Greg Auerbach, MBA

If you’re thinking about selling your practice in a few years and to enjoy your retirement, you’ll want to get as much out of the sale as possible. Here’s what you need to know to make that happen.

Our entire team at Professional Transitions is fortunate to have the opportunity to put a considerable number of practices through our rigorous review process on a consistent basis. Whether for outright sale or appraisal, our team reviews financial data for a large number of practices, nationwide, providing us the unique ability to see local, regional and national trends.

That, combined with our exclusive partnerships with the best of the industry nationwide, enables us to bring the highest level of expertise and experience to you.

Not long ago, members of our team were able to spend considerable time with these industry leaders. One topic of particular interest focused on how the transitions market has changed because of the recent economic difficulties.

It’s the case all over. Practice collections have been declining for many reasons.

To purchasers, this downward trend generally indicates a practice is dying on the vine. Because they are looking to spend as little money to get as much practice as possible, and because they have heard many times over that “three years of declining revenues indicates a practice in decline,” their immediate inclination is to significantly discount their offer-if not walk away all together.

Beyond that, once a deal has been made, it becomes increasingly difficult to convince credit analysts with lending institutions that a practice is truly viable going forward.

What does this mean for you? You have to be on top of your game with analytics, reports and practice management. If you’re not tracking details of your practice with practice management software, reviewing reports to track your practice statistics, you need to start.

When it comes to your transition, it’s that much more important to have an educated, experienced advisor. Even CPAs and attorneys (but particularly the local equipment rep) are not trained in this type of analysis.

As transitions experts, it has become particularly vital to us to peel back the leaves and find out what is truly going on in the practice. In doing this, we can find the right answers to a host of questions, thereby ensuring the highest possible price and level of financing.

Hygiene department overbooked? Check out this advice from Jameson Management in this Morning Huddle video:

Unfortunately, this is one piece you really have little control over. When you started or acquired your practice, you acquired the location as well, whether that is the city or area, or specific building or rental space. This affects value.

Practices in rural areas or in dilapidated or out-of-date facilities are deemed less valuable in the current market. Purchasers want to pay as little as possible, and this is a point you cannot patch over.

What you can do is take advantage of the market yourself. Are you three to five years (or more) from a transition? Take a look at your facility and equipment, and consider an upgrade. Do you own your building? Fix it up to like-new standards, as much as possible. Are you leasing? Ensure your lease is assignable and the rate is well-negotiated.

This will make things easier not only on your bottom line, but on a potential purchaser’s as well. If you’re a few years out, and your equipment, furnishings or décor are out-of-date, consider a refresh or upgrade with new flooring or paint or even quality used equipment. Bring in a set of fresh eyes and ask them to look around and give some feedback. A little time and money goes a long way and can most certainly help.

With the shrinking of retirement funds over the last few years, the number of practitioners transitioning to retirement has declined. Realizing there is not enough remaining in their investments to sustain a desirable lifestyle for 20-30 years of retirement, the phenomenon of “I’ll just work one (or two or even five) more year(s)” has ruled the marketplace. As a result, there has been a persistent scarcity of strong practices on the market.

While some brokers may ‘list’ a large number of practices that they insist are for sale, this simply is not the case. A good number of practices that have sold recently have been because of the seller’s disability, death or relocation.

This current scarcity could be a boon to you if properly planned. If you have decided you may extend your career, particularly another one or two years, it may be worthwhile to look closely at your retirement egg and see where a sale may put you. Your practice may sell for a ‘premium’ right now, if priced and represented properly.

This could be an opportunity to seize, but it will take your team of advisors-CPA, financial manager and transition specialist-to cooperate in developing an overall strategy with you.

These are just a few of the many factors currently in the marketplace. Generally speaking, the market for practice sales is still strong, and financing is still readily available for purchasers with good credit history. Dental practices have been recession-proof over the long term as dentists provide services that cover not only cosmetic needs, but health care needs as well.

Owning a practice not only provides job security, but a business that has inherent control, lifestyle and economic benefits that do not come with working for someone else.

Greg lives in Bradenton, Florida and is a partner in Professional Transitions. Professional Transitions is a full-service firm providing comprehensive transition services for dentists from graduation to retirement.  Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Greg has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 2004.  He received his Bachelor's degree in Computer Engineering from the University of Central Florida and his MBA from Wake Forest University. Greg is also a financial analyst for the Pride Institute and Pride Transitions as well as the marketing chair for ADS nationwide. Greg has been a speaker throughout the West Coast of Florida and at several dental schools, nationally and has written for local, regional and national publications. Greg can be reached at greg@professionaltransitions.com or by calling 888-229-5764.

