conflicts.Evaluating Chemistry and Communication Skills - Why strong interpersonal skills and trust are crucial for long-term partnership success.

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,...

In this week's episode , we have Dr. Jared Lee and his wife Kristin on the show to discuss their journey toward their 10-year goal of financial independence.  Dr. Lee and his wife give a great perspective on important course corrections and their move to Juneau Alaska in search of a great (though challenging) opportunity. 

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