Understanding Dental Practice Sellers: Maximize Your Retirement & Growth

“Some dentists have never counted on the sale of their practice as part of their retirement plan, but unfortunately many have” ~Dr. Bruce B. Baird

In this amazing episode of The Productive Dentist Podcast, Dr. Bruce B. Baird covers a crucial topic for any dentist who’s contemplating the future of their practice: understanding the different types of practice sellers. He breaks down the three main types of sellers: the retiring dentist, the dentist looking to take some money off the table, and the entrepreneurial dentist aiming for growth and long-term value.

Dr. Baird shares insights on how to maximize the value of your practice, whether you’re ready to retire and walk away, looking to sell to a Dental Service Organization (DSO), or seeking a deal with high upside potential. He talks about the importance of planning your transition early, understanding the nuances of different sale structures, and navigating potential pitfalls. 

As you listen to this episode, we invite you to think about the following questions:

• Am I looking to retire soon, take some money off the table while continuing to work, or do I want to stay involved and maximize long-term growth potential?
• How early should I start planning my practice transition?
• What type of deal structure aligns with my goals and motivation?

EPISODE TRANSCRIPT

Dr. Bruce Baird: Hi, I’m Dr. Bruce Baird with the Productive Dentist Podcast and tonight, um, what I’d like to talk about is the different kinds of sellers that are out there and ready to sell their practice or thing. think they’re ready to sell their practice and after being at Dykema last week, gosh, there were all different types of people there. There’s all different types of groups that are trying to buy your business and buy your practice but basically what, what I came to the conclusion of is there’s really three types, uh, of sellers. There is one, which is kind of what you would think, a dentist is ready to retire and he wants to sell his practice and, and go on his merry way, uh, leave the practice as soon as possible and, and, and, you know, and live his life and he’s looking for a buyer. DSOs, um, really, you know, if you’re looking for value of your practice and the value of your business, you’re probably going to get the least amount of value. When you decide at the last minute or that now I’m ready to sell and I want to walk away. Now some dentists have never counted on the sale of their practice as part of their retirement plan but unfortunately many have so when we start talking about transitioning, when do you transition? I would say you begin the thought process of transitioning way early or early in your career maybe in your late thirties, uh, maybe in your mid thirties, you start thinking about this transition. How, what am I looking for? If you start investing early, you may decide that I don’t need my dental practice. Uh, back in the day, uh, back in the fifties, sixties, people didn’t sell their practices to dentists. They just took the shingle down and referred everybody down to their buddy down the street. That was how it went back 50 years ago, 60 years ago and then people started realizing when they got out of dental school that they could buy another dentist practice brokers began showing up and that’s when that, that’s that’s kind of how that started and even 20 years ago, uh, the, the price of a practice would be anywhere from 55, 60 to 80 percent of your previous year’s collections.

Dr. Bruce Baird: Now, If you were going to go in and buy a practice and you were a solo dentist that wanted to practice in this town, you wanted to buy my business and you wanted me to leave, that’s where you’re going to get the most value for your business if you’re a walkaway dentist. So there’s that walkaway dentist wants to go down the street and new dentist wants to come in. That’s great, uh, but you’re really costing yourself as far as value, but maybe that doesn’t matter to you. The next that we see really commonly is, you know, the thought process that I want to sell to a DSO. I want to take some money off the table. You’ll hear this all the time. Uh, when you listen to podcasts and you listen to, to, uh, seminars and stuff online is that it’s time to take some money off the table and what ends up happening is, um, let’s say, and it’s always about the deal. It’s not just, “Oh, I’m going to sell, uh, at a, at a, and I’ve talked about this before at a five X multiple or a seven X multiple or a nine X multiple.” Which one’s best? Well, you would think it would be a nine X, not necessarily. It depends on how much you’re going to get in cash. Um, they may dangle in front of you that, oh, we’re going to have a capital event soon. There’s going to be, you know other opportunities for you to make more money as we transition the entire group in the future. Um, I had told you before when I sold to Heartland many years ago the stock price was very low. I had stock in the company and I made a lot of money on the stock so as it grew but these dentists who want to take money off the table many times let’s just say they gave you a hundred percent all cash upfront deal. Well, that’s a good deal if you’re really ready to work five years for a company because most, most DSOs are going to require you to work for them for five years and you’re going to walk away, not walk away, you’re going to continue to work for those five years and more than likely your foot’s going to come off the gas pedal a little bit.

Dr. Victoria Peterson: Oh my. Goodness, am I really here with the Dr. Aaron Roman? Hi, Eric. How are you?

Dr. Eric Roman: Hey, Victoria, it is so great to be here with you and my oh my, we got some exciting stuff to talk about, don’t we?

Dr. Victoria Peterson: Yeah, we do. Hey guys, we thought we would take a minute just to bring you behind the scenes. We are vigorously planning for the 20th Anniversary Productivity Workshop in September in Frisco and Eric is going to take the stage as part of our clinical calibration course for young doctors. Eric, tell us about the course that you’re doing here at our program.