Articles

Is your dental practice losing its value?

Faux retirement is common for many dentists. How to know it’s really time to sell your practice, and how you can help ensure you get what it’s worth.

Many dentists experience a “Faux Retirement” period, caused by 

burnout, stress, chaos, and/or personal issues

. Interestingly, once the problem has been eliminated or resolved, a “new energy” is experienced, and the dentist is “re-enthused” about practicing.

One of the most common examples of this is the transition of a practice, bringing on an associate or partner with a buy-sell expectation. Once the pressure is off the selling dentist, 

he or she begins to enjoy dentistry again

 and delays, often to the chagrin of the buyer, the sale.

One or more of the following should define the exit stage:

		The acknowledgement of a physical or mental impairment

		The financial ability to retire – real financial freedom

		The desire and excitement to pursue new and other interests

		The willingness to walk away from the practice, the patients and the professional relationships that have developed

		The real distaste or dislike of the practice of dentistry

We find that unless a dentist has reached the point of financial security and embraced the real desire to retire to do something else, there is a good chance they will find a void in their life and the desire or need to return to practice.

Beyond that, even with the economic climate being as it has been, we often encounter dentists who have an unrealistic value of their practice, or an unrealistic need for the proceeds from a potential sale. 

The bottom line is this: It simply does not matter how much you think your practice is worth, its actual value is only determined after it has been purchased, whereby the buyer and you have agreed upon the price. If your asking price is too high, it will not sell, if your asking price is too low, you will not receive your due compensation for your business.

As is spoken of time and time again, to accurately value a dental practice it is best to engage an expert who performs dental practice appraisals, and does them on a regular basis with standard, accepted business valuation methodologies. Further, they need to have specific knowledge of the dental practice, how it functions and how the operations correlate to the income (profit and loss) statement and tax returns. 

Its important to note, too, that the dental practice marketplace is different from any other profession and has many facets that are completely unlike any other business. Market value “rules of thumb” may not apply to your particular practice.

It would be the same as if you were told a patient has a toothache and without seeing that person you decide she has an abscess. It may or may not be an accurate diagnosis and would not be definitive until you examined the patient. The same goes for appraisals; 

your practice has to be carefully analyzed by a knowledgeable professional

Another extremely important issue when considering the sale of your practice is the tax consequence of your sale. Proper allocation of the purchase price can save thousands of dollars. A professional transitions specialist/expert can work with the allocations, while a competent accountant who has dental practice experience should be consulted to ensure unreasonable tax liabilities or consequences are not present.

This just skims the surface. Beyond the idea of retirement itself as well as the various aspects of an actual valuation, there are the intricacies of the type of transition itself and then the corresponding details that go in to developing and executing the plan. This is where the true expert shines.

if you are considering the sale or transition of your practice

, we recommend you plan for that transition as far in advance as possible. 

Not only does it allow for specific planning for the transition, beyond selecting the right path, it allows you to properly position the practice for a transition while concurrently allowing for the maximum amount of personal take-home income and retirement funding. While a few years is nice, even five years or more can prove to be invaluable 

when it comes time for a “real” retirement

Greg lives in Bradenton, Florida and is a partner in 

. Professional Transitions is a full-service firm providing comprehensive transition services for dentists from graduation to retirement.  Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Greg has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 2004.  He received his Bachelor's degree in Computer Engineering from the University of Central Florida and his MBA from Wake Forest University. Greg is also a financial analyst for the Pride Institute and Pride Transitions as well as the marketing chair for ADS nationwide. Greg has been a speaker throughout the West Coast of Florida and at several dental schools, nationally and has written for local, regional and national publications. Greg can be reached at 

Are you really ready to sell your dental practice?

The current outlook suggests that while there is an abundance of qualified buyers available, quality dental practices on the market are lacking.

Just as large corporations provide quarterly updates to their stockholders and the general public, we at Professional Transitions would like to give you a periodic update to keep you informed of the state of the dental economy as it relates to practice transitions and the seller marketplace.

While its important to remember that there are always variations when it comes to a specific market, we are attempting to share with you a national overview.


