MORR Perspectives

The middle market group practice space is by far the fastest growing segment in the dental industry and relies heavily on strong financial backing to maintain its growth.  But what happens if the money runs out? Prior to the New Year, East West Bank and Opus Bank exited the dental industry, leaving an unknown number of dental organizations with overwhelming debt and a weakened financial structure. While not every middle market group dental practice or DSO depended on these institutions, it’s important to understand the implications of the move.

Tracking your dental practice’s performance isn’t always easy with the amount of data you could be collecting—which means that identifying the performance indicators that are most important to your practice is essential. An obvious indicator, of course, is cash flow. Are you in the red or the black and by how much? However, while profit is often a clear marker of your current performance, it isn’t always a sure fire way to determine how your practice will fair down the road, particularly if you’re interested in selling in the near future.

Imagine this scenario: You have spent years, or possibly decades, growing your dental practice’s health, but as you approach retirement, your value isn’t what you thought it was.

Selling a dental practice is no walk in the park, especially for first-timers. There are several factors to consider ahead of time and more than a few balls in the air at once when the process begins. Not only that, there is a significant learning curve when it comes to group practice buying terminology and strategies. If you’re interested in selling your dental practice, take some time to brush up on the vocabulary you’re likely to run into during the process. We’ve compiled just a few to get you started.

Not all dental professionals are created equal -- especially when it comes to value. Most general practitioners subscribe to the same primary value contributors -- revenue, infrastructure, and patients -- but there is one major difference for specialists: referrals.

Accurately valuing a dental practice requires a thorough expert analysis of several factors, including revenue, infrastructure, and profitability. However, there is one underlying aspect of value that is often overlooked: Marketing.

There are more than 4,000 private equity firms in the U.S. alone, according to the American Investment Council. That’s almost a 50% increase over the last three years! With the extreme rate of growth in the investment industry, more private equity firms are aggressively targeting potential acquisitions or promising investments. As discussed at this year’s ADSO Summit, investment firms are increasingly interested in dental practices due to dentistry’s seemingly recession-proof revenue stream. Partnering with a private equity firm can be an exciting opportunity to foster growth for your dental practice, but be sure you know what to expect before signing on the dotted line.

The good news: Every dental practice—good, bad, or ugly— has inherent value. The bad news: The value of your practice might be impacted by key factors which you might be neglecting. Although there is no simple equation to determine how much a dental practice is worth, there are a few essential areas that can make or break your practice’s value.

Today’s dental practice is no longer just an office and a chair. Although the clinical side is clearly a central part of the industry, a successful practice requires significant focus on management  — making the business side of every dental practice more critical than in the past. As new and existing practices experience the pressure to increase revenue and stability, more solo practices are turning to Dental Support Organizations (DSOs) for essential business management assistance.

Whether you’re buying dental practice or putting one up for sale, the transition can be difficult, and navigating the maze of taxes and finances is quickly overwhelming. But no one said you had to go it alone. Why not enlist a team of experts to help you confidently manage the process?