As our profession rebounds from the Pandemic, we should be thankful that most patients have returned to visit their dentist especially in 2021.
According to the American Dental Association’s (ADA) Health Policy Institute monthly member survey, it was reported that as of August 16, 2021, patient volume was at 89% of pre-COVID-19 levels. On the economic front, general practitioners’ income was down 17.9% in 2020 versus 2019. Specialist income, however, fared better with only a 6.9% reduction in 2020 from 2019 levels. From our current observations, many practices are having a very strong performance in 2021 so a “catch up” in income levels is not unrealistic. During the ADA Health Policy Institute surveys in mid-2020, many doctors over the age of 65 stated that they would seriously consider retiring or selling their practice in 2021 if their 2020 numbers were not that of 2019. However, this did not materialize in 2021 nearly at the level that was originally predicted. Perhaps many of these doctors evidenced a strong rebound and decided to remain in practice for the time being. However, for those of you who experienced a strong rebound, you may have done yourself a favor by increasing your practice’s value, and this may be the stimulus for you to implement your exit strategy in 2022.
The most important factor which will impact your practice’s value is its location.
Practice values continue to remain at record levels nationwide. In many urban and suburban areas which are considered highly desirable for most purchasers, practice valuation sales ratios range for general practices. Varying between 70 to 85% of last year’s gross receipts. In some highly desirable markets, those ratios may be even higher! For specialty practices, valuation ratios range typically between 65 to 80% of last year’s gross receipts and again are highly dependent on the practice’s location.
For those doctors who are solo practitioners some words of caution are appropriate. There has been a growing trend of recent grads to desire to practice in a group practice setting. In support of this trend is data that was collected by the ADA’s Health Policy Institute reporting that only one in five dentists under the age of 35 were interested in being solo practitioners. So, with about 50% of dentists still being classified as solo practitioners this trend may have an impact on your transition planning as the supply of potential purchasers is definitely limited, So the bottom line is that some may not be able to find a candidate to purchase their dental practice. An alternate option to consider is selling your patient list to a practice in your area that would like to grow its patient base but isn’t interested in practicing at your location.
Another major contributor to high practice values is the continual growth of DSOs and private equity firms who oftentimes will pay a premium to purchase a practice in a desirable market.
You may be surprised to find that although you may get a sale price well in excess of 100% of last year’s gross receipts, there may be terms as well as conditions that you must meet in order to get your full sale price. The bottom line is that you will usually not have a full cash offer at closing. It may take you a few years to realize the financial results.
On the dental lending front, interest rates still and may remain low at least for a good portion of 2022. Recent data from the American Dental Education Association in 2020 reported that the average debt per graduation senior was $304,824, with 17% of that class reporting no debt at all! Yet these new doctors can still qualify for financing of practice acquisition loans. Dental school graduates have a great reputation for timely repayment and of their student loans. A satisfactory FICO score must be maintained by the loan applicant and this is extremely important.
Partnerships and practice mergers are also becoming more commonplace as or our profession trends toward a multiple doctor practice environment. For well-established doctors, recruiting qualified candidates today and locking them into a future transition plan has also become more commonplace. Thus, we see a growing number of dentists considering a shorter partnership buy-in (five years) and then completing their transition with a buyout to retirement.
Multiple office ownership continues to increase. It is not just the continued growth of the Dental Support Organizations (DSO) impacting the dental profession, but also a big increase in the number of younger private practitioners desiring to own more than one practice, with the goal of selling their network to a larger DSO sometime in the future. A truly entrepreneurial strategy!
In summary, it’s hard to be totally “on target” with any predictions. Remember that sound financial and transition planning, coupled with good practice fiscal management, are key ingredients to your success whether you have short-term or long-term transition plans.