	The first half of 2012 has continued to show improvement in the dental industry as the economy recovers. Though still fragile and somewhat dependent on international economic conditions, indications are that slow growth and improved stability will continue. The stock market has recovered, to a great extent, from the losses incurred during the recession and though still somewhat volatile, seems to have stabilized with Q1 earnings showing slow growth. Though many dentists lost significant portions of their retirement portfolios, some, if not all, of those losses should have been recovered.


	Many parts of the nation seem to be never lacking in qualified buyers, especially in the larger metropolitan and growing areas. While other areas may have less, there are qualified purchasers in every part of the country.

For clarification, qualified buyers are individuals that have some actual practice experience, which may include GPR or other residency programs or associateships. The primary qualification however continues to be a good credit history and score. There are qualified purchasers throughout the country and even for those buyers who may not be stellar there are still means by which they can purchase.


	Currently, there is an abundance of financing available from multiple banking sources at very competitive rates, ranging from 5% to 6.5% for qualified buyers. Lenders are routinely financing 100% of the loans with additional working capital available, and generally, only in isolated situations are banks requiring some owner financing. While there is more talk about owner financing out there in the market, the capital available for financing through the myriad of resources should mitigate this as a requirement for the foreseeable future.


	In contrast to there being many qualified buyers available, there is currently a lack of quality practices on the market. Those considering a purchase in the near future should contact a transition specialist to discuss the parameters of the practice they are interested in so when a practice becomes available, a potential match can be made.  

Also, practice opportunities in non-urban or more rural areas may merit strong consideration as they generally have a strong and loyal patient base and lower overhead. In addition, these practices have less competition for the sale as fewer purchasers are strongly considering these opportunities. A comparable metropolitan practice would probably sell for more than the rural practice, creating a great purchase value. In all cases, an opportunity still must show good cash flow for it to make sense. In the cases where the practice does have good cash flow, values are remaining strong.


	A more in-depth article about this topic is currently in the works but, as a short primer, we are still seeing potentially deceptive agreements covering confidentiality/non-disclosure from brokers in the industry. These agreements attempt to bind the purchaser to the particular broker and establish a relationship that isn’t necessary and potentially damaging to a transition. Please read these agreements carefully and be weary of clauses that attempt to reach beyond what is necessary to simply maintain confidentiality.


	For those dentists contemplating a transition in the near future, serious consideration should be given to completing the practice sale before the end of 2012. With as much as 90% of the sale price allocated to goodwill, and because goodwill is treated as a long-term capital gain (currently taxed at 15%), it is important to note that this tax rate may only be available through the end of this year as it automatically reverts back to the previous 28% if Congress does not act to again extend the current tax rates. A practice selling for $500,000 can expect to pay $50,000 to $60,000 in additional taxes if the current capital gains tax extension expires.


	We are seeing an uptick in specialty practice sales and therefore values for similar reasons to what is sustaining the general practice market – supply and demand. Potential purchasers who have been in associateship jobs or associateships to buy that are not coming to fruition are looking to enter the market. At the same time, there has been a lack of supply, which is slowly loosening as practitioners again become comfortable with their position as it comes to transitioning out of practice and into retirement.


	We have always felt it sage advice to always have an updated practice evaluation on hand. Your practice may be your most valuable asset and should experience growth in value of the next few years as the economy recovers. Having an updated valuation helps to not only plan for your 

 but further to plan for the unexpected. For retirement sake, knowing true cash flow / net income available as well as the value of a practice at sale fills in a significant information gap for your future economics.

As to the unexpected, we speak firsthand as three members of our own team have had to unexpectedly retire from dentistry due to injury. While in situations of disability, we may have time, and a practice owner, to work with to keep an office open while working towards transition. However, in the case of a death, all could be lost. To counteract this, and to take advantage of the market as it returns, we suggest, at least, having your practice evaluated on an annual basis (baseline full appraisal with subsequent annual updates) if not commissioning a full death/disability plan. The unexpected comes without notice, by definition, and by preparing, a great burden can be removed from you and your family and friends in the event that something does happen.
	
	

Greg lives in Bradenton, Florida and is a partner in Professional Transitions. Professional Transitions is a full-service firm providing comprehensive transition services for dentists from graduation to retirement. Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Greg has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 2004.  He received his Bachelor's degree in Computer Engineering from the University of Central Florida and his MBA from Wake Forest University. Greg is also a financial analyst for the Pride Institute and Pride Transitions as well as served as the VP for Marketing for ADS nationally from  2006 - 2012. Greg has been a speaker throughout the West Coast of Florida and at several dental schools, nationally and has written for local, regional and national publications.

