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Articles

Volume 70: Buying Time

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We often consult with dentists about the ideal time to sell their practice. The conversation usually starts with an overview of the process and what the current market is like for their type of practice. We then delve into some postulation over what the future holds for the market. We try to relate other dentist’s experiences, and arm them with data and information to help them form opinions and make good decisions. Generally several months pass, and quite often years pass before the dentist actually decides to sell, no matter how robust the market might be.

The decision to sell a dental practice is most often predicated on some life event or goal that the selling dentist experiences or strives for. In the life event category, there is a very wide range of things that happen that cause dentists to take action, pick up the phone and begin the process of changing their future. We have had things like:

  • The worst Monday I’ve ever had
  • My staff treat me poorly and I need to get away from them
  • A good friend just died and he never had a chance to enjoy his retirement
  • My back is killing me
  • The commute to the office is getting longer every year
  • I still love dentistry but I no longer want the responsibility of being an owner,
  • The RCDSO won’t let me treat my spouse anymore and that is ridiculous (this decision by the College, which has since been reversed, was very good for the practice sales business!)

You get the point. There are all kinds of things that occur that make people pause and consider their options.

 On the goal side, we often hear: 

  • I have other interests that I want to pursue
  • My spouse has retired and we want to travel
  • My kids are settled, so I don’t need to work as hard
  • I want to go back to school
  • Life is short, I want to really enjoy things
  • I want to move to a different part of the country

 Again, many, many different reasons, but the outcome is clear. A different future is in store.

 Each of these reasons boils down to one thing and that is time. In dentistry, it is very difficult (though not impossible) to prosper without spending time doing it. Therefore, most dentists are left with the option of continuing to work or changing their professional life in order to have more time for the things they want to do. I call this “buying time” because that is what the decision to sell a dental practice means; you are trading future profits for more free time.

 I have often said that from a financial point of view, the best course of action for dentists is to work their practice into the ground and throw away the keys just before it’s your time. I say that because a dental practice is a great investment and provides a fantastic return on invested capital. Even taking into consideration, the elevated prices that practices trade at now and the tax advantageous a share sale structures, it is still better financially to hold than sell. This can be proven by the significant investment that multiple practice owners and more particularly, corporate owners are making in dentistry. These investors are very smart business people and they see the significant returns that dentistry offers. They are happy to pay the higher multiples that today’s market demands because the returns they achieve are still far greater than they could earn investing their capital in other businesses or public companies. So, if it is a great investment for them, it is also a great investment for you. The math confirms the theory. Practices trade at four to eight times adjusted net earnings. This is after the overhead, dentist (you in your own practice) and taxes have been paid. Therefore, you could earn money working in the practice (40 per cent of your production) and earn money owning the practice. It is this ownership income that is attractive to others. If we assume a six times multiple it would take six years of ongoing ownership to be even with what you got for selling the practice. It is highly unlikely that you could get anywhere near that return if you invested the proceeds from the sale in another kind of investment. It would still be better financially to work the practice as long as possible. If that is so, then why don’t more dentists do that? Simply, time.

You will know when the time is right to plan a different future. The life event or goal will arise and you will decide that it is your time to start “Buying Time”.

David Lind is a Principal and Broker of Record in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices.  He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: david.lind@ppsales.com

The Professional Advisory

  1. One Year Later

  2. Dealing with Unsolicited Offers

  3. Covid-19 Practice Sales Update

  4. When is the Right Time to Sell Your Practice and Why?

  5. Partnership Pitfalls

  6. The Real Cost of a Dental Practice Set-up

  7. Smaller Practice Realities

  8. Dental Market Update - 2019

  9. Creating Your Own Most Valuable Practice (MVP)

  10. Small Practice Economics

  11. The Market is Very Efficient

  12. How Can Dental Practice Values be Rising and Declining?

  13. Hygiene as a Value Driver

  14. The Value of a Good Team

  15. Is it Time to Move?

  16. Staging A Dental Practice

  17. The High Cost of Dying

  18. Deal-Busters

  19. Patients - Attract and Retain

  20. Should I Stay or Should I Go?

  21. Is There a Buyer for Every Practice?

  22. Good, Better, Best - The Market has Spoken

  23. Smooth-Sale-ing

  24. Buying Time

  25. Patients, Patience, Patients

  26. A Real Patient

  27. Why Do a Practice Valuation? I'm not Selling

  28. Irrational Exuberance or The New Normal?

  29. Do dental equipment and dental technology affect a practice value?

  30. Finding and Being a Mentor

  31. Bigger is Better

  32. Dave's Top Ten List for Buyers (Vendors should read this too!)

  33. How Well Do You Know Your Practice?

  34. Dave's Top Ten List for Vendors

  35. What will happen to dental practice Values in the next 10 years?

  36. Your Premises Lease is an Important Asset

  37. What are Associates Thinking?

  38. There is Life Outside the GTA

  39. When Is the Right Time to Sell My Dental Practice?

  40. Mergers are a Viable Option

  41. Is Your Associate an Asset or a Liability?

  42. Has your Practice Facility Kept Up With Your Billings?

  43. The 100 per cent of Gross Myth

  44. The Past, The Present and The Future

  45. Caveat Emptor

  46. Overpaid Long Term Staff

  47. Selling your Practice in Stages

  48. A Potential Pitfall of Selling Shares

  49. Value in Your Practice Through Balance

  50. Only Trusted Staff Can Defraud You

  51. To Own or Not to Own Practice Real Estate? That is the Question.

  52. Coping With A Large Patient Base

  53. Successful Dental Practice Transitions

  54. Taking Care of Business

  55. The Investing Dentist Phenomenon

  56. Two areas to focus upon that could negatively impact the value of your practice

  57. Organize your Debt in Order to Sell your Practice

  58. Having a Better Team

  59. How Do I Prepare My Practice For Sale

  60. How Do I Prepare My Practice For Sale? Part 3

  61. How Do I Prepare My Practice For Sale? Part 2

  62. How Do I Prepare My Practice For Sale? Part 1

  63. Advice to My Son or Daughter Graduating from Dental School

  64. Transition - What to Expect

  65. Discussion on Digital X-Rays

  66. Partnerships and Shotguns

  67. Strategic Planning - How to Get Started

  68. Calling All Vendors - Practices have Gone Up in Value

  69. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates

  70. Matrimonial Practice Valuations

  71. Purchaser's Guide to Affording a Practice

  72. Location Improvements Throughout Your Career

  73. Small Practice Valuations

  74. Partnerships – The Best and The Worst

  75. Changing Location When the Opportunity Comes Along

  76. Visual Presentation of Your Practice

  77. Presentation of Charts

  78. Your Premises Lease Can Be Your Worst Enemy

  79. How to Select an Appraiser for Your Practice

  80. How Are Your Billing Ratios?

  81. It Pays to Invest in Your Tangible Assets

  82. The Importance of Separate Financial Statements

  83. Five Time Frame Levels to Sell a Practice

  84. 12 Suggestions to Safeguard Computer Data

  85. How to Buy a Visible Practice

  86. Why is there a shortage of good practices today?

  87. The Importance of Equipment in the Purchase of a Practice

  88. The Balanced Practice

  89. Will My Practice Be Saleable in The Future?

  90. Buyer Be Aware

  91. Excess Profit - The Second Key

  92. Patients and Profits are the Keys

  93. Plan Ahead

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