Study club Southeast Transitions

Southeast TransitionsPassing dentistry to the next generation

through practice sales

Southeast TransitionsExpertise for all the Transitions in the Life Cycle

of your Business

Presenter

Presentation Notes

The purpose of this presentation is to : Bring the dental practice sale market to your attention Help you determine where you are in your practice life line Help 55 and older begin focusing on transition of ownership AT DEATH/DISABILITY How dentist demographics will change over the next 6 years.

Agenda

1.Dental practice market trends and their impact on You

2.How changing dental demographics will impact YOU

3.Where are YOU in your practice life cycle 4.How to protect Your family and practice in the

event of a disability or death

www.southeasttransitions.com

4 REASONS WHY THE CURRENT DENTAL PRACTICE SALES MARKET IS LIKE THE 2008 HOUSING BUBBLE

Like ALL market bubbles – This bubble is unsustainable

Influx of investorsEasy bank financing

Inflated pricesAbundance of buyers

THE “PRACTICE BUBBLE”


Presenter

Presentation Notes

Now, lets look at…..the current dental industry. THE PRACTICE BUBBLE ARTICLE: FOUR REASONS WHY THE CURRENT DENTAL PRACTICE MARKET IS MUCH LIKE THE HOUSING BUBBLE

DENTAL MARKET ≈ HOUSING BUBBLEI. Influx of Investors

Market consolidationCorporate buyersTemporary Sellers’ market

II. Easy Bank FinancingBanks competing for dental loansLoans up to 110% Driving prices higher

III. Inflated PricesInstitutional investors Artificial scarcity of practicesCompetitive bids up to 80-100%

IV. An Abundance of BuyersInstitutional buyersBaby-boomers holding on to practicesDental demographics shift


Presenter

Presentation Notes

Conclusion: THE SELLER’S MARKET WILL NOT LAST THE SHIFT TO A PROTRACTED BUYER’S MARKET OVER THE NEXT 12-36 MONTHS IS INEVITABLE PRACTICE SALE PRICES WILL PLUMMET BASED ON INVESTORS DRIVING PRACTICE SALES PRICES DOWN INCREASING SHORTAGE OF DENTISTS TO REPLACE BABY BOOMERS BABY BOOM DENTISTS WILL WAIT TOO LONG TO RETIRE AND MAY NOT BE ABLE TO SELL THEIR PRACTICE CURRENT OPPORTUNITY FOR DENTISTS TO ACT ON A PLAN

THIS SELLERS’ MARKET IS TEMPORARY AND WILL SHIFT TO A BUYERS’ MARKET IN THE NEXT 12-24 MONTHS

PRACTICE SALE PRICES WILL PLUMMET

THERE WILL BE A SHORTAGE OF BUYERS

DENTISTS WHO WAIT TOO LONG TO RETIRE MAY NOT BE ABLE TO SELL THEIR PRACTICE

THIS CREATES TREMENDOUS OPPORTUNITIES FOR DENTIST WITH THE WILL TO ACT

CONCLUSION


Market Consolidation - What it means to You

• The Old Model– Poorly funded– Lacked sophistication– Low quality– Low Cost alternative– Poor market reach

• The New Model– Well Funded– Sophisticated operating

model– Achieves quality & scale– Maintains high margins – Market reach is a

differentiator

The Rise of Corporate Dentistry


WHAT’S YOUR STRATEGY TO OFFSET THESE COMPETITIVE ADVANTAGES WHEN THE

CORPORATE SHOP OPENS UP 1 MILE AWAY?– NEW PATIENT ACQUISITION– COST OF DOING BUSINESS

• SUPPLIES• EQUIPMENT• STAFF

– CORPORATE REVENUE PRODUCTION NEVER STOPS

HOW DO YOU COMPETE?


HOW IS THE SHIFT IN DENTAL DEMOGRAPHICS IMPACTING

THE PRACTICE SALES MARKET…

NOW AND IN THE FUTURE?


ADEA ESTIMATES DEFICIT

Presenter

Presentation Notes

~1000 more dentist will exit the work force than coming into the market for the next 10 years.

