As a dental practice owner, selling your practice is a major milestone that requires careful consideration of risks that could affect your value and the future of your business. It's not just about finding a buyer; it's about ensuring that your years of hard work translate into a successful sale that meets your goals and results in financial independence.
Understanding valuation pitfalls
One of the most common issues sellers face is a mismatch between their valuation expectations and what the market is willing to offer. Traditional valuation methods, such as multiplying annual collections, or earnings before interest, taxes, depreciation, and amortization (EBITDA), may no longer fully reflect the market's dynamics, especially with the continued rise of private equity firms and dental service organizations (DSOs) in the space. These buyers will look beyond the basic financial metrics, focusing instead on factors like growth potential, operational efficiencies, and the practice's ability to scale.
Ryan Mingus.
As a practice owner, it's crucial to understand that your practice's value might not align with what you've heard from peers or seen in older valuation models from other brokers. The current market demands a more nuanced approach, one that considers the specific strengths and risks of your practice.
Key risks in selling your practice
- Provider risk: Your practice's value is often tied to your reputation and skills as a dentist. Buyers might perceive a high level of risk if they believe the practice's success hinges on your clinical presence in the practice. This can be particularly challenging if you have strong, long-term relationships with patients that aren't easily transferable. To mitigate provider risk, it's beneficial to have a plan in place for an associate who can continue providing high-quality care post-sale. This not only eases the transition but also makes your practice more appealing to potential buyers by demonstrating that it can run effectively without you in the chair.
- Payer risk: Payer risk is a critical factor for any potential buyer. If your practice relies heavily on a few insurance contracts or specific payment agreements, any changes in these could significantly impact revenue. Buyers will be wary of practices that don't have a diversified payer mix. To reduce payer risk, consider broadening your payer base. This might involve negotiating new contracts or diversifying the services you offer to attract a wider patient base. Practices with a stable and varied payer mix are generally perceived as less risky and more attractive investments.
- Geographical risk: The location of your dental practice can greatly influence its value. Practices in urban or suburban areas with high patient density typically attract more interest and command higher prices. Conversely, practices in rural areas might face challenges due to a smaller patient pool and limited buyer interest. Understanding the local market conditions, competition, and demographic trends is essential when assessing geographical risk. If your practice is in a less populated area, consider how you might make it more attractive, such as by highlighting unique services or engendering patient loyalty.
Preparing for a successful sale
Engaging with experienced advisers who specialize in dental practice sales is crucial. These professionals can help you conduct a thorough risk assessment, set a realistic valuation, and develop strategies to mitigate risks, ensuring your practice is presented in the best possible light to potential buyers.
An adviser, like Tusk, can help navigate you through an efficient process to see all of the market. A well-prepared practice can not only attract more interest but command a higher price.
Final thoughts: A smooth transition
Selling your dental practice is a complex process that requires careful planning and consideration of the various risks involved. By understanding these risks and taking proactive steps to mitigate them, you can ensure a smoother transition and maximize the value of your practice. Whether it's diversifying your payer mix, building a strong associate model, or strategically positioning your practice in the market, thoughtful preparation is key to a successful sale.
As you move forward, remember that the sale of your practice is not just a financial transaction, it's the culmination of long hours, sacrifices, and service to your community. With the right approach, you can achieve a sale that reflects the true value of your hard work and dedication.
Ryan Mingus is managing director of Tusk Partners and has more than 12 years of sales and leadership experience in the dental and healthcare industry, most recently as the business development director for strategy and optimization at Align Technology Inc. Mingus earned his bachelor's degree in economics and business from the Virginia Military Institute and his Master of Business Administration from the University of San Diego. He also held the rank of captain in the U.S. Army National Guard.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
