Episode 173: Increase Your Dental Practice Value by Understanding EBITDA
“This is what we’re working with Investment Grade Practices, helping you know your true EBITDA so you understand what it means when you get an offer for your practice.” ~Dr. Bruce B. Baird
You just got an offer for your dental office…and it looks great! But do you know if the numbers on the page match your EBIDTA?
If you don’t know what EBITDA is, or your practice EBITDA, then you could be leaving hundreds of thousands or even millions of dollars on the table.
Your practice is your greatest asset. And with the consolidation of the dental industry, more and more dentists are getting intriguing looking offers for their practices. But are you being offered what your practice is really worth? The reality is you have to know what your EBITDA is if you want to get the most value when you sell your practice, be that this year or in 7 years.
I want you to be knowledgeable about what your practice is truly worth, so today I’m giving you an overview of:
- What EBITDA is and why you should care
- Tangible reasons why you need to know your EBITDA
- Stories from the trenches (including what happened when I sold my practice)
Hi Dr., Regan, Robertson, CCO productive dentist Academy here and I have a question for you. Are you finding it hard to get your team aligned to your vision, but you know, you deserve growth just like everybody else? That’s why we’ve created the PDA productivity workshop. For nearly 20 years PDA workshops have helped dentists just like you, align their teams, get control of scheduling, and create productive practices that they love walking into every day. Just imagine how you will feel when you know your schedule is productive, your systems are humming, and your team is aligned to your vision. It’s simple, but it’s not necessarily easy. We can help. The demand for these workshops is so high that our March 2023 workshop is completely sold out. But there are still seats available for the only remaining workshop in September 2023. Visit productive dentists.com/workshop that’s productive dentist.com/workshop to secure your seats now.
Dr. Bruce Baird 1:00
Hello, everyone. This is Dr. Bruce B. Baird and you’re listening to The Productive Dentist podcast. In this podcast, I will give you everything that I’ve learned over the last 40 years in dentistry working with 1000s of dentists. I’ll tell you, it’s not that my way is the only way, it’s just one that has worked extremely well for me and and I’d love to share that with you so you too can enjoy the choices and lifestyle the productivity allows, more time for things you love, increased pay, better team relationships, and lowered stress. Let’s get into it with this week’s episode of The Productive Dentist podcast.
Dr. Bruce Baird 1:40
Hi, this is Dr. Bruce Baird with The Productive Dentist podcast. Oh, and I sure appreciate all the votes for for The Productive Dentist podcast in the recent voting for the best podcast in dentistry. And I appreciate any of you that voted for me and also for Victoria Peterson, my partner, who does the Investment Grade Practice podcast, as well as Regan Robertson and, and Chad Johnson who do Everyday Practices podcast. We had a three out of the top five this past year, and we’re hoping to do that again this year. Today, what I wanted to talk about, a little bit, is something that I’ll be honest with you, I didn’t know much about 10 years ago, and being involved in some other businesses and other things, I started hearing the word EBITA a lot. E B I T A, anyway, Earnings Before Interest, Taxes and Depreciation, and why is that an important number. Why is that something that you should know? Well, the main reason is that’s the actual thing that private equity or people who are looking at purchasing your practice DSOs, they come in and they say they tell you what your EBITA is. Now, there’s problem in that. And I will tell you, I was just lecturing in Honolulu two weeks ago, I think it was, and there were about 40 dentists in the room, and believe me, this is not unusual. I could do this in any, any state in the, in the US, and I just asked a simple question. Who here knows what EBITA is? And nobody raised their hand, which like I say that’s, that’s normal operating procedure. So because we’re just not used to it, we’re not we’re not the business guys that that follow that. But, we’re changing that today because we hear so much from you know, the consolidation of dentistry. And what is the consolidation? Consolidation is obviously what’s happening right now, with private equity coming in, DSOs coming in, which is private equity, coming in and purchasing practices all over the country, and this consolidation will go on for probably another seven years. I’ve heard it as long as nine and as short as five. But this consolidation will continue to happen until we get to about 65 or 70% consolidated. What does that mean? That means 65% of the practices out there are going to be purchased by some DSO or private equity. And you might think, well, that’s scary as hell and yeah, it can be but what I will tell you is, there are unique opportunities out there, and I’ve been telling people why would you ever sell your practice to a to private equity when you’re 40 years old? Well, now the average dentists that’s doing it is 41. So and now I actually realize I’ve gone around apologizing to dentists who’ve been through Productive Dentist Academy saying, “Guys, I was wrong. Things have definitely changed.” But, when we start talking about EBITA, why is that an important number to know and to standardize? Well, we have one doctor that we got the opportunity, we’re working with right now who’s had 10 offers from 10 different DSOs. And, interestingly enough, that and of course, they figure the EBITA. When Heartland bought my practice 12 years ago, they said, “This is how much we’re going to give you for your practice.” And I was like, “Okay, that’s a lot of money, sounds good.” I had no idea what even it was.
