What Are The Characteristics Of The "Best-Selling" Practices?

In my experience and the experience of those with whom I work, the “best-selling” dental practices are those which are owned and operated on a solo practitioner basis.

When I use the term best-selling practices, I refer to the following common traits:

  • gross billings in the $300,000 to $600,000 range;
  • true operating overhead of 50 per cent to 60 per cent of gross (true operating overhead does not include “discretionary” expenses, spousal or family wages, or debt. Debt is not part of operating overhead, it is a capital cost of acquisition and generally will be eliminated over time.);
  • three to five staff members;
  • one full-time or two part-time (preferred) hygienists;
  • not necessarily retail or storefront;
  • no long-term associates;
  • no partnership contracts or cost-sharing partners;
  • no ownership of buildings or complex real estate shares.

These are the most saleable practices selling for the highest value.

I have also noted that practices that are difficult to sell also display certain characteristics. They often have long-time associates. Written agreements are the norm these days, but we have all heard stories about non-competition clauses and the courts. The bottom line is that associates can be intimidating for the new practice owner and the actual open market dictates that your practice will be more difficult to sell. As well, arrangements in which there is shared space or overhead costs with another professional can complicate a sale because of the potential of future conflict. Human nature cannot be ignored.

Real estate ownership, while often a successful avenue for investment, can be detrimental when selling a practice. Buying a house or building and converting it to a dental office was very common in the past. Now I see many listings where the real estate must be sold or leased to the purchaser, adding a whole new set of negotiations to a transaction. Lawyers need to be particularly detail-oriented with leases, adding a great deal of time and expense for all parties. Transactions have failed solely on the lease alone.

Long-term staff that is highly paid can also make a purchaser look elsewhere. Purchasers realize that present staff is valuable and is retained in almost all of the practices I have seen sold; however, highly paid or long-term staff, though very important for patient retention, can intimidate young purchasers. Those purchasers often have big loans to pay off, household mortgages and/or children to support. They are going to try to reduce expenditures to maintain profitability but fear that by reducing wages and/or increasing hours they may lose important members of the team.

A prospective buyer might rethink purchasing an oversized office or a practice in a high rent location. What about slow times when high rents are still owed? Rents are typically three to seven per cent of gross and if your rent is higher, a buyer will be wary of the long-term risks.

Extravagant leaseholds and equipment may seem like a great idea while practicing, but when it comes time to sell, they could be a disadvantage. They are difficult to sell if the facility is designed to accommodate more than one dentist or to suit personal tastes. Purchasers appreciate large, ultra-modern offices with lots of high-tech equipment, but they don’t necessarily want to start off that way with all the resultant debt.

These issues have surfaced many times in the course of my career. Calculations I’ve performed support the theory that the best-selling practices will sell for the highest amount when considering alternative practices. And, in my experience, the owners of these practices are the happiest, most stress-free individuals I meet. They take more holidays than most, enjoy the lowest operating overhead and generally work longer in dentistry because of their happy, