Author: marketing

Letter to Editor, Ontario Dentist, May 2002

Date Posted: 2002/05/03

The following are letters to the editor of Ontario Dentist, published May 2002.

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“As a recently retired dentist who went through a short transition period, I wish to express my thanks to the Journal for publishing the excellent articles by Timothy A. Brown on practice valuations, transitions, etc.

I feel that the articles are particularly appropriate to my own experience, where I worked for three months part-time during the transition period. Patients like the new dentist and the practice seems to be continuing smoothly.

It seems, after all, the retiring dentist was well liked by patients but is now “dispensable””

Ralph S. Grose, DDS, Toronto

“How much feedback do you receive from members who read the Journal? Do you know which topics are of interest to your members?

Every month when I receive Ontario Dentist, I browse through the issue rather quickly, only stopping to read the column heading and title of the article to see if anything sparks my interest. It’s rare if I actually read more than two articles from start to finish in any given issue but I must say that it’s the “Practice Management” column by Timothy A. Brown that keeps bringing me back. I find his topic and discussion of the subject matter extremely interesting and practical. He definitely understands how to reach his audience through the relevance of his articles to myself and many of my colleagues.

Please commend him on his wealth of knowledge and thank him for sharing it with the rest of us. I have always enjoyed reading Tim’s column and I look forward to learning more from his future articles. ”

Miyen Kwek, DDS, Kitchener

Are There Too Many Dentists In Your Area?

Date Posted: 2001/12/01

The answer to this question, when we ask our Greater Toronto Area clients is “Absolutely!”

When the same question is posed to our clients in areas outside of the GTA, the answer is a resounding No, but don’t let the secret out. We love it out here and want to keep it that way.

I predict that the oversupply of dentists in the GTA will not last much longer. Within five to 10 years, according to our dentist/population statistics, there will be a significant drop in the number of equivalent full-time dentists serving the GTA population. For those of you serving the rural areas; don’t worry, your regions are very unlikely to attract a large influx of new dentists and you will continue to own the busiest dental practice in the entire province.

Some statistics that will support this theory are as follows:

1. There are over 2,000 dentists in Ontario over 50 years of age, according to the 2001 RCDSO listing. There are over 1,200 who are 55 years of age or older. That equates to roughly 150-200 retiring dentists per year over the next 10-15 years, assuming that the average age of the selling dentist is 60. This does not include death and disability rates, which will increase the number of dentists exiting the profession to an even higher rate per year.

2. Baby Boomer dentists (those being about 35 to 55 years of age today) are likely to exit the profession at much younger ages than their predecessors (witness Freedom 55, for example). Therefore, the number of dentists transiting out of dentistry in Ontario will increase to 200-250 per year within five to 10 years.

3. If other trends affecting a dentists ability to leave ownership are factored into the equation, such as inheritances and the changing regulatory landscape, the statistics indicate that a dental manpower shortage ÷ versus today’s regional manpower surplus ÷ is looming in Ontario. Linda Samek, ODA Director of Professional Affairs, and then-ODA Research/Policy Analyst Suzanne Lipson discussed this topic in “Human Resource Issues: A Comparison By Region” in the June 1999 issue of Ontario Dentist.

These trends can be further evidenced when we analyze the profile of today’s dental graduates. First, consider the large number of female dentists that have entered the profession over the past 15 years. They now represent more than half of most graduating classes, and the ratio continues to rise each year. When a female dentists behavior pattern is compared to that of a males, the female graduate is more likely to stay in or around a major urban centre. This is due to their unique social, family and cultural interests. It may also be the largest single factor that has contributed to the oversupply of dentists in greater metropolitan areas over the past years.

Add to this fact another developing trend that indicates female dentists simply do not stay in full-time practice as long as male dentists, because they more often than not perform the bulk of homemaking and child-rearing duties. Brokers have represented dozens of female dentists in the past and their average age when selling is well below 50.

Overall, these converging trends will result in a reduced number of full-time dentists treating patients, which also leads to a positive trend in the ratio of patients per full-time dentist. In other words, there will be more patients per dentist in the future, thus increasing the income level for each dentist, yet at the same time, possibly reducing the fair market value of practices.

Who will replace the dentists exiting out of practice over the next 10 years? How many new entries are there into the profession from Canadian dental schools and other countries? As some of you may know the NDEB has recently changed its examining criteria, meaning there are a limited number of spaces available through only a few programs.

However, the market as I have described it does not constitute a crisis, particularly in the GTA. The wheels are not about to fall off, so don’t be too concerned just yet. This process will take time. The beginning of this cycle of retiring Baby Boomer dentists will not begin to develop until 2002. After that, I predict the volume of retiring dentists will grow substantially each year. The resulting ratio of retiring versus graduating dentists will be most evident in 2010, when I predict that two dentists will retire for every one entering the profession.

At that time, it may become obvious that the graduation rates for the years 2002 to 2009 were too low to support the need for new dentists. The shortage of dentists is already an issue for practitioners in the remote or northern Ontario regions. It takes six to eight years to produce a dentist and I suggest that Canadian dental schools may wish to consider increasing enrollment now rather than later. Failing such a remedy, alternative forms of manpower may seek to supply the Canadian public with treatments. There are numerous predictions that hygienists may become truly independent, thus offering their services directly to the public. If there are too few dentists able to manage the ever-increasing population demand for dental services, this may become an issue sooner than dentists think.

After a lengthy analysis of these issues, a series of calculations were made that allowed us to make predictions about the future of dental practice values. The conclusions are very relevant to dentists who are beyond 50 years of age today, as they are entering their late career years of dental practice.

There will be an unprecedented number of dentists leaving full-time practice between 2002 and 2012, inclusive. This means there will be a surge in the volume of practices put on the market for sale. Assuming that the fundamental economic reality of supply and demand will follow, practice values will go down. You can bank on it!

It may seem bizarre to you for a broker to make these types of claims, and we are likely to suffer from this as much as our clients. Assuming selling prices decline, so will transaction fees for commissioned brokers. However, if we are going to offer advice, as is the intent of this column, I take it as my duty to inform you of our vision.

In conclusion – and as I have said many times before – selling is much more of a personal choice than an economic one. Follow your natural career path, regardless of the ups and downs of the dental practice marketplace. You may be happier that way, and in the long run, would your practice not be more valuable to you than to someone else?

Observation of the Market – Part 2

Date Posted: 2001/10/05

We are always amazed at the number of truly unique situations that arise during the sale of dental practices. We are involved in such transactions across Canada, and the regional differences can be quite fascinating. As in my first instalment on this issue (Ontario Dentist, April 2001) I want to share with you some observations and submit a few pointers in the hope you can learn from the success stories of your colleagues from all regions of the nation. Some manners of effecting a proper transition are unique to local customs and attitudes, but these simple tips may assist you in the event you buy or sell a dental practice.

Letters of introduction

Most owners will prepare and sign a letter that introduces the new owner to the patients. In a recent transaction, our client stated that he made personal, hand-written notes on about half of the letters. These were private comments to his longest-standing patients; a very nice touch in my opinion. What surprised me was that his staff then asked if they could make notes on the other letters, as they were of the opinion it would be good for the practice and the new owner. So they in turn made personal notes on the remaining letters. On some letters, all the staff made a note, on others, just the receptionist, assistant or hygienist made one, depending upon whom they thought knew the patient best.