Dr Bruce Baird 5:41
Today, you start to hear in the conversations, if you’ve had any conversations with a DSO, they’ll say, Oh, yes, we’re gonna give you a 5x multiple of your EBITA, meaning, if you’re even at is 200,000, that practice valuation is 1 million. If your EBIT is 500,000, then you know, you’re gonna get two and a half million. Whereas before consolidation, it might be 65% of your previous years, 12 months collections. That was kind of a standard, that 65%. We’re going to, you know, do that if you were, if you were doing a million dollars a year, you’re gonna make 650,000. And then, like I say, that’s been fairly standard until this consolidation began. And so today, how to, how do we figure out our valuations? Well, it needs to be standardized, which this doctor that had 10 different valuations. The interesting thing, and what I want you to be acutely aware of, is that his EBITA was different in all 10 offers, and why is it important? Well, who the hell is figuring this, I mean, it either is any better, or it’s not. And each one of these groups, they’re out, I mean, they, you know, this is a capital, capitalist environment, and this is private equity and their intention is to make as much money as possible. So I start hearing, you know, EBITA, EBITA, EBITA, and then we start hearing multiples. And where, you know, a few years ago, when, when this consolidation first started, it might have been a 4x or 5x multiple. Well, it kind of bothers me that it becomes a 5x, multiple. So if you had a 500,000, they offer you a two and a half million for your practice. And you say, wow, that’s good, that’s a great price. That also just became worth nine times what they paid you. So, it just became worth four and a half million to them. And so it’s a it’s kind of an interesting thing, because they’re going to get a larger multiple by aggregating lots of practices. That’s something that Productive Dentist Academy is working on now with our Investment Grade Practice workshops that we’re doing. We’re trying to look at your profits in your business and determine what your true EBITA is,so that you’re not being jacked around with, with 10 different DSOs. And let me explain to you how that works. You’ve got one DSO and everybody’s saying, Well, I got a 7x here, they go, really? Well, I’ve got it, I got a six. Well, I shouldn’t use you guys. Well, let’s just look at a 5x compared to a 10x multiple. Somebody says, you know, you have one, one group says you have a $200,000 EBITA, and we’re going to give you a 5x, we’re gonna give you 1 million. Somebody else says, oh, no, we’re gonna give you a 10x but your EBITA is only 100,000, so we’re going to give you a million dollars. So I hope that that resonates with you, that you need to have somebody helping you and there are people out there, you know, that are doing that, that are helping people determine what is the valuation of their business. And that’s something that Investment Grade Practices and what we’re doing with our Productivity Workshops. We’re actually going in and looking and working towards finding out what your true EBITA is, and that is EBITA across the board. In other words, if I have 10 dentists come in, it’s all figured the same way so that when we get offers, it’s all, it’s all done the same way. There are people out there that have a thought process that yes, I’m interested in selling my practice and I am going to list there’s people out are right now that are saying, oh, yeah, let’s, we’re gonna have our own DSO thing. And, and the money’s there and you need to sell now. And you know, it’s just because, because everything’s going to collapse, you need to have control and they are requesting $20,000 just to do a practice valuation. Well, that’s, that’s very interesting, considering we don’t charge anything. They’re charging 20,000 and then they’re charging additional money to be part of their group, their membership group. That money is wasted money, in my opinion and, you know, from, from my perspective, there are a lot better ways of going about selling your practice to a DSO.