DemographicsIncrease in Female dentists

-2000

-1500

-1000

-500

0

500

1000

DE

NT

IST

S

1998 2007 2012 2016 2023 2030 2038YEAR

Female dentistsAll dentists

The shortage of dentists will mean a shortage of buyers for existing practices

The increase in female graduates further reduces the number of buyers in the market

2,493 2,608 2,641 2,610 2,686 2,692 2,744 2,762 2,793 2,976 3,009

1,955 2,010 1,971 2,078 2,047 2,078 2,174 2,327 2,3772,517 2,688

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

Firs

t-Yea

r Enr

ollm

ent

Academic Year

Male Female


Presenter

Presentation Notes

This data is from a study done by American Dental Schools published in 2000. The demographic shift has begun this year and over the next 10 years it will influence the way dental care is provided in the US as well as influence the sale of dental practices. Dental practice sales will become as scare as they were in 1970. Physicians and Oral Surgeons have been selling their practices by bringing in Associates and offering eligible associates the opportunity to purchase into their partnership. This is how any dental practice will sell in 2023. Why would a young dentist buy a practice when all they need to do is start up and have a full schedule within one year. Patients will clearly not be as valuable an asset as they are today. Patients are at a premium now!!

18 states account for 95% of projected U.S. Growth:California, Texas, Florida, Georgia, Arizona, Washington, North

Carolina, South Carolina, Colorado, Virginia, Tennessee, Utah, Michigan, Oregon,

Nevada, Minnesota, Ohio, and Maryland

250,000,000260,000,000270,000,000280,000,000290,000,000300,000,000310,000,000320,000,000330,000,000

2000 2005 2010 2020

population

Increasing patient base

Shrinking provider base

POPULATION GROWTH

There were 200 million patient visits in 1950 --- there will be an estimated 600 million in 2020


Presenter

Presentation Notes

You will clearly feel the impact of this demographic change if you practice in one of the above states. Wall Street is preparing for this numbers shift and hopefully there are dentist that have the foresight to MAKE THIS TREND THEIR FRIEND and position their practices to benefit from this dynamic shift.

There will not be enough buyers to purchase every practice that is on the market for sale

More graduates today focus on work-life balance and are less likely to be business owners

Shortage of Dentists combined with population growth makes a “start up” more attractive

The value of a patient is greatly reduced

CONCLUSIONS



DETERMINE WHERE YOUARE IN YOUR PRACTICE

LIFE CYCLE

Presenter

Presentation Notes

A TRANSITION SLIDE The ADA states that most dental practice gross yearly collections peak when the dentist age is between 50 and 55 years of age.

Revenue

Maturity

Years as a Practice Owner

Typical Business Life CycleWhere are YOU?

EXITPost-Maturity

EXITPost-MaturityThe ADA says if you are 50-54 years old

Presenter

Presentation Notes

A more realistic life cycle Expand or convert prior to a decline in your practice. Banks are reluctant to lend on the purchase of a declining practice. Banks do not lend on potential. An indicator that you have shifted into practice decline is your practice overhead particular staff cost has increased as gross collections remained the same or decreased over the past 5 years

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1 2 3 4Revenue Net Proceeds Investment Growth Opportunity Cost

OPPORTUNITY COST TYPICAL SCENARIO

Typical Scenario Current yr. Year 1 Year 2 Year 3Revenue 1,000,000 950,000 902,500 857,400 Net Proceeds 700,000 665,000 631,750 600,180 Investment Growth 700,000 721,000 742,600 764,900 Opportunity Cost 0 56,000 110,850 164,720

Assumptions: Dr. Scales back production 5% per year for quality of life

Presenter

Presentation Notes

Keep this simple : If sell today and invest at 3% make $764,900; If decrease only 5% each year over 3 yrs. sell $600,180 Make $164,720 less money This is opportunity cost is the difference in what you could make today vs. what you could have made based on decisions .

WORKING HARD:10% INCREASE/YR.

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1 2 3 4

Grow Revenue 10%/Year Sales Price Net Proceeds if Sell Today Additional Proceeds

Best Case Scenario Current yr. Year 1 Year 2 Year 3Grow Revenue 10%/Year 1,000,000 1,100,000 1,210,000 1,331,000 Sales Price 700,000 770,000 847,000 931,700 Net Proceeds if Sell Today 700,000 721,000 742,600 764,900 Additional Proceeds - 49,000 104,400 166,800

Assumptions: Dr. hustles and grows production 10% per year

Presenter

Presentation Notes

Is 10% increase each year worth the additional $166,800 in practice value. Remember the market changes drastically over the next 3 years and you may not be able to sell for $166,800 more in 2017. The only way to increase 10% each year is to increase daily revenue or increase the number of days you work each year.


Current yr. Year 1 Year 2 Year 3Gross $1,000,000 $1,100,000 $1,210,000 $1,331,000 Revenue per Day $5,555.56 $5,555.56 $5,555.56 $5,555.56 Revenue Increase per Day $0 $0 $0 $0 Number of Days Worked 180 198 217.8 239.58Additional Days Worked 0 18 37.8 59.58

10% GROSS INCREASE/YEAR

Current yr. Year 1 Year 2 Year 3Gross $1,000,000 $1,100,000 $1,210,000 $1,331,000 Revenue per Day $5,555.56 $6,111.11 $6,722.22 $7,394.44Revenue Increase per Day $0 $555.55 $1,166.66 $1,838.88 Number of Days Worked 180 180 180 180Additional Days Worked 0 0 0 0

Increase Daily Revenue

Increase Number of Working Days

Presenter

Presentation Notes

This is a stress producing slide for a dentist 60 years of age and older The bottom line is in 3 years a dentist will need to work almost 2 extra months each year to gross $1,331,000 if they keep collections / day the same If they keep working the same number of days/ week the 3rd year they will need to collect $1,838 more each day or $7,394/day

20 years 10 years 5 years 3 years

• Build out hygiene program• Purchase equipment• Consult business advisor

(different than your CPA or Attorney) about retirement plan

• Fund retirement accordingly

TIMELINE TO RETIREMENT

• Hire a SET Transition Advisor and determine your best transition plan

• Make sure lease is assumable• Only renew lease for the time

you plan on staying in the office• If you own the

building, determine fair market rent and begin to pay that amount

• Upgrade to digital x-rays if you haven’t already

• Get rid of credits on books and clean up A/R

• Consult with SET Accelerated Practice Advisor or Advisor

• Renew 5-year lease with a 5-year option

• Leasehold personally pay for unless landlord agrees not to increase rent if you sell

• Peak hygiene collections• Have or hire at least 1-2

young staff members• Upgrade equipment: digital x-

rays• Refurbish office:

carpet, décor, etc• Upgrade to the best computer

software• Make sure retirement plan is

on track and working

• Consult SET Accelerated Practice Advisor

• Settle lease: two 5-year leases NOT 10 year

• Upgrade equipment: digital x-rays

• Refurbish office• Upgrade to the best computer

software• Make sure retirement plan is

on track• CODICIL TO WILL WITH

DETAILS OF SELLING YOUR PRACTICE

Your business strategy must start with the end in mind

If you Don’t know where you are going – any road will get you there

Presenter

Presentation Notes

Determine your audience before discussing this slide. If majority of audience is under 55 spend time on 20 years and 10 years. Use most of the merge slides because a merge/purchase is perfect for hyper-growth. If most of dentist in attendance are over 55 spend time on 5 to 3 years from exit. Critical for these dentist to know the following: Are they on target financially to retire Where they are on the practice life line The current dental practice sale market Aware of demographic shift in the dental profession The value of their practice in the current market

Space sharingLocation

Lack of curb appealAssociateshipsSelling too late

Disability

Death

DECISIONS THAT IMPACT PRACTICE VALUE


Presenter

Presentation Notes

Every buyer who evaluates your practice will see your space partner as competition which will limit the number of prospective buyers. Buyers will look elsewhere for a situation with less perceived risk in the transfer of patients. Begin working on practice curb appeal 5 years before selling. To enter your practice into the current buyer market you need digital X-rays. Buyers have never seen a developing tank or automatic developer Associateships can hinder the sale of a practice: Buyers wonder why they are not buying the practice, the restrictive covenants with associates are often not enforceable especially if not transferable. Codicil to Will addressing who will work in the practice, what brokerage firm is to sell your practice, at death or disability. What is current value of practice.

A CAUTIONARY TALE

• Solution – Create a Codicil to your will• Who will sell your practice• Who will work as temporary dentist until the practice

sells• Establish a formal practice valuation prior to death or

disability

Dr A and Dr B both die unexpectedlyDr A’s practice sold in a couple of months for higher than market value

Dr B’s practice sold over 1 year later at much lower than market value


Presenter

Presentation Notes

Tell story: Dr W who asked SET to value his practice prior to his death resulted in the sale above appraised value 2 months after he died. Another dentist who did not have a value on his practice at his death resulted in selling for less than market value 6 months later. Speed of sale after death or disability results in higher price for the practice. Speed up the sale process by having established a value ; determine who is to broker the sale and who is to be the temporary fill-in dentist.

Thank You for Your Time!

678-482-7305info@southeasttransitions


Study club Southeast Transitions

Healthcare

buyers market

dental practice market

dental market housing

practice bubble

shortage of buyers dentists

number of buyers

practice life cycle

high margins market