This is an excellent idea, and one that I wish I had thought of before. What a wonderful way to show the patients that all the team members of the practice care. It may not be appropriate in all cases, but I recommend that my clients now consider this very personal touch when selling a practice.

The purchaser often asks if they should sign the same letters, and here my advice is that they should not do so. Allow the departing dentist to have his or her last say, then you the purchaser can send as many letters or newsletters as you wish in the future; another item I recommend.

Open houses

Purchasers often ask if they should hold an open house after the closing of the sale. My answer is yes, absolutely. What a fantastic way to meet and greet the patients in a non-clinical fashion. If possible, the previous owner should be there, giving him the opportunity to make some final goodbyes, receive any “Thank You” cards and to personally introduce the new dentist. All the staff and their spouses should be there. Make it a wine and cheese event if you like, and allow people to visit over a period of time, not all at once, such as between 4 and 8 p.m. on a weekday.

If the new owner has invested in any new technologies such as intraoral cameras or computer imaging systems, this is the perfect time to show them off. As well, many dentists I have spoken with are now taking continuing education courses, and an open house would allow you to share your new knowledge with patients. Any time you can educate them about a new procedure in a non-threatening or clinical fashion, you stand a better chance of having those individuals understand and retain the information.

Photographs

In some transactions, such as those precipitated by the sudden disability of a practice owner, that person is often not available to attend the practice ever again. One dentist, who had to act very quickly to purchase a practice, immediately arranged for a professional photograph to be taken of him and the selling dentist, standing together, shaking hands in the office. It was a very good quality photo and the purchaser then used it as a powerful communication tool.

Firstly, and with the past owner’s approval, he had the photo transposed onto every copy of the letter of introduction that the owner was able to sign, and then sent it to all the patients. This demonstrated both that the dentists were at least familiar with each other, and that the past owner had some time to prepare his successor for the practice. The purchaser also had a large colour copy of the photo framed and signed by the past owner, and hung it in the reception room. In some small way, I believe this approach may reinforce the patient’s perception that their dentist of many years is still watching over the new owner. And finally, the photo was also inserted into the first newsletter sent out by the purchaser, which further cemented the memory of their former dentist into the patient’s mind.

Not everyone may choose to go to this much effort, but it worked very well in this instance. The purchaser’s endeavours may have added to the patients trust of their new dentist, as they clearly showed great respect for the late practitioner.

A note of caution: the disability or passing of a dentist is a very sensitive issue. Please be careful when combining death and disability of a dentist with your communications. It can be upsetting to some patients, as they may perceive your honest efforts as being an exploitation of their previous dentist’s tragedy.

Staff meeting with new owner

A purchaser called me earlier this summer to say he had just spent some time with the staff to plan the schedule and other details for the period after the closing date. He went on to say that they met at the selling dentist’s house for a barbeque and that they all spent the afternoon together. This transaction had not even closed and they were carrying on like friends even before the first day of working together. As a result, these people began their relationship acting like a team from Day One.

The new owner called me one week after closing to say that his first week in the practice was “Incredible!” The selling dentist was not working any longer, and his efforts to arrange the barbeque, and then allow the staff and new owner to simulate working together prior to the actual closing date, added to the success they were – and still are – experiencing.

These little touches can mean so much to staff, and in turn, they may show their appreciation by fully endorsing the new owner to the patients.

Over-the-shoulder

Many clients we represent are suffering from some type of chronic pain or disability, which sometimes forces them to cease practising before their planned retirement age. In such cases, we see their disappointment as they are committing to the final terms, and they often ask how they can help the purchaser, even though they can no longer treat patients.

One of our clients in this situation recently offered the purchaser an association with him, for absolutely no money. He simply wanted to help the individual meet the patients and become acquainted with the practice. He stated that he would be available as needed, for one or two days each week, and expected nothing in return but a thank you. I also think he was able to make himself available because he had not made any retirement plans, as he had not intended to stop practising so soon.

Conclusion

In my position, I sometimes hear stories about a dentist who bought a practice and, subsequently, had many of the patients leave. Our surveys indicate that, on average, 85 to 95 per cent of patients will remain with the new owner in a properly planned transition. I am puzzled as to what could have happened in the instances when dramatic patient loss is reported. Perhaps it is simply a matter of the differences in the dentist’s personalities, in which case retaining a patient – or not – may well be out of your hands.

These tips are intended to assist with the intricacies of a transition between dentists, regardless of whether or not a professional practice broker is used to guide the process. Perhaps my observations will assist you someday. I encourage you to share a unique situation with me, and if you do, I’ll try to include it in a future column. Please respond to me either by the phone number below, by fax at (905) 820-4705, or via email at roi@roicorp.com. I am certain there are many more individual methods of effecting a transition that I have yet to discover.

Ontario Dentist – October 2001

What are the Ideal Hours of Operation?

Date Posted: 2001/09/14

In the normal course of selling a practice, one of the most frequent questions we receive is “What hours and days is the practice open?” The hours of operation have also become one of the key factors in attracting a compatible purchaser for a practice. There are many philosophies about what hours are best for a practice. This article is intended to explain the opinion of todayâs purchasers.

It is customary to work evenings and weekends when working as an associate. When considering the purchase of a practice, purchasers frequently say they hope to eliminate the need to work these hours. They often remark how they have ãpaid their duesä in extra hours and hope to be able to commence a more regular schedule and broaden their lifestyle options.

We appraise practices located in every imaginable type of location – including retail – and recognize that evenings and weekends are required in some instances. Retail malls often demand the practice open during mall hours (typically 9 a.m. to 9 p.m.) and this is included in many leases. However, the dentists who are buying practices today donât seem as interested in this type of schedule as in the past.

Why is this? I believe there are a few reasons. Firstly, there is a growing trend in our society towards less work and more play. This is likely due to the new Generation-X philosophy that says young dentists (under 30) have different attitudes about when and how much they should work in practice. They donât lack the work ethic; they just want to work more traditional hours and enjoy a more active lifestyle.

Secondly, our estimates forecast that in the next three to five years, between 60 and 70 per cent of graduates from Canadian dental schools will be female. As they enter the child-bearing years of todayâs generation (roughly between 28 and 38 years old) they wish to own a practice that provides for the opportunity to raise a family, and work part-time while doing so. If you project the predominance of females in dental practice over the next 10 years, it is likely that the average weekly hours worked will decline. I estimate the average work week for a dentist could decline to as little as 20 to 24 hours per week, when calculated on an annual basis. This equates to 1,000 to 1,200 hours per year.

With this in mind, we can also project the average annual gross and net income of the dental practice of the future. Assuming constant dollars (zero inflation and no fee increases) it is possible that average annual gross incomes will be between $300,000 and $350,000 in the year 2005. This is about 10 to 15 per cent less than the current average, according to recent statistics published in the ODA Cost of Practice Monitor. It is reasonable to conclude that average net incomes will go down by 15 to 20 per cent, as fixed costs could consume a higher percentage of the gross income.