The current outlook suggests that while there is an abundance of qualified buyers available, quality dental practices on the market are lacking.  

Preparing to sell your practice or purchase one? Read this first.

As we arrive in the New Year, all of us at Professional Transitions hope that you enjoyed your 2011 holiday season and wish you a very happy, healthy and prosperous year ahead. 

With 2012 here, doctors continue to face unprecedented uncertainty in the economy, their practices, and investments. While our feeling on that has certainly brightened due to the general trend of the economic signs over 2011 (most signs continue to point towards an ongoing and imminent recovery, visit 

 for indicators) and economists nationally and worldwide are optimistic, we know we are not out of the weeds yet and there continue to be constant and varying pressures on your practices.

With uncertainty in Europe continuing to affect our financial system and with a political forecast for legislative gridlock as election season heats up (and the stability of the economy is challenged by Presidential and Congressional candidates alike), it's more imperative than ever for doctors to spend the time and energy to establish a practice budget, in conjunction with a full review of their fee structure, to help assure success. Doctors, who have not already completed a budget, should begin the process now so that they can have a comprehensive budget in place as soon as possible for the remainder of the New Year. 

While only about 10% of doctors nationwide have a written practice budget, their practice profits are dramatically higher than the remaining 90% who do not. The amount of time, energy and money devoted to marketing should be inversely proportional to the level of your optimal capacity. Looking at 2009 and 2010, many doctors have reported a decline in new patients. This seems to have lessened or turned around in 2011 for most but it’s still an overall concern. To help remedy this, the first step to take in the budgeting process is to develop a marketing plan and budget to reverse this detrimental trend. It is suggested that if you are operating at 80-90% of optimal capacity, 2-3% of collections should be devoted to marketing. If you are operating at 70-80% of capacity, 3-4% of practice collections should be spent. Finally, if you are operating below 70% of optimal capacity, you should be spending 4-6% of collections, if not more, on marketing in order to boost practice production.

In addition to finding ways to attract new patients, you must also review your fee schedule and consider the timing and amount of a fee increase for 2012. We recommend that doctors select a fee percentile that accurately reflects their quality of care, and then increase all fees below that percentile up to it (request a report to find out localized percentiles for all ADA code fees at 

http://www.ProfessionalTransitions.com/feereport

). Once your practice’s fees are at the desired percentile, you should raise every fee the same percentage across the board each year thereafter. 

. With inflation low, and consumer spending tepid, only a minimal fee increase of approximately 2-3% for this year may be justified, although practices that have been experiencing a rebound should look at increases of more.

From here, overhead expense must be reviewed on a line-by-line basis. 2011 expenses should be reviewed against results for 2010 to determine any areas of significant increases. Looking ahead to 2012, the expenses in every category should be scrutinized to look for possible savings.  It is also important to monitor expenses to ensure they stay within an acceptable range.

You may also consider changes in practice staffing. In practices that are down, this may involve laying off an employee, or replacing a full-time employee with a part-timer. Moreover, you must decide whether to eliminate automatic pay raises and begin using an incentive bonus plan. Finally, changes in your production and procedure mix should be reviewed to determine how they may impact 2012 lab and supply expenses.  Note that lab and supply costs increase every year which is just another justification for an annual increase in your own fees.

Once the income forecast has been completed and the overhead expense percentages have been converted into dollars, the 2012 practice budget can be finalized. Doctors can then determine the optimum way to distribute the projected practice profits between salary, dividends (Subchapter S corporations only), retirement plan contributions, fringe benefits, and professional expenses.

Your practice budget is vital for the ongoing success and health of your business.  A little time now will save stress, and dollars, throughout the year.

Questions about your practice for 2012?  Email us at question@ProfessionalTransitions.com.  For a local overview of fees for 2012, Professional Transitions is offering a customized report for you and your practice. If you are interested in receiving one, please click 

Greg lives in Bradenton, Florida and is a partner in Professional Transitions. Professional Transitionsis a full-service firm providing comprehensive transition services for dentists from graduation to retirement. Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Greg has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 2004. He received his Bachelor's degree in Computer Engineering from the University of Central Florida and his MBA from Wake Forest University. Greg is also a financial analyst for the Pride Institute and Pride Transitions as well as the marketing chair for ADS nationwide. Greg has been a speaker throughout the West Coast of Florida and at several dental schools, nationally and has written for local, regional and national publications. Greg can be reached at 