Dr. Eric Roman: Victoria, what we’re talking about is how young doctors and honestly, doctors at any stage of their development can calibrate their life to their professional career calibrating your life in your career, because one of the challenges I’ve, I’ve had the joy over my journey, by the way, Victoria, I don’t know that a lot of people know, I actually attended the PDA workshop before I started practicing dentistry. Like I was still in residency at the time and so my entire life has been productive.

Dr. Victoria Peterson: You couldn’t even grow a beard back then.

Dr. Eric Roman: Couldn’t even grow it. No, I might’ve had like two little blonde facial hairs, how times have changed, right? And so, um, you know, it had such a massive impact on me throughout my career in PDA. So what a really cool fitting way to hopefully channel some of that, some of that incredible career opportunity to the, uh, to the audience and the attendees. One of the things that I’ve found in coaching, um, and hiring well more than triple digits of, uh, of associates and teaching clinical directors, We’ve got a really hard space inside of our profession right now with the plight of the employed dentist, the dental associate and we have extraordinarily high turnover. We have ridiculously poor data and what that really means is that our, our young doctors aren’t getting what they wanted out of their career and the second thing that I discovered is that financial success does not translate into people getting what they want out of their lives and if we can’t connect our financial success and our performance in doing good while we’re doing good in our practices, to getting what we want out of our incredible lives, my Victoria, like why are we doing this in the first place? So I’m going to give all the attendees some really tactical strategies to be able to take back and put into their lives ASAP so that they’re going to get what they want out of their dental career.

Dr. Victoria Peterson: Oh man, I love that so much. Uh, well, thank you so much for being a part of it in September. This whole program, the first of its kind in the nation because it’s coming from PDA and we’ve never done this before, but it is a program specific to associate doctors. So if you’re an owner and you’re contemplating, uh, um, hiring an associate, or you’ve just hired an associate, your associate is stuck in their productivity at two, three, 400, 500 an hour, you know, something like 3000 a day. We can boost that. We can accelerate that and quickly get your associates up to speed where they’re producing like an owner but more importantly, they’ve got life balance and they’re grounded in their happiness in their career. Dr. David Porritt talks about that a lot. His research study and his Doctorate degree, uh, the value creation for doctors, and it really is about values alignment between the work I love and the life I’m building and so, Eric, there is no one better in our industry, whether you’re young or young at heart, that couldn’t benefit from your one life system and making sure that your life path is aligned with your career path. So thank you very much for joining us.

Dr. Eric Roman: Thank you, Victoria. I’m excited to see you and the team in September and can’t wait to see who all is going to be joining us there. It’s going to be an event that you don’t want to miss. So here’s your chance. Sign your butt up and get out there. We’ll see you in Texas.

Dr. Bruce Baird: That’s where a majority of the DSOs are out there. Some DSOs will have what’s called a clawback. The clawback means if you don’t continue to produce or increase your production by X amount, then we’re going to take away, you know, you’ve already been paid, but there are going to be penalties that you’re going to have to pay. People say never have a clawback, never ever have a clawback. Well, that’s not necessarily true, but let’s just say you’re somebody who got 100 percent cash up front, man what is your motivation to continue to work for that next five years? It may be exactly what you wanted, but let me tell you the value that you’re going to get for that practice while it’s more than the dentist who wants to walk away. No question it’s more than that, but is it the best deal you can do, you know, that really depends. So if you’re in that situation and it’s human nature that they give you good grief, they give you a 6x of your EBITDA, you’ve got a million dollars in EBITDA, and they give you, uh, six million dollars cash upfront. Well, you know, your, your motivation to continue to, to grind on teeth and everything else kind of goes down and that’s really why. A lot of the DSOs are out there that are really having difficulties. They’re having difficulties, uh, in same-store sales growth year over year. Many of them are averaging negative growth year over year. Some are two, three, five percent is probably, I’d say five percent is good in the industry. So you look at that and you say, “Okay, I don’t have any stock in the company. I don’t really care what the company does. You know, I just wanted to take money off the top. I got a hundred percent payment.” This is the deal.

Dr. Bruce Baird: What if it was 50 percent you got paid? Is that a better deal than getting 100%? It’s your individual choice. It’s what you have to decide what’s best for you. If you do that, are you going to get a little higher multiple? Yeah, you might get a higher multiple. You might get, uh, you know, say, say you got a 6x on, on a million dollars in EBITDA. Let’s say now you’re going to do 50%. They’re going to pay you cash and they’re going to give you some stock in the company and now are you going to take your foot off the pedal? Well, I don’t know. You might still take your foot five, you know, if it’s a million dollars and you got 50%, you got to check for 3 million and you’re thinking yourself, “Man, that’s more money than I ever thought I’d have in my life,” and human nature pedal comes back, you know, you’re not pushing quite as hard, or maybe you are. Maybe you are. What if it’s a deal where it’s 20%? Well, you know, if you’re wanting to take some cash off the table, that’s great. Maybe you don’t need a lot of cash right now. Maybe you’re looking at the upside because that third type seller is the one who wants to take some money off the table and keep their foot on the accelerator. That’s the entrepreneurial dentist. So you basically have these three dentists. You have the dentist who wants to retire. You have the dentist who wants to take some money off and rest, you know, take more time off, spend more time traveling, doing all those things and then there’s the dentist who says, I want to take some money off the table, but I want an upside potential that is huge. Well, that’s it. That’s out there also. You could, you can get an offer from a dentist and let’s just say it’s only going to be 20 percent down cash up front and the rest is going to be in company stock or in what’s called a sub-DSO or a combination of both.