While this may seem unnerving at first, let’s consider the possible benefits. A reduced work week means the dentist requires fewer patients to make ends meet. Fewer patients per dentist will result in more patients for others who have more time available. More patients for some means higher gross income. This could also be classified as the ãEarnings Gapä between part-time and full-time dentists, and I predict it will widen even further.

Dental practices begin to develop a life of their own once established. My informal observations show that staff, patients, location and many other factors create a “practice” that cannot be easily altered by the owner without some repercussions. In many instances, the owner is somewhat incapable of actually controlling their hours, as the business now has its own pattern. However, while this is possible, loyalty is usually the more powerful determinant.

Those dentists working full-time will gross $500,000 or more, and those working part-time will gross under $350,000. There will always be a buyer for both types of practice, as the predominance of female dentists will keep the demand high for part-time practices. And furthermore, the present ratio of male to female, according to the RCDSO 1999 annual report, is about 70-30. In 10 years it could be more like 50-50.

What should you do if your practice is going through a change and your hours are being affected? Should you strive to maintain longer hours and work evenings and weekends to keep your gross up? Should you extend yourself to make the practice value higher? Should you allow a decline in hours worked, resulting in lower gross and net income, and thus a lower appraised value?

My suggestion is to follow the natural path that presents itself. Dental practices begin to develop a life of their own once established. My informal observations show that staff, patients, location and many other factors create a practice that cannot be easily altered by the owner without some repercussions. In many instances, the owner is somewhat incapable of actually controlling their hours, as the business now has its own pattern. However, while this is possible, loyalty is usually the more powerful determinant.

Your most loyal patients will attend during the hours set by the practice, but some patients are very sensitive to your availability. Regardless of nearby competitors who offer evenings and weekends, your loyal patients will stay with you until the end. If a patient threatens to leave just because you work traditional hours, say 9 a.m. to 4 p.m., Monday to Thursday, then you must accept that perhaps they are not the type of patient that is best suited to your practice style.

Do you really need to open evenings or weekends to retain patients? I have performed an analysis of overheads and find that most practices insisting on evenings – thereby increasing total hours worked and overhead – do not actually earn a higher percentage of the total gross income when compared to practices that operate on traditional hours. In fact, the extra hours worked often increase total overhead and result in a diminishing return on the gross income produced during those times.

It is true, however, that extended hours can attract many new patients. Practices in newer residential areas where young families are prevalent have little choice but to open when the patients are in the neighbourhood. For most of the practices it is absolutely necessary to open late during the early stages of growth. However, I challenge you to seriously consider the hidden costs of the extra time spent working as your practice matures.

In summary, lifestyle is becoming more and more important to the new generation of dentists. You may want to consider a modification to your practice to be more of a lifestyle-compatible dental office, versus one that requires extended hours. The ideal hours of operation are a personal choice, not a requirement, but they do have bearing on the saleability of your practice, among dozens of other issues. My suggestion is to arrange for a professional practice appraisal and see how the various issues affect value and saleability. You may then decide to modify not only your hours, but your lifestyle as well!

Ontario Dentist – September 2001

Is There an Adequate Supply of New Dentists in Canada?

Date Posted: 2001/08/03

We believe that Canadian dental schools may not be graduating enough dentists to meet future needs based on current enrolment levels (Table 1). There are 3 significant developments that may help to explain this situation.

First, the aging population of baby-boomer dentists will lead to an unprecedented number of professionals who will retire from full-time practice in the years 2005 to 2010. This trend has been studied extensively of late, and many economists are predicting a very high early retirement rate amongst high-income earners such as dentists. Statistics reveal that about 30% of dentists are now over 50 years of age. It is highly probable that a number of factors, such as inheritances, stock market windfalls and a changing attitude towards full-time work, will encourage this segment of professionals to sell or close their practices and to enter into full or semi-retirement at an earlier age than the previous generation. These retirements will create hundreds of full-time positions across Canada for dentists who have graduated recently or who will graduate in the next 5 years.

Second, female dentists account for 50% or more of dental students in most Canadian universities. This shift will lead to a dramatic increase in part-time dentists, as women have traditionally been inclined towards family and other non-dental interests. Statistics show that the average career length of female dentists in 20 years, compared with 35 years for male dentist. This trend will cause vacancies on a full- and part-time basis.

Third, changes to the certification requirements of the National Dental Examining Board (NDEB) will likely result in a reduction of foreign-trained dentists receiving certification by about 30 to 40 dentists each year. As of January 1, 2000, the NDEB stopped its routine testing of graduates of non-accredited programs. These graduates will now be required to complete a 2-year “qualifying” program prior to taking the same test as graduates of accredited Canadian dental schools.

These factors have already led to a drastic reduction in the number of dentists in Northern Canada. The trend will be felt in major urban centres within 3 to 5 years and will have an impact on the number of dentists seeking either to associate or to purchase a practice.

If we project these trends even further over the next 5 to 10 years, it becomes clear that there will likely be a shortage of full-time dentists across Canada. This shortage may lead to lower selling prices for established practices when combined with normal death, disability and retirement rates. Assuming the typical career of a dentist lasts 35 years, 3% of Canadian dentists will retire from dental practice each year. This equates to about 480 dentists per year based upon roughly 16,000 dentists in Canada. If we add the other above-mentioned reasons for leaving the profession, we can see that the departures will begin to outnumber the entries.

There are 2 other minor trends to consider. Professionals hold large amounts of funds in RRSPs, which enables them to retire at a younger age. Also, the ability to move from province to province, as proposed by the Agreement on Internal Trade, will allow dentists to leave some communities for more attractive retirement areas. An exodus from some regions, especially from remote and rural areas, would influence the availability of practice opportunities and increase demand for dentists. These regions are already having difficulty finding replacement dentists.

As these trends mature between 2005 and 2010, major urban centres will also witness a shortage of dentists. This decrease will translate into a shortage of purchasers for the many dental practices on the market and a reduction in practice values. Furthermore, dentists seeking associate positions will be able to demand higher earnings (45%-50%) as they will be faced with numerous opportunities.

Table 1. Number of students enrolled in Canadian dental schools (fall 2000)

University	4th year	3rd year	2nd year	1st year	1st-year qualifying program	2nd-year qualifying program
Dalhousie	35	35	32	32	8	5
Laval	48	38	50	46	–	–
Montreal (a)	81	79	83	85	–	3
McGill	29	31	30	29	–	–
Toronto	79	70	70	72	20	20
Western	46	52	53	53	12	10
Manitoba	22	26	23	26	–	–
Saskatchewan (b)	22	17	49	26	–	–
Alberta	31	35	32	32	–	–
British Columbia	37	44	39	40	8	6
Totals:	430	427	461	441	48	44

Source: University administration offices. Totals may not represent actual number of graduates per year.
(a) 2nd year was closed to allow for 1st-year pre-dental program. Pre-dental students are included in 1st-year figure.
(b) 2nd- and 3rd-year students graduate together in 2003. The 2nd-year figure represents the combined classes.

