Know Your Dental Practice Transition Options – The Five Buyer Types
Which type of buyer is right for my practice? The answer depends on your ultimate goals. The most important factors to consider when determining which buyer type is right for you are your practice collections amount (not production), the desired length of post-closing employment, and aligning your expectations to the marketplace. Our team at JRA will work with you to determine the best move to make depending on these variables.
The following is a look at the five buyer types for dental practice transitions and the pros and cons of each.
#1 – Individual/Solo Practitioner
This option involves selling your practice to a single dental practitioner.
Practice Characteristics:
- Collections = $400,000 Plus
- Post-closing employment – Minimum 6 months
- Patient base = PPO, FFS
- Sale price = 65% to 100% of collections
Pros: You get to pick the potential buyer, ensuring a good fit for the patients you’ve built relationships with over the years. Solo buyers won’t hold back the purchase price, meaning you’ll get paid upfront. You can enjoy retirement sooner if you so choose or agree to a short, flexible transitional period. Contrary to popular belief, there are many individual buyers in the market who are well funded, willing, and able to purchase new dental practices.
Cons: Individual buyers may be uncertain or indecisive about the transaction, potentially changing their minds down the road. Moreover, they require financing, meaning a tedious process with a lender evaluating every aspect of your practice. Unlike with DSOs, the ceiling price of what you’ll receive for your practice is typically capped by your buyer’s lender, meaning your asking sales price may be out of reach.
#2 – Selling to a DSO/Corporate Buyer
Dental Service Organizations, known as Dental Support Organizations or DSOs, generally own many dental practices under a single corporate umbrella. They provide business management and non-clinical operations.
Practice Characteristics:
- Collections = $600,000 Plus
- Post-closing employment = 2 years or greater
- Patient base = PPO, FFS
- Sale price = 80% to 150% of collections, possible equity
Pros: These corporate buyers usually provide high purchase prices and allow you to continue to work for as long as you like without the headache of operational responsibilities. In the past, selling to a DSO wasn’t an option. This new way of transitioning offers an additional path to securing a dental practice sale.
Cons: The corporate environment may not provide the same personalized patient care you pride yourself on, and you may not like how operations are run post-closing. The transition process is often tedious, unknown, and expensive when dealing with this type of buyer. Moreover, there’s usually a hold-back of the purchase price, meaning you’ll get some of the agreed-upon sum upfront and the rest later down the road.
#3 – Transitioning to an Associate or Partner Over Time
You may choose a partner or associate to work alongside you to take over your practice down the road.
Practice Characteristics:
- Collections = $400,000 Plus
- Post-closing employment = Flexible
- Patient base = PPO, FFS
- Sale price = 65% to 100% of collections
Pros: Associates or partners already know your patients and the ins and outs of your operations. The certainty of the buyer can put your mind at ease. Moreover, you’ll have the flexibility in deciding how to hand over your practice, ensuring a seamless transition.
Cons: Many practice owners promise they’ll sell their practice to an associate in the future, but there’s rarely a definitive agreement upfront, resulting in a complex and stressful situation with a practice valuation model that’s tough for both parties to agree upon. A potential complication is that associates often help build up the practice and may feel entitled to some of that equity. Moreover, lenders don’t favor partnerships and require detailed accounts of all aspects of the business, leading to more complex transactions.
#4 – Chart Sale and Merger with Existing Practice
This option may be ideal for low-performing practices. It involves selling patient charts and merging with an existing practice.
Practice Characteristics:
- Collections = $350,000 and under
- Post-closing employment = 6 months or less
- Patient base = PPO, FFS, HMO, Medicaid
- Sale price = 25% to 65% of collections (the longer the transition the higher the price)
Pros: This is an ideal option for some scenarios, an example of which is wanting to retire in the near future but not being willing to renew a lease for a number of years. Selling patient charts and moving in with a new practice allows for an easy transition and continuing to practice for the desired time.
Cons: This option usually comes with a low sales price, and there’s a lack of buyers due to the limitation of having to sell to a practice in proximity to yours.
#5 – Chart Sale
This option may be ideal for low-performing practices. It involves selling patient charts to an existing dental office.
Practice characteristics:
- Collections = $350,000 and under
- Post-closing employment = 6 months or less
- Patient base = PPO, FFS, HMO, Medicaid
- Sale price = 15% to 60% of collections
Pros: The most significant benefit of chart sales is its certainty. You’ll make a sale, leaving your legacy somewhat defined. While not the ideal dental practice sale, it’s a better option than losing the practice altogether.
Cons: A significant disadvantage is the low sales price. Moreover, you may be responsible for the remainder of the lease or any liabilities that come with the practice. The market for this type of sale is usually limited to practices close in geographic location.
Get Started Today
Whether you’re ready to sell or just exploring your dental practice transition options, our team at JRA is here to help. We’ll help you define your transition goals and ensure your practice sells to the perfect buyer for the highest return. We understand that the transitioning process can be overwhelming. Our team will guide you through the complexities and intricacies of practice sales so you can make the best decision while removing the headaches and inefficiencies out of the process.
Working with an experienced dental practice broker will safeguard your interests and ensure you enjoy a seamless transition and secure the most favorable terms. Contact us today to get started on your practice sale! We’re here to support you every step of the way!