The pandemic has proven once again that dentistry is still (mostly) recession-proof. What does that mean if you’re thinking about buying or selling a practice?
DENTISTS DIDN’T immediately feel the financial effects of the 2008 recession, but once they took hold, elective procedures plummeted in practices nationwide, and the eventual recovery was slow and painful. Contrast that with the Covid-19 crisis, during which practice doors were slammed shut with little warning, yet the recovery was brisk. Both events shook dentistry to its core, for a time, but both also ended with reassurance that our industry will always bounce back.
I had a ringside seat for both crises. As a practice owner during the Great Recession, I struggled alongside my fellow doctors. Now, as a transitions mentor and coach, I’ve helped dozens of doctors navigate the relatively short-lived but real uncertainty of a pandemic-battered world. If I’ve learned anything, it’s that you can’t control the earth-shattering events, but dentistry is better poised than most sectors to weather those anyway. What you should focus on instead are decisions like when to get in and when to get out.
If you own a large practice, the world was your oyster before the pandemic, and it remains so today. With DSOs on a feeding frenzy, your valuation is probably higher than ever. That’s because in their early days, DSOs pursued growth only as a means to an IPO. Today, they’re in it for the long haul and focused on driving operating efficiency to maximize earnings.
However, if you own a smaller practice, the situation is different. The average age of today’s practice owner is around 58. It’s time to start seriously thinking about getting the equity out of your practice, regardless of whether you plan to retire. The challenge is, only about 30 percent of doctors under age 35 view practice ownership as a goal. Not only has your valuation likely gone down amid the pandemic, but you’re also facing an unfavorable supply-and-demand situation.
It might sound like the perfect time to take a cautious, wait-and-see approach to buying or selling, but it’s not. You never know what the future holds. Over the past year and a half, I’ve seen several dentists whose ability to practice was affected by contracting Covid-19, and who wished they had acted prior to the pandemic. The hard but simple truth is there’s rarely a perfect time to do anything, so if you’ve been thinking about buying or selling, do it—just be smart about it and reach out for help if you need it.
If you’re an older practice owner, pull that capital out of your practice. I’ve helped dozens of doctors make some short-term fixes to maximize their valuations, and I’ve helped just as many structure sales agreements that enable them to continue treating patients and participating in the financial success of the practice. As dentistry continues to recover, it may be OK to accept a lower lump sum than you want, provided you can continue earning over a period of years after the sale.
Are you one of those under-35 doctors uninterested in practice ownership? Rethink that. Even today, you’re more likely to pay off your student loans early as an owner than an employee. With so many smaller practices for sale, you have a lot to choose from—and they all potentially come with the selling doctor’s financial stake in your success as a condition of the sale. If all this sounds like a win-win for older practice sellers and younger buyers who manage to connect, it is.
So stop worrying about dentistry’s health as a profession. We’ve all done our share of that since Covid-19 emerged. Instead, take some time to think—or rethink—where you are and where you want to be. There are some unique opportunities out there, especially for older practice owners and younger buyers who are wise enough to understand that opportunities don’t have to be perfect to be great.
JAMES M. CLARK, DMD has filled many roles in clinical dentistry for more than 30 years. Now the head of Practice Transitions at Benco Dental,
he can be reached at email@example.com.