Another significant factor to consider is the changing mix of services that will be required be patients. What about a possible surge in patient needs? Some dental experts are predicting a huge increase in demand for restorative dentistry by our aging population. In today’s market, cosmetic and esthetic procedures are the highest growth areas in practice (4). In 10 to 15 years, geriatric dentistry will be the largest growth area. We have just enough dentists to fill present needs in many areas of Canada. What will happen if patient needs increase and dental manpower levels decrease? Who will treat the overflow of patients? Will hygienists operate their own practices to fill the void? Will denturists be permitted to exercise even more autonomy and be given an increased scope of practice? Will the NDEB be forced to relax its new regulations to admit practitioners who don’t meet today’s high standards?

Who is projecting the dental manpower ratios into the next decade? Who has the authority or the funding to increase enrolment? The free market will determine whether graduates will practice in areas where they will be most needed or in more lucrative areas.

Is there an adequate supply of new dental graduates in Canada? Given that increases in dental school enrolment are very resource-dependent, and that it takes several years to produce results, there may very well be a shortage of dentists in the near future. It is the opinion of the authors that Canadian dental schools should consider increasing first-year enrolment immediately to ensure there will be an adequate supply of dentists.

The views expressed are those of the authors and do not necessarily reflect the opinion or official policies of the Canadian Dental Association.

Co-authored by Dr. Wayne Raborn

Journal of the Canadian Dental Association – July/August 2001

References
1. Foot DK. Boom Dust and Echo. Toronto: Macfarlane Walter & Ross, 1996; 2:39.
2. Royal College of Dental Surgeons of Ontario 2000 Listings. March 31, 2000.
3. Brown TA. Un-audited study of average ages of selling dentists, 1995-1999. Age of Vendors 2000; p. 1-3.
4. Ontario Dental Association. The Cost of Practice Monitor. 1999; p. 25-6.

What Happens to the Staff When a Dental Practice is Sold?

Date Posted: 2001/07/14

Dental practices are bought and sold often in today’s marketplace. You need to know the status of your employment when a dentist sells his or her practice.

What notice must you be given? When must you be told? What terms of employment might the new owner offer to you? What is the difference between termination pay and severance pay? As the owner of Canada’s largest dental practice appraisal and brokerage firm, I am asked these questions by the selling and buying dentists in almost every sale. I will attempt to explain the practical side of these issues, not the legal aspects, so you are prepared in the event the practice you work in must be sold.

First, and most importantly, it should be mentioned that there are several reasons purchasers of dental practices are very interested in retaining the staff when they take over. You are familiar with the patients, policies and procedures of the office and the new owner needs your help to integrate them into the practice. Most buyers tell us that they will probably keep all of the existing staff members, often at the same rate of pay, hours and benefits, because they do not want to upset a smooth running practice. They also know that the departing dentist will be enough change for the patients to digest and that changes in employees at the same time are not a wise idea. Therefore, it is highly probable that your position will be secure in the event a practice is sold.

Therefore, it is highly probable that your position will be secure in the event a practice is sold.

Owners sell for many reasons including retirement, disability, relocation, a return to post-graduate school, and others. They are entitled to sell their practice, but when so doing, they must honour their obligations to you under the law. There are two bodies of law that are relevant here: (1) the Employment Standards Act (“ESA”) of Ontario, which is a statute enacted by the provincial legislature; and (2) the common law which is made by judges. It is important to realize that the ESA imposes minimum standards only. Typically, the common law provides additional protections for employees.

There is usually some confusion in the minds of the dentists concerning the manner in which you should be notified and when notice should occur. The ESA states employees with more than three months but less than one year of service are entitled to one weeks’ notice. Employees with one year or more but fewer than three years of service are entitled to two weeks’ notice. Thereafter, employees are entitled to at least one weeks’ notice, or “lieu” pay, for each full year of service, up to a maximum of eight years. The ESA states that the maximum notice you are entitled to receive is therefore eight weeks’ notice, or pay in lieu, prior to the new owner taking over. If you have been there fifteen years, you will only receive the maximum of eight weeks’ notice. Notice may be provided in the form of written “working notice” or pay in lieu, at the option of the employer.

Many people make the assumption that they are also entitled to “severance” pay upon the sale of a practice, when in fact this is incorrect. Severance pay only applies in circumstances that are usually not relevant for dental practices. Therefore, severance pay is very rarely paid in dental practice sales.

Again, an employer is entitled to choose to provide working notice. Therefore, termination pay would normally be paid only if you were not provided with enough notice prior to the closing date of the sale of the practice. For example, if you have five years of service and the new owner takes over in two months, you could be notified of the sale five weeks prior to the closing and this would then meet the minimum requirements. You would continue to work, with regular pay, until the closing. In other words, you have been given adequate notice, and along with your regular pay, this is appropriate. In the event the sale closes early, say in four weeks, you would then receive both four weeks’ notice and one weeks’ pay in “lieu” of the notice.

Beyond the minimum employment standards imposed by the ESA, the common law also dictates employers’ and employees’ rights and obligations. At common law, the sale of a business has the effect of terminating the employment relationships with the employees of the business. The common law imposes an implied term that neither party will terminate the employment relationship without reasonable notice. A dentist selling his or her practice must theoretically also provide employees with common law notice before the sale. Common law notice is typically more generous than ESA minimums.

However, an important principle of the common law is mitigation, meaning that an innocent party who has had its rights breached must make efforts to minimize its damages. In the employment context, that means finding another job. In the sale of a business situation, where the employee is offered a job with the new owner, an employee would, in most cases, have to take the proffered job in order to mitigate. An employee who failed to mitigate would be debarred from recovering wrongful dismissal damages.

Notice should always be delivered to you in a written form. The owner will usually call a staff meeting to hand out the letter(s) and announce that they have made the difficult decision to sell. We recommend that the new owner be introduced to the entire staff at that same meeting or at least very soon thereafter. This will relieve any fears or curiosity you may have regarding who you will be working with in the future. If you were to quit because you do not get along with the new owner, you may not be entitled to any pay.

Employees often wonder why they were not informed about the owner’s desire to sell the practice when the process began. They sometimes feel insulted that they did not know the practice was put up for sale many months earlier.

There are several very important reasons why employees are not told in advance. These reasons are mostly related to affecting a very smooth transfer of the patients to the new owner, and are intended to assure the practice will continue to be viable. Choosing the correct time to announce the sale of a practice can almost guarantee that all employees will retain their positions. A poorly timed notification to the staff and patients may adversely affect the practice. A loss of patients and revenue may occur, resulting in the likelihood that the new owner will not be able to maintain all employees.

One reason that you will receive your written notice only when the practice has been sold related to any type of speculation about the owner’s health and /or finances (gossip) which may damage the value of the practice. It has been proven that the occasional comment or word to a patient about a dentist selling, can spread like wildfire through a community. This could cause a serious loss of patients.

Written notice is delivered to you only when the practice has actually been sold as it is in the interest of both the past and new owner to be certain that absolutely none of the patients have found out the practice was for sale until the proper letter has been prepared. Patients should not be told about the sale until the name and qualifications of the new owner can be properly announced. As dictated by the Royal College of Dental Surgeons of Ontario, dentists have regulations to follow when selling, and we want to be certain that they follow these rules. In doing so, they may also preserve the value of the practice.