Dr. Bruce Baird 10:42
Years ago, I heard what happens if all dentists get together and do the same thing. And Greg Stanley years ago said, well, you’ll all get hosed together, meaning you’re all gonna get screwed together. And I kind of, I kind of think that that’s true. And I’ve seen some of my really good friends going with a couple of these groups that are basically charging them arm, an arm and a leg for something that they shouldn’t even be charging for. You know, if in fact, the more dentists you have, the more money comes into the game, then why should you have to pay to be part of that? You know, why, you know, why is that and so, you know, when I, when I look at those things, I just want everyone to understand and to be on the same page that, that this is, this is new for most of us. Most dentists don’t even know what EBITA is. When I sold my practice, we had a great practice, I sold it for over $5 million. So it was great deal. I thought, Wow, that’s a lot of money. If I had done that today, my opportunities could have been very easily in the 15 to 25 million dollar range. Now people say what? Yeah, I mean, that’s what’s happening right now. So we’ve got this five to seven year window, that is, is out there. Does that mean that you have to sell now? No, it doesn’t, it doesn’t mean you have to sell now. Does it mean I have to sell within seven years? No. You can still have a high value fee for service practice, that, that includes the specialties, does everything that you want to do in your practice. You don’t refer anything out and you’re killing it. You have an EBITA of a million a year so, you’re making a profit of a million a year and you can continue to do that for the rest of your life. And never sell your practice. So the pressure, you see another friend, which is why I sold. I had some buddies that have big practice, they sold. And so I said when must be good. Yeah and if there was back during the region, the original time of Obama Care, I didn’t know. Gosh, I had a large office, a lot of team, I was going to have to start providing all these services and benefits for them. And I was scared, and that is being as bad as honest as I can be with you, I was just simply scared. So when we look at this, I just want you to be knowledgeable. We’re going to be having a Investment Grade Practice Workshop on, I believe, the third and fourth of March. So it’s only a month away. And it’s something that man, if you have an interest in finding out what it, what is my practice truly worth. We have no interest in deciding whether you want to sell your practice or not. We want to give you all the information that you need so that you can make the right decision. When other people are telling you, you know, independently, Oh yeah, you’re worth this, you are worth that, and there’s 10 Different groups telling you, you’re worth 10 different things to me, that opens up a lot of skepticism in my book. And again, when I sold, I didn’t even know what my EBITA was. I just thought it was a lot of money And so you can get tricked by the amount, when in fact, you would be leaving hundreds of 1000s if not millions of dollars on the table. So anyway, I’m going to be talking more about this over the next Oh, probably three or four or five podcasts about what PDA is doing and how we’re, how we’re kind of partnering with doctors so that they can get the right information that makes sense. We’re still doing our productivity workshops, we can still grow your production by over $300 an hour, which is 460,000 a year on an average 1600 an hour work work year. And it’s not hard. It’s really not hard to increase almost a half a million dollars is just has to do with communication, scheduling and comprehensive exam. So anyway, that’s all for today and I hope this finds you healthy and I look forward to seeing you in the future. And thanks again for voting for the productive dentist podcast. Thank you for joining me for this Episode of the productive dentists podcast. If you found this episode helpful, make sure you subscribe, pass it along to a friend. Give us a like on iTunes and Spotify or drop me an email at firstname.lastname@example.org don’t forget to check out other podcasts from the Productive Dentist Academy of email@example.com. Join me again next week for another episode of The Productive Dentist Podcast.