An elite exit for your dental practice
An elite exit is a business sale that maximizes value, happens on your terms, and most importantly, without regret. This is a special post because we’re going to focus specifically on dental practices.
The inspiration for this article came from a recent visit to my own dentist. He told me that many of his colleagues have said, “I’m ready to sell, but I was taught to be a dentist and I really don't know how to build the best value in my business.”
I immediately thought of Brett Miller who runs a specialty financial advisory practice for dental professionals called CI Brightworth Dental Division. We sat down to talk about what dentists can do to set up a successful exit. Here are some highlights from our conversation:
How did you get into advising dental professionals?
I had a grandfather who was a dentist, and so while most kids would get dropped off at their grandparents’ house for babysitting, I had the privilege of getting dropped off at mygrandfather’s dental practice. My uncle is also a dentist and so is my older brother.
After graduating from The Citadel, I was planning to go into corporate auditing, and thank goodness I met one of the founders of our firm, Bob Sytz, who said, “I think I’ve got something a little more interesting for you.” Now I get to combine my interest in finance with my love of the dental profession.
Are dentists well prepared for the business side of their careers?
I asked my brother, “How many courses did you have on small business management in dental school?” He just laughed and said, “I think there was a 30-minute lecture once that no one paid attention to.” I help dentists focus on serving their patients, families, and communities, knowing their financial well-being is in good hands.
Where does the exit process begin for dentists?
I think the culture of dentistry makes it tough. It is a very tight fraternity/sorority, and they have a common bond of caring for people and talking about patient experience. But it’s not so comfortable to ask, “Hey, how much is your practice worth? What’s your overhead rate? What was your take-home income?”
The process of setting yourself up for an exit starts by sitting down, ideally with a professional advisor, and looking at things like your assets, the potential future sale or lease of any real estate you own, your other investments, social security and pensions from spouses. You’ve first got to know where you stand before you start having a conversation about what your practice is worth.
What types of buyers are out there?
If you have a child or a family member, or someone you have mentored, those can be transactions where everybody is smiling when that baton is passed successfully. I would say that’s probably a quarter of transactions today.
But now more people are selling to a corporate outfit. That could mean a group of doctors who are buying practices or it could be a dental service organization - some of which are heading towards being public companies.
Some dentists have a philosophical objection to selling to an organization, but sometimes there is an absence of other available buyers. Other times, people are saying, “Hey, I like this opportunity to join a larger organization.”
I have an orthodontist client who sold to a larger group. Now he’s their fill-in orthodontist. He hop-scotches around the country, covering for vacations and maternity leaves and he loves it.
How do corporate buyers value a practice?
They look at every practice through the lens of profitability, which is measured as earnings before interest, taxes, depreciation and amortization, or EBITDA.
You have to be very careful when you calculate your EBITDA. You get to add back all of the legitimate expenses that, as a business owner, you’re running through the business. But then there’s something many people miss: what would it cost to bring in a dentist to produce the same level of dentistry as you? So you have to subtract doctor compensation, which is going to bring that EBITDA back down.
Ten years ago, there were very few of these private equity-type purchasers. I recently heard from a colleague who does M&A for dentists that less than 20% of them are coming into these negotiations with proper representation and it keeps us up at night because - do you think these corporate buyers are offering their best valuation the first go-round?
So how do you find the right deal?
Start by knowing what you need from the sale and manage towards that valuation. Have professional assistance to make sure you’re protecting yourself - financial, legal and M&A advisors who know the process inside and out.
Quick story. I had a client last year whose husband was a corporate executive and they knew they were already financially secure before the sale. Her main stipulation was “I want out, I’m done, my kids are in high school, I want to put down the handpiece and focus on being a mom.”
She got two valuations for her practice. One was from another individual dentist and one was from a corporate group. One was for twice as much as the other. But one buyer said, “I’d like to phase you out in three months,” and the other said, “We require you to be here for three years.” Which one do you think she chose?
She didn't bat an eye about the difference in the valuations, because she knew what she wanted and she understood where she was financially before going into the conversation.
What’s your most important advice for dentists?
First, you’ve got to be aware of the rise of the corporate dental model, and what it means for you. You can’t afford to be ignorant here.
Second, you must know where you stand financially. How can you make the right decision for yourself, your team, your community, and your family otherwise? I think we’re going to see, in three to five years, a wave of regret from people who sold without understanding these first two points.
And third, speaking as a father, husband, son - and the grandson, nephew and brother of dentists - you need to know your values. Know what’s truly important to you so you can build a business plan, a personal plan and a family plan to execute on those values.
I’ll end with a quick story. I was recently speaking with a couple that I’ve known for many years. They are 63 years old and never knew where they stood financially. We went through everything together, and at the end, I took a step back and asked, “What does this knowledge empower you to do?” And the doctor’s wife broke down crying and said, “You’ve given us permission to dream,” and I started crying too, because I’m like, “Why did it take you to age 63 to have permission to dream?"
Regardless of your age or stage, you need to know what’s happening in the industry, where you are financially, and what you care about, so you can make your dreams come true.
ABOUT THE AUTHOR
Mike Quinlan, CExP™
Mike Quinlan, CExP™, Partner and Practice Area Leader, leads the CI Brightworth Business Owner Services Practice. Mike has over 35 years of business and military experience and specializes in helping business owners achieve an ELITE exit from their business. He brings unique experience to CIPW and utilizes an educational and consulting approach with clients to maximize exit value, on the owner’s terms and without regret. Mike hosts the popular and highly rated Business Owner Transition podcast which can be heard on all major podcast outlets.
Brett Miller, CPA, CFP
Brett is Practice Area Leader of the Dental Specialty and Wealth Advisor at McGill Advisors. Brett graduated from The Citadel with a degree in Business Administration (Accounting Concentration). Brett obtained his Certified Public Accountant certificate in 2008 and became a CERTIFIED FINANCIAL PLANNER™ professional in 2010. He is a member of the American Institute of Certified Public Accountants and the North Carolina Association of Certified Public Accountants.
Brett is a native of Gastonia, NC. He and his wife, Sarah, have two children and live in Mint Hill. Outside of work, Brett enjoys running, golfing, and is actively involved in his church and local Citadel alumni club.
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