A properly timed letter of introduction and announcement may also prevent patients from leaving prior to the actual date of closing. With respect, staff has been known to tell patients the owner is retiring or selling before the new dentist has been identified. The patient then makes a conscious decision to seek out another dentist. The likelihood that patients will remain with a practice goes up significantly when notification is delivered to them in the form of a personal letter from the selling dentist. This letter will introduce the new owner in detail. If patients know the owner is leaving but they do not yet know who will be taking over, they are tempted to go elsewhere due to this uncertainty.

Notifying you after the purchaser has been identified allows the current owner to alleviate any fears you may have of losing your job (which is highly unlikely) and seeking out a new position. Please remember, the purchaser believes that you are a valuable asset and if you quit because you were worried about your job, the business could suffer disruption while it was for sale. Staff turnover while being offered for sale, can damage the value of the practice and result in lower selling prices. Turnover may also worry the purchaser as they assume something may be wrong if staff is leaving.

We advise new owners not to make immediate changes that would lessen your commitment to the practice and patients. We encourage all dentists to respect the contribution that staff makes, which adds to their success.

In summary, it makes good business sense for the selling dentist to notify the staff/employees only when the new owner has been identified. The selling dentist should give you proper notice, or pay in lieu of notice, and he or she should honour their obligations to you under the law. In most dental practice sales, the new owner will ask you to remain with the practice because you are a very valuable asset!

ODN & AA Journal – July-September 2001

Protecting your Premise Lease

Date Posted: 2001/06/05

A premise lease is a valuable component of practice goodwill and can have substantial bearing upon the appraised value of a practice, particularly if you occupy a desirable location. Conversely, an undesirable lease can reduce goodwill value by 10 per cent or more. This article will outline a few of the items that you should consider when negotiating your premise lease or next lease-renewal agreement.

Most of the topics I write about are stimulated by recent activities in the market. One such situation is a practice we had for sale. The owner’s ability to close the sale was seriously compromised by a very uncooperative landlord.

In this transaction, the owner agreed to sell to a young dentist who had graduated about three years ago. The landlord believed the purchaser was too young and could not possibly afford the rent, and declined to allow the assignment of the lease to the purchaser. This was — and is — an extremely rare occurrence however, and the landlord was poorly informed about the business of dental practice.

There are several issues to consider in this case. Firstly, the Tenant Protection Act generally favours the tenant and not the landlord, so long as the terms of lease are being honoured. Most leases, including the one in question, contain a provision for the assignment of a lease under some basic conditions. It is important to be certain that the lease contains the words, “such assignment not to be unreasonably withheld.”

While this phrase was included in this lease, the landlord was not necessarily being unreasonable, as it was his honest opinion that a young dentist did not have enough experience to afford it.

However, the landlord was not told the practice actually produces about $65,000 per month in dental fees, as it was not his business. The rent was about $3,000 per month. It was obvious to everyone that the practice generated sufficient cash flow to pay rent. It was eventually discovered that the landlord wanted an advance payment of rent, prior to consenting to the assignment. I felt this was a form of exploitation of the dentists, as well as being a completely unfair request.

So, was this landlord “unreasonable” in withholding his consent? It turned out that he was. However, it took three lawyers (and thousands of dollars) to solve the issue, and the landlord was eventually ordered to approve the new dentist as his tenant.

Think about your premise lease for a moment. What if you were disabled and had to sell your practice suddenly? Would your landlord make demands that could delay or prevent a purchaser from taking over?

The following are my suggestions to be certain your lease is the best it can be.

1. Create a paper trail

The most important aspect of any lease is to be certain it is signed, witnessed and properly executed by all signatories. Never allow your landlord to say they will do something for you without having that exact promise put in writing. Amendments or addenda to premise leases are common, and any new terms or conditions that arise should be documented this way. If you have the first right to rent some adjoining space, get it in writing. If you are allowed a certain number of parking spaces or have the option to put up another sign, get it in writing.

2. Don’t be afraid to negotiate

It goes without saying that negotiating the best rent is in your interest. If possible, get a maximum rent increase provision (in other words, so many dollars or cents per square foot) put into the lease or the renewal options. When the time comes to negotiate your next renewal, have confidence that landlords are in the business of keeping good tenants, not in the business of constantly rotating the tenant mix of the property. Off the record, most landlords I know admit they would settle for less – they just posture about a higher rent, as it’s their job.

Think of the costs of losing you, a premium tenant, and then searching for a replacement that has no track record of credit worthiness. But what about the removal of those complicated leaseholds you may leave behind? Be careful that if you do move, you are liable to return the space to the way you found it. I know one dentist who walked, only to find out he was responsible for the cost of returning the suite to the way he found it, namely, with four concrete walls!

3. Learn the jargon

TMI, CAM, Net, Gross, Triple Net – What do these terms mean? TMI is Taxes, Maintenance and Insurance. These are mandatory costs payable by all property owners, typically expressed as a percentage of the building space you occupy.

On occasion, TMI is stated as a cost per square foot. For example, base or net rent is $12/square foot and the TMI is another $5/square foot. The result is your gross rent of $17/square foot.

Over and above this you may be required to pay heat, hydro and water, which may be billed directly to you, or alternatively, you may pay it to the landlord and they pay the utilities.

Another way to express these “extra” costs is CAM (Common Area Maintenance). I have read leases where either the landlord or the tenant has misinterpreted the different terminology and costs are under or overstated. There are several lease analysis firms who search for such discrepancies for a fee. To eliminate any confusion, I suggest you use the table I prepared as a guide to perform an analysis of your premise lease (see Table 1).

4. Secure your renewal option

When you renew your lease, be certain another renewal term is then added back into the lease. We sold a practice recently that had a five-year lease with two options to renew, for five years each. The tenant dentist had indeed been in the practice for almost 15 years, and when the landlord was approached they informed the tenant that all the renewal options had been exhausted, so an entirely new lease needed to be negotiated (at a significantly higher cost than a simple assignment). The lease did state that after the renewals were exercised, no further ones were to be granted.

This situation could have been prevented at the third and final renewal stage, if the dentist had simply asked for another renewal term to be added, thus allowing for 20 or even 25 years of total lease. As a precaution, be certain you do not focus so much upon the length of the term, just the right to renew, if you or the purchaser want to stay on. I suggest a maximum term of five years at any time, and a minimum of one five-year renewal. There are strategies to increase the write-off for leaseholds, so long as the sum of the first term and the first renewal is no less than five years.

If a three-year lease with a two-year renewal is signed, you can depreciate leaseholds very quickly. However, landlords sometimes ask for premium rents if you are willing to sign for short terms only. Please see your accountant about taxation issues and leaseholds.

5. Problem landlords

The building I am situated in has been sold recently. The landlord is a nice man, but he is new to this business and is making a series of very simple mistakes. Namely, he hired a new snow removal firm this year that promptly covered over 10 of our very valuable parking spaces in December. As well, he changed garbage services and we have had weeks of late pick-ups, garbage on the ground, etc.