Regan Robertson: Doctor, are you living the dream or just dreaming of living? It is my honor to announce the PDA 20th Anniversary Special Conference this September 12th to the 14th in Frisco, Texas, the nation’s leading course on dental practice growth. If you feel isolated as a leader who is frustrated that your schedule is unproductive, maybe your team is disjointed or your systems are inefficient, this is the conference for you. The PDA 20th anniversary conference has all new features, including keynote speaker Emmett Smith, who is a pro football Hall of Fame running back and entrepreneur. I’ll see you there. You can choose your own educational track to customize your learning experience and when you register before July 1st, you will receive a 90-minute pre-meeting session that can help you boost and increase your productivity before you even attend the conference. Go to www.productivedentist.com and click the pop-up or select Productive Dentist Academy Conference under the Dental CE and Events tab. That’s www.productivedentist.com. Seating is limited. Register today and we look forward to helping you make your dreams become reality.

Dr. Bruce Baird: Is that a good deal? Well, it depends. It depends if, you know, when we talked about clawbacks, would you want to have a clawback in that situation? Would you want to have, because here’s what happened. You’re going to get 50 dentists all coming together with this DSO, or 80, or 40, or 100, or whatever and their plan is is to have a capital event, meaning have a growing business that another private equity group wants to buy at a, at a multiple, at a higher multiple and that is that when, when the thought process happens, you take 20 percent down. Do we want to claw back in there? Well, if I’ve got 50 partners, what I do not want is 20 of them to take their foot off the accelerator. So I want If I’m going that route where I’m looking for growth and multiple opportunities for private equity in the future, multiple capital events, that’s going to be a deal which was just a little bit lower cash upfront where everybody’s still working. You’re, you, you still own, let’s just say it’s a 60, 40 deal. You still own 40 percent of your business. That is a joint venture. Uh, and so you may decide, “Hey, I want to have a bunch of partners that all have their foot on the gas, and guess what, we’re growing 15 percent year over year.” Now, do you think private equity is going to be interested in a DSO that’s growing 15 percent year over year? You bet they are, are they going to pay a premium for it? You bet they will. So, in, in thinking about the opportunities that are out there, you really need to understand where you sit in the deal. What you really want out of the deal and what does the future look like. Many of these companies that are in negative growth? Yeah, they’re not gonna have a capital event and you’ll hear people you’ll hear people like David Phelps and his group, great group, and I’ve known David for four years Saying you really don’t want You know, you really can’t count. Take the cash upfront because you really can’t count on it at the back end.

Dr. Bruce Baird: Well, you can’t count on it on the back end if all the dentists in the group have taken money off the table and have just taken their foot off the gas a little bit. It’s just not going to happen. You won’t. It’ll be more difficult to have capital events. If you’re in a group where all the docs look at themselves as partners in a group, as partners in a business that we want to grow. Then, hey, you’ve got opportunity for multiple capital events down the road. The other thing is, it may not be as much cash up front, but the opportunity at the very end is huge. It’s much, much different and so, It’s just bringing this together, and that’s where you want to claw back. You know, I was in a business with 12 partners back in 1995. We were lecturing all over Canada. We had education centers all over the U. S. and bottom line is, five of us worked our ass off and we had successful education centers. The seven other partners didn’t do a damn thing. This was right before the, the dot com bubble and people thought if I just invested a couple hundred thousand dollars, that that would immediately turn into 10 times that amount in a short period of time, but they forgot to do the work and so the whole business went under. So I want to make sure that the partners that are in my group, that is going to go down the road for a capital event one, a capital event two, a capital event three in the future, I want us all to be on the same page. I want us to say, I want to work another 10 years. I’m going to keep my foot to the pedal. I’m going to continue to own 40%. I might, that may go to 20 percent at some point. Might go to 10%, but that is a growing entity and that’s where the money is seriously made in this, uh, new, consolidation of dentistry. I’m going to do some more podcasts about this, but please send me some questions, at bruce@productivedentist.com. I get these questions all the time, and this is just happens to be one of many that I get, but please, if you have a question, send it to me, at bruce@productivedentist.com. Thanks again for voting us number one podcast in dentistry this past year and I look forward to our next podcast.