The long-standing tradition in dentistry has been for a dentist to run his or her practice for 30 or 40 years, occasionally replacing some equipment as necessary, and then selling the facility and patient list to a young dentist or associate. That game has changed significantly, but many dentists haven’t realized that yet.
Now, when someone is assessing a practice for acquisition, they are looking at the age of two things: the facility and the patient base. Let’s talk about the first one.
New dental school graduates are learning to work with digital everything. And they are already fully digital in their personal lives. In fact, more and more schools now train on CAD/CAM. (Sirona just equipped Boston University with a full array of CEREC machines for the students to work with, for example.) This generation views digital radiography as standard. They also understand marketing much more than previous generations, and they have grown up surrounded by brilliant retail design, from iPhones to Nike stores.
So when they walk into a dental practice that is essentially devoid of new technology, with tired and dated design, what they see is a tear-down. They imagine that they will have to gut the facility and bring in new technology, as well as create an office design environment that is appealing to patients. From an expenditure standpoint, they are often better off starting with raw office space somewhere else.
So my question is, if you were selling your house after living in it for 30 years, would you not paint, landscape, replace furniture, throw out some magazines, upgrade a few appliances and generally spiff the place up? Because we all know the differences in price between a house in move-in condition, one that needs work, and a tear-down. And we all know which one sells the fastest. So why not do this with your practice?
The economics justify the upgrades, because you will recoup the money in the sale. But something else will happen, something that many dentists don’t expect. Suddenly, your existing patient base starts accepting more treatment, and coming in more often. Why? The place looks new again, and the technology is appealing, especially if you talk about the benefits to them when they come in, or if you use something like PatientActivator to tell your patients about new services and technology.
Which leads to the second part–the aging of your patients. In most practices, the median patient age mirrors the age of the primary dentist. In a transition, the buyer is going to look at the average age of the patients, and price accordingly.
The parallel to the real estate market is that young families with kids are going to look in neighborhoods where the residents have children of similar ages. So a young dentist is not going to be eager to try to treat an aging patient base (who considers him a child, too young to know anything about medicine or dentistry, right?) instead of a broad mix of patients of all ages.
So the second part of your practice renovation is to refresh your patient base. This is a lot easier when the facility is refreshed with design and new technology, by the way. If you’re marketing to new patients, if your practice doesn’t look new and modern, you won’t have good photos to put on your website, and certainly can’t do a video tour. But it also means investing in promotion to bring new patients in–new blood, so to speak, that brings that median age down.
This is a five-year plan, in my mind, or longer. This isn’t something that all comes together in 6 months, but you can certainly execute the first steps–remodel, start adding new tech, market for new patients–and then the results will start coming in. Your production will go up, and when you’re ready, you’ll have a practice in move-in condition, commanding top dollar. Make sense?
Copyright secured by Digiprove © 2015 Fred Joyal
Nice plug for PatientActivator…wait, isn’t that part of your company???
I wouldn’t call it a plug, Mark, just a subtle mention. 😉
I work with many dental clinics and I can confirm that brand new ones with recent dental technologies are a lot more appealing to potential patients. Often, the websites of old clinics show very few pictures to avoid looking bad when compared.
That’s another great point, Marc, that if your office doesn’t look good and modern you have no photos for your website, and you certainly have no video tour. I may add this to the post, it’s so important.
Spot on, Fred! Great (and critically important) commentary!!
General dentists typically do two terrible things to diminish, not only the practice value, but also the desirability of another clinician to actually buy the practice:
1. Having worked exceedingly hard for many, many years, some senior clinicians will begin to refer out procedures they typically performed in order to build their practice in the first place!! Often, the first services to be referred out are the pediatric services, thus ensuring that the practice will no longer be attractive to YOUNG families (as in long-term future patient relationships and business)!
2. Sensing that they might be within a few years of retiring, many senior doctors will not spend a dime on their facility or equipment!!! I think your blog covered that pretty darn thoroughly!!! Enough said!
Many senior clinicians will fail to successfully transition their practice to a desirable new practitioner because of either, or both, of these reasons. In doing so, they allow their practice legacy to die, leave their patients without continuing care, and miss a substantial deposit to their retirement account!
Thanks much for your very worthy advice, Fred! I hope you woke a few folks up from their “long winter’s nap…..”
You nailed it on those two points, Wayne. I hope the message gets out there, because it really is a legacy allowed to die, and that’s sad and unnecessary.
I purchased a tear down practice and it has been a bit of a burden to build it back up. Patients LOVE the new technology but growth is still slow.
There is always more to do on the marketing side, Rebecca. And it is often hard to get traction at the outset. A good consultant will work with you at a lower rate to help you get traction, in my experience, so check them out. Don’t try to figure all this out yourself.
Excellent comments Fred! We see these factors all the time as Demtal CPAs as well as operating as a Dental Brokers. Your comments are “spot on”!!
The Sales cycle is much shorter for those that have taken the time to reinvest in their Practice…..for those that have not, it could take up to a year , if not longer to sell your practice…..please pay attention to Fred’s comments, and reinvest in your practice…you will glad you did!
Good luck!
My best
Allen
Fred, as always you are “spot on”! My question to you is worth more than last nights lottery (obviously I rolled a goose egg), who do these dentist trust? Having spent the last 30 years working with dentist in many different capacities, everyone that they meet has the “best” mousetrap! Just a thougt, still loving your blogs and writing, it keeps me going strong.
Russ, my experience is they trust their successful peers, and some of them trust their practice consultants. And a lot of them seem to trust me, although I don’t think they’d tell me if they didn’t.
Great article Fred! I so agree with you and Allen. It is not realistic to think you can save money by not investing in technology because it will still cost you in the end when you sell.
Excellent as always Fred. I’ll always remember the first time I walked into the practice that I ultimately ended up buying – antiquated equipment and logistics, 30 year-old furniture designed to last 5 years at most and a very aged patient base. I bought the practice at an extreme discount because of those issues.
So, I obviously agree with all your points. I no longer practice but it’s a different game now. It’s hard for me to imagine being a solo practice, investing in the ways you mention and making the numbers work. It sees like some kind of group setting is about the only way to keep a practice current and desirable.
Do you have any thoughts or experience on this?
Thanks Fred. Love the blog!
I do think that the solo model is going to be harder and harder to defend against competition, but it doesn’t mean that you have to become an employee of a group (though for some that is a perfectly good solution career-wise). But you will have to take greater advantage of your facility, which means multiple associates and specialists in the same office, covering a much wider range of hours. Owning two or three practices is a whole different challenge, and I’ve seen many dentists try this, because their practice is doing so well they think that it can be replicated, and what happens is they end up working three times as hard, not doing the dentistry they enjoy, and making the same money with three locations that they did in one. It takes a different set of business skills to make that work. Certainly there are many docs doing that, but relative to the number of dentists it’s a tiny percentage.
Well Said! You’re a great resource for dentistry. Thank you for all you do.
Hi Fred. Great discussion.
As a Dental Practice Broker who interacts with buyers everyday, I am not sure that the absolute applies regarding the “grooming” of your practice for the sale. I agree with painting or cosmetic upgrades. Certainly cleaning out your office and removing the old boxes in the corners, etc. However, with regard to purchasing equipment, even sometimes moving to digital radiography, I find the majority of my buyers are looking for a practice where they can add services, improve the delivery of care, create a marketing base to grow in the future, and choose how they will implement new technologies, etc. An old web site just means the new buyer can improve on that which should help to drive new patients. I think your reference to a five year plan could make sense. The assumption is with the upgrades, the practice will grow and the seller might see a higher selling price. Cash flow is what the buyer and the lenders really want to see. However, debt service is debt service. It is important that the sellers maintain their net revenues, if only providing consistency.
My rule of thumb is if you plan to sell within the next few years, and if you want new technology for the enjoyment of learning and personal growth, then by all means invest in your website, add new technology, etc. But, realize that with the introduction of these additions to your practice, you will experience a shift or change process that will challenge you, your staff and even your delivery of patient care for a period of time. How will this affect your bottom line? If you move in this direction, make sure you personally engage the upgrades to create value for your buyer.
I find that the reason most dentists move forward in selling their practices is because they don’t want to change and grow any longer. In addition, the demographic of the selling dentist is very different from the buying dentist. The selling dentist has worked his or her career life to have no debt. He or she finds it hard to acquire more debt, even if recouping some of the debt at the sale. The buying dentist has a different mind set. He or she is prepared for investing in the future and financing another $50,000 most likely has little or no effect on the lending position including future cash flow of the practice.
Value is measured in many ways and although I see how manufacturers and supply companies would benefit from every seller bringing in upgrades for their buyers, I am not sure it is the best process for the seller or the buyer. Just a thought, but would the buyers like to pick and choose their upgrades based on their preferences?
Susan, I think most buyers behave like buyers. When someone has to imagine the improvements rather than see them, the decision is harder and the price is lower.
Thank you Fred for your response. I would love to hear from “most” buyers. I know there are those buyers who purchase practices, try to make fast changes and experience less than successful results. The way they transition a practice is just as important as the purchase itself. I realize that your goal is to “market.” I guess adding the presence of technology, pediatrics, social media. etc., may make the practice “look” better to the buyer, but it can also greatly affect its value if not managed correctly. Maybe buyers should learn how to recognize true value. Change is an event. Transition is a process.
Most dentist buy a practice not because they want to be business owners and entrepreneurs but because they love what they do, dentistry. Unfortunately that very often translates into mismanaged practices with under performing results. Maybe they should teach some business basics in college dental programs.