What could you do if this happened to you? Writing a letter to the landlord is the first action and you may want to encourage other tenants to do the same thing. Leave voice mails and demand action (within reason). Withholding rent is a very risky option though, as it may put you in breach of your lease and cause much more serious problems. Therefore, my advice is to pay your rent, even though the landlord is not earning it.

Table 1. Analyzing Your Premise Lease

Item (lease items vary)	$/square foot	$/month	$/year
Base Rent
Heat ö if separate
Hydro ö if separate
Taxes ö Property
Taxes ö Business
Maintenance charges
Insurance
Common area charges
Other (i.e. parking)
Other
Totals:

Some final thoughts

When you sell, some landlords may be able to hold you liable for the remainder of the term. Essentially, they can make you pay if the new dentist doesn’t. Most leases include this provision, but some landlords have let tenants off the hook. See your lawyer about this topic prior to signing the next lease renewal agreement.

Watch out for demolition clauses in your lease. Ask anyone who had a practice at 99 Avenue Road in Toronto about demands to vacate within six months, because the landlord had the right to terminate all leases for demolition. I know a dentist who built a beautiful practice and one year later was told he had to vacate, because the demolition clause was not noticed. Tens of thousands in leaseholds were abandoned.

Termination of a lease can also occur after the sale of a building, even though the building is not being demolished. Look for a termination of lease clause, which applies in the event of sale of the building.

Some leases contain a provision allowing the landlord to terminate a lease just by you requesting the right to assign it to another tenant. This is rare, but we’ve experienced it before. Once again, see your lawyer about this clause.

I suggest you use the service of a professional lease negotiator if you are not comfortable with the process. There are several firms specializing in this area, and most appraisers should be able to provide you with names. I caution you about using your local realtor, who may only specialize in residential leases. They may not understand the intricacies of commercial leases.

Dealing with premise leases and landlords is a real pleasure for some and a terrible battle for others. There are laws governing the relationships we have with each other, but in this case, there are no better ones than those of common sense and patience. Dentists are very valuable tenants, as you enjoy one of the highest credit ratings of professionals. Remind your landlord of that next time they negotiate with you.

Ontario Dentist – June 2001

Five Ways To Run A Successful Patient-Centered Practice

Date Posted: 2001/05/21

I recently spoke at an event with Michael Birbari, of Dundee Securities in Burlington. His seminar began with a very important reminder to me: success is a learned behaviour and not one invented by an individual. The techniques we employ to reach our various levels of success are indeed fundamental. The most accomplished people have reached their heights by using common sense tools available to all of us for generations.

So, if we can learn from the dentists who have achieved their goals, what exactly should we look for?

We performed an informal study of successful dentists and discovered that their practices exhibit a similar common denominator: they centre their practice management philosophy upon… their patients!

My father, Roy Brown, has studied the work of Wilson Southam, The Group of Cox and many other reputable dental leaders since the 1950s. My associates and I are very fortunate he continues to pass along information to us today. The core philosophy of these great minds was that you should focus your practice management primarily upon the “patient-centred practice” philosophy.

What exactly does that mean? How complicated is it to learn this proven philosophy? And is it still achievable in today’s ultra high-tech dental environment? The answer is, “Absolutely.”

The patient-centred practice simply means the majority of your practice modalities should be designed to serve the patient first. As a patient myself, allow me to offer the following suggestions on how to centre your practice around our needs:

1. Staff retention is important to the patient too

First and most importantly, I suggest you make all the reasonable attempts to reduce staff turnover, and that you employ only the best available personnel. Familiarity, when visiting health care facilities, is a very powerful tool for patient retention. Most patients eventually develop a rapport with the dental office team and are comforted to see the same friendly people each visit. Turnover, although unpreventable at times, reflects upon your ability to retain staff.

The team at the office I attend is mostly long-standing and are a significant factor in my loyalty. Therefore, I assume my dentist is a good “boss” or business owner and that’s why they stay. This reflects very favourably upon her technical abilities, a judgement I have made completely on my own. Your patients do the same thing when assessing your business acumen.

2. Minimize distractions

As a patient I would prefer to have a treatment plan presented to me outside of the operatory. A small and private treatment planning room can be very conducive to gaining my confidence and trust. Patients are much more likely to have a complete understanding of the treatment you are presenting when not confronted by various sounds, smells and disruptions of the dental office. Be cautious though, about using a private office with too many degrees on the wall, as it may intimidate some patients into feeling inferior.

As well, you should sit in the same type of chair and at the same height level as the patient, and use a table or desk that is identical on both sides. The objective is to create a non-threatening environment where I feel at ease while you present the information. People are much more likely to accept your suggestions when they are delivered in a warm and uncluttered space. Do not allow me to view highly technical or surgical images unless necessary. The use of modern imaging systems or high-quality display models can show me the possible results. The SciCan Image FX software and the Casey Patient Education CD-ROM are two examples of powerful tools for the delivery of before-and-after photos.

3. Be flexible around fees

Once a treatment plan is finished, we now need to talk about fees. I may not have the immediate ability to afford your treatment, and therefore wish to discuss payment options. If so, never do this while I am at the front desk, as I may well be uncomfortable discussing my personal finances in front of the staff or patients in the waiting room. Again, I suggest the treatment planning room. In many practices, I find these rooms are about the size of a small operatory. Decor is limited to one or two pleasant wall pictures, a small table and chair set (get at least two chairs for other family members) and an X-ray viewer. The models or computer screen should not be a barrier to the patient. Put them to the side and view everything as though you and the patient are both seeing them for the first time.

4. Explain and refine the administrative process

If your practice typically prepares pre-determinations for patients, please tell me exactly what will happen once it is mailed. Do I have any obligations to proceed? What do I do when something arrives in the mail? In many instances, insurance companies send a reply to the patient and not to your office. We have been in dental offices that believe if the patient really wants the work done, they will call.

I suggest that while in some cases this may be true, often the patient thinks just the opposite. They assume you are aware of the insurance approval and believe you don’t really want the work – and that’s why the office hasn’t called to make an appointment. A friend of mine proved this point recently by stating, “My dentist doesn’t care. The forms came months ago and no one has called me!”

This friend was approved for over $4,000 in work and he wanted it done. He even thought of going elsewhere because he felt “they don’t need my business.” Protocols for follow-up on submitted treatment plans are easy and may only require minimal tracking and management. I frequently discover tens of thousands of dollars of untracked treatments with which patients want to move forward.

Furthermore, in order to reduce downtime, keep a short list of patients who live or work nearby and are likely to have flexible schedules. For example, self-employed professionals are able to adjust their schedules quickly and go to the dental office on very short notice. If my dental office called today, there is a high probability I could go in for a cleaning within hours. Although I prefer every six months, a week or two here or there makes no difference in the quality of care I receive from them.

There is a tremendous cost to down time in a dental practice, as that revenue is lost forever. One hour a day of down time for the hygienist equates to about $100. If the hygiene department works 200 days per year, that’s $20,000 in lost income. The only way to make up for lost income is to work extended hours (which may cut into personal time) or increase wage expense unnecessarily.

