Volume 70: Buying Time
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: firstname.lastname@example.org
The Professional Advisory
- One Year Later
- Dealing with Unsolicited Offers
- Covid-19 Practice Sales Update
- When is the Right Time to Sell Your Practice and Why?
- Partnership Pitfalls
- The Real Cost of a Dental Practice Set-up
- Smaller Practice Realities
- Dental Market Update - 2019
- Creating Your Own Most Valuable Practice (MVP)
- Small Practice Economics
- The Market is Very Efficient
- How Can Dental Practice Values be Rising and Declining?
- Hygiene as a Value Driver
- The Value of a Good Team
- Is it Time to Move?
- Staging A Dental Practice
- The High Cost of Dying
- Patients - Attract and Retain
- Should I Stay or Should I Go?
- Is There a Buyer for Every Practice?
- Good, Better, Best - The Market has Spoken
- Buying Time
- Patients, Patience, Patients
- A Real Patient
- Why Do a Practice Valuation? I'm not Selling
- Irrational Exuberance or The New Normal?
- Do dental equipment and dental technology affect a practice value?
- Finding and Being a Mentor
- Bigger is Better
- Dave's Top Ten List for Buyers (Vendors should read this too!)
- How Well Do You Know Your Practice?
- Dave's Top Ten List for Vendors
- What will happen to dental practice Values in the next 10 years?
- Your Premises Lease is an Important Asset
- What are Associates Thinking?
- There is Life Outside the GTA
- When Is the Right Time to Sell My Dental Practice?
- Mergers are a Viable Option
- Is Your Associate an Asset or a Liability?
- Has your Practice Facility Kept Up With Your Billings?
- The 100 per cent of Gross Myth
- The Past, The Present and The Future
- Caveat Emptor
- Overpaid Long Term Staff
- Selling your Practice in Stages
- A Potential Pitfall of Selling Shares
- Value in Your Practice Through Balance
- Only Trusted Staff Can Defraud You
- To Own or Not to Own Practice Real Estate? That is the Question.
- Coping With A Large Patient Base
- Successful Dental Practice Transitions
- Taking Care of Business
- The Investing Dentist Phenomenon
- Two areas to focus upon that could negatively impact the value of your practice
- Organize your Debt in Order to Sell your Practice
- Having a Better Team
- How Do I Prepare My Practice For Sale
- How Do I Prepare My Practice For Sale? Part 3
- How Do I Prepare My Practice For Sale? Part 2
- How Do I Prepare My Practice For Sale? Part 1
- Advice to My Son or Daughter Graduating from Dental School
- Transition - What to Expect
- Discussion on Digital X-Rays
- Partnerships and Shotguns
- Strategic Planning - How to Get Started
- Calling All Vendors - Practices have Gone Up in Value
- Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
- Matrimonial Practice Valuations
- Purchaser's Guide to Affording a Practice
- Location Improvements Throughout Your Career
- Small Practice Valuations
- Partnerships – The Best and The Worst
- Changing Location When the Opportunity Comes Along
- Visual Presentation of Your Practice
- Presentation of Charts
- Your Premises Lease Can Be Your Worst Enemy
- How to Select an Appraiser for Your Practice
- How Are Your Billing Ratios?
- It Pays to Invest in Your Tangible Assets
- The Importance of Separate Financial Statements
- Five Time Frame Levels to Sell a Practice
- 12 Suggestions to Safeguard Computer Data
- How to Buy a Visible Practice
- Why is there a shortage of good practices today?
- The Importance of Equipment in the Purchase of a Practice
- The Balanced Practice
- Will My Practice Be Saleable in The Future?
- Buyer Be Aware
- Excess Profit - The Second Key
- Patients and Profits are the Keys
- Plan Ahead