5. Communication

We hear the new economy is all about information. Does a dental practice need to increase the flow of information to the patient? The answer is yes, but how can it be accomplished? Is it necessary to buy the latest and greatest computers to perform thousands of data scans, print dozens of reports and generate lists of overdue patients and many other tasks? My answer is maybe.

We find that the dental software in some practices is neither used effectively, nor understood by the dentist. Also, staff turnover often results in limited training and improper use of the many functions available. In some practices, we see manual systems that are exact duplicates of those on the computer – and the office uses both at all times. Appointment books, ledger cards and insurance forms are kept in manual and electronic form at a very high cost of time and resources.

My suggestion is to use either a manual or automated system – but pick one only. Purchase extra training and learn to use the technology yourself. Then you can be satisfied you are not entering the high-tech age just for the sake of buying high-tech, while knowing nothing about it. Watch out also for the “upgrade bug,” which can be a never-ending saga. If you catch it, you may find you never have the right mix of hardware, software or staff, but if you just buy a new “widget,” your problems will go away. Has anyone heard this claim before? “Mr. Brown, all you need is a new interface that will communicate with the slave drive so the server can connect to the stackable hard drive and then your e-mail network will be seamlessly running along side the 10/100 Ethernet network… blah, blah, blah!”

I just about gave up on computers last year when the tech people started rambling like this. However, we stuck it out, at considerable cost, and now have the very best system in the business. However, is that what you need for your dental practice? Dentistry is very different than other businesses and I have found the practice that concentrates on the patient – not the patient’s information – will be more successful.

In the words of Mr. Birbari, success is a learned behaviour, not luck. If you duplicate the behaviour of the most successful dental practices, your practice can be the optimal patient-centred practice too.

By Timothy A. Brown

Observations of the Market – Part 1

Date Posted: 2001/04/05

Having recently appraised a practice that experienced a slow and steady decline in the gross income over the past four years, the owner asked us to explain why the appraised value was lower than the one we had calculated for him years earlier. Our answer was as follows:

The key indicator for determining the fair market value of goodwill is the weighted average of the last three years’ cash flow. In this particular practice, cash flow began to experience an even larger negative trend than the gross income, because as the years passed, the fixed overhead was consuming a higher percentage of each dollar earned. The end result was an appraised value much lower than it would have been four years earlier, because the dentist was now earning 40 per cent less. It was obvious that he did not have the passion he once had for dentistry, and he admitted to working fewer hours each week.

The dentist was nonetheless prepared for the appraised result, as he had made inquires about what effect his plan would have upon the value of his practice. Other experts advised him that his plan was foolish. We believe consultants should never tell you what you must do with your practice. However, you may want to investigate the consequences of your choices prior to putting a plan into action. We encourage dentists to “follow their heart, not their chequebook.”

Can You Afford to Slow Down?

Despite the lower appraised value and the consequences of the plan, this is one of the happiest dentists I know. He did what he wanted, not what the consultants told him to do!

Was it a bad plan? And what is the cost to a dentist if he or she follows the same plan?

The most notable cost will be that the goodwill will be appraised at a minimum of 10 to 15 per cent lower than it would be at the peak of performance. Moreover, the decline could be much worse if the trend continues. For example, the practice above will sell for at least 50 per cent less than it could have four years earlier. On the other hand, the dentist earned a respectable income, considering the total hours worked and the time spent in practice. He has enjoyed a relatively easy workday (on a part-time basis) in the environment with which he is most familiar, and he has no associates or partners who “push” him for action.

The practice only recalls the longest-term patients; those who trust and respect the staff, and this makes them very happy. They have accepted very few new patients lately and they refer out everything that is remotely complex. The income this dentist earned over the last four years has more than made up for the lower practice value. Most importantly, he has peace of mind and is very relaxed and healthy.

Beware of Those Who Promise the Moon

I met a dentist recently who was advised to follow a completely opposite plan. He was told to build the practice up as fast as he could, then bring in an associate. The plan was to have the practice appraised at its absolute peak, then sell it to the associate for the highest possible price. While this makes good business sense, we discovered an unfortunate side-effect: The owner was compromising his ethics in order to “meet the budget” set by the consultant. If he wanted to get that targeted sale price, he had to work harder (and faster) and he was told to motivate the staff to meet production quotas for bonuses.

In the end, the stress got to the owner, and the associate quit due to a foolish argument about who was responsible for the growth of the business. The consultant no longer advises this practice. The gross income is back down to where it was two years ago and the owner is happy again. Our advise is to watch out for schemes that promise an inflated selling price only if you follow a certain business plan. There are some who have a great deal to gain by promoting these aggressive strategies, but it is the dentist who usually ends up paying the bill.

If we consider the dentist who let his practice decline, ask yourself if you could do the same. We have found that some dentists will not purposely “de-construct” something they have built up over many years. Some want to go out on a high note, and they would only sell when their practice was thriving or at its peak. Such practices often sell for the highest possible fair market value – assuming the owner has it appraised and sold when the trends are in positive stages of growth. However, the owners typically work fewer years, as they sell at a younger age.

We are often asked about “just slowing down a little” and utilizing associates to maintain the gross income. This technique rarely maintains the fair market value of goodwill because purchasers are very skeptical about the long-term intentions of the associate. In comparison, a solo practice usually sells faster and for a higher value due to the simplicity of replacing only one dentist.

It is also common for a dentist to ask us if they can sell and associate with the buyer. In answer, we suggest this rough guide to determine if you can support both a new full-time dentist and yourself in your practice.

The average purchaser is confident they can produce $20-$25,000 per month working at 40 hours a week. If your practice can support more dentist time, you may be needed as the associate. Each purchaser has a unique set of skills and they will guide us towards their intentions. Rather than setting a schedule for yourself, as the associate in your practice, it is advisable to wait until the purchaser’s skills are discussed. In many instances, they will propose some terms.

We believe that it is now customary for the purchaser to document the terms of the association in conjunction with the offer to purchase. The vendor will then have a reasonable time frame to respond. This is a fair and appropriate practice.

Emerging Trends to Consider

After reviewing a number of recent transactions, we have identified several emerging trends. We have witnessed some incredible growth rates after a traditional solo dental practice was sold to a well-trained and confident young achiever. Many of the buyers thought they would lose patients and suffer hardship. Just the opposite is true in most practice sales. Some other developments include:

purchasers request the previous owner to stay as an associate in less than 30 per cent of recent practice sales;
associate terms are averaging one year or less for previous owners;
purchasers are very rarely allowed to work in the practice prior to closing;
owners will permit the purchaser to meet the staff only when the offer is unconditional, and;
planning for the sale of your practice in these times should include an immediate departure from your practice in the majority of transactions.

Alternatives

There are several methods of selling a practice, including in shares, or over a five to 10-year term. However, we find these are not popular because most sellers want to complete the sale much faster. Once they have decided to let go of ownership, most dentists are ready to act quickly. In the typical transaction, the cash sale price is received in full on closing, and the entire process – from appraisal to closing date – usually takes six to 10 months to complete. We suggest every dentist plan a one-year timeline to exit ownership. Rural practices can take up to two years.

We have found some dentists are not prepared to make this immediate change in pace after many years of routine busyness. Would an immediate sale be too sudden for you? If you want to transit out of ownership, yet want to continue practicing, there is an alternative form of work: locum tenens.

There are many advantages to this type of work, such as freedom, travel, and no fixed schedule. However, income is usually reduced and time away from home is common. Prior to accepting an assignment, you must consider non-competition clauses, which are frequently contained in the agreement of purchase and sale for your practice.

Those dentists who allow their practice to decline often struggle with their pride. This fact prevents many dentists from letting patients go, reducing staff wages, and paying a higher and higher percentage of gross to rent, supplies, lab, and other costs. Everyone has a limit for how far they will let their business decline.

How to Measure Your Worth

If you want to find your limit, my advice is to calculate your billings stated as gross income per hour. Be realistic about the hours you work in the operatory only. Deduct ‘laboratory’ to get true gross income per hour. Then do the same for the hygiene department. If you do some complete recalls, leave that figure in your gross, not in the hygienist.

Once you know your hourly production, you can measure your worth. Most dentists keep a minimum hourly rate in the back of their mind. If you can prove your hourly rate is a constant, the practice can be viable on a reduced overhead. You may be comfortable with this knowledge and could consider working another year or two, then think about selling again.

Everything has a price. What’s the price of your time? Once you know that, you will know when it’s time to plan on selling.

Ontario Dentist – April 2001

Flying Solo

Date Posted: 2001/03/21

The concepts of utilizing an associate or partner for the purpose of identifying a purchaser for a practice, increasing the selling price of a practice or reducing practice overhead are fundamentally flawed. It is our company’s opinion that the solo practice is the superior dental delivery system when measured against the successful practice determinants. It is estimated that roughly 75 per cent of all Canadian dental practices are operated on a solo basis. The remainder features multiple dentists in owner-associate, partnership or cost-sharing (group) practice arrangements.

We recently performed a review of the largest database of dental practice appraisals in Canada, which includes over 2,500 cases. The results show that the highest percentage of cash flow earned (after true operating expenses are deducted) is realized by solo practitioners. In short, solo dentists keep more of their gross billings. We have identified two expenses to explain why this occurs.

Why solo practices are more profitable

First, multiple-dentist offices tend to either purchase too much equipment or rent excess space so they can work the same hours. After studying dozens of these offices, I found that the extra operatories (usually rooms four and five) were only being used for 10 to 15 hours per week. This represents a utilization rate of less than 50 per cent, creating a situation referred to as “over-capitalizing” a practice. In short, the costs outweigh the benefits.

Second, multiple-dentist offices tend to hire excess full-time personnel. Many of the owners I speak with openly admit they only need certain personnel for 15 to 20 hours a week, but don’t have the heart to cut their hours or let them go. What’s more, the search for a part-time staff member may not yield the best available person. In addition to that, costly office managers are usually hired to run multiple-dentist practices, yet a solo practice rarely utilizes one for basic paperwork issues. And finally, wages, as a percentage of gross, are lower in solo practice when compared to identical sized multiple-dentist offices.

Another reason to own a solo practice is that associates frequently leave under less-than favorable terms. We recently attempted to sell a practice to a young dentist who had worked full-time for the owner for two years. During negotiations, the associate more or less told me that he had over 1,000 patients “of his own,” and so did not need to pay the owner anywhere near the appraised goodwill value because they were now his patients. He also said some of the personnel were more loyal to him than the owner, insinuating that they were willing to quit the practice. These are very contentious and complex issues that have the potential to spark serious disputes.

Next, let’s consider the psychological aspects of this situation. To begin with, how do you think the owner felt when we told him the associate was offering significantly less than the fair market value. The owner felt betrayed. He told us he took the newly-graduated dentist under his wing and “taught him everything he knows” over the past two years. This may or may not be true, but the owner felt very strongly about his contribution to the learning curve of the associate, who was paid a fair percentage for the work he performed and was welcomed into the practice with open arms.

The owner claimed most of the patients seen by the associate had been with the practice for many years prior to him coming in. Can the associate claim he “owns” those patients after seeing them only three or four times? We will leave it to the lawyers to answer that question, but can you see the problem arising? We believe these two dentists are destined to split up and have their professional relationship deteriorate. We predict a very long and painful dispute over patients and staff. It will be costly and emotionally draining, and in the end it will be a lose-lose situation. The solo practitioner never has this problem.

Don’t count on a partner or associate to buy

Another reason to stay away from multiple-dentist offices is that one partner rarely wants to buy out the other. We have listed dozens of practices after the selling dentist had spent months or years waiting for the other to make an offer. They foolishly held onto the notion that their partner would purchase the practice, and made no attempt to investigate other options. The reality is that partners are probably busy enough and don’t need to pay fair market value for your patients or your equipment.

When trying to sell to an associate, the owner often discovers that the associate has secretly developed a plan to demand a sizable discount from the fair market value of the practice. Associates will attempt to negotiate a lower selling price on the premise that their years of service grant them a certain “entitlement.” We had one associate make an unbelievable claim that she was keeping the practice alive, single-handedly in her opinion, and that she should not have to pay for any goodwill whatsoever. When this was discovered, the owner promptly relieved the associate of her position. While some owners may allow a minor price reduction as a courtesy, there is neither a meaningful basis, nor any statistics supporting discounts when selling to an associate.

Legal wrangling

Many agreements we see include a first right of refusal clause that puts restrictions on the owner. They are required to first offer their practice to the associate or partner, who commonly has between 30 and 60 days to make a purchase decision. While this is honorable, it ironically works against the concept of fair market value because the practice cannot be put on the open market to obtain the highest and best sale price.

Furthermore, if the purchaser is allowed this exclusive term (which can delay the eventual sale for at least two months) and then decides not to buy it, suspicions will be raised in the open market. A new purchaser may become very skeptical about the practice when they find out it was not purchased by someone who knew it very well. The first questions the new purchaser will ask are “Why won’t the partner or associate buy it? Is there something I should know? Is there anything wrong with this practice? ” This is a classic example of how perception can become reality.

It is our experience that purchasers believe the remaining partner will lure patients away and the staff will be more loyal to the established dentist. And when an associate refuses to buy a practice and leaves, the perception is even more negative. Eventually, the purchase price is driven down because of the buyer’s perceptions. Our data indicates sale prices can drop as much as 10 to 15 per cent below that of an identical solo practice.

The other side

In fairness to those of you who are practicing in multiple-dentist offices, we are aware of the many benefits you enjoy, such as professional companionship, the ability to take longer holidays, someone to turn to when faced with tough clinical decisions and the sharing of practice management duties. Our challenge to you is to honestly consider the compromises that have been made over the years. How many have there been? Is it all worth it in the end when you consider the potential risks, disputes and other personality challenges you face every day when working with another dentist? If your answer is no, then get your practice appraised and study your options now. Don’t wait any longer.

Of course, we are not foolish enough to discount the concept of multiple dentist offices completely. There will always be people who are well suited to work together and we wish you success when practicing with your colleagues.

However, when asked by new graduates what practice modality they should follow, we tell them to go solo. Seventy five percent of you are already doing so for a reason. We think we know what is: peace of mind.

By Timothy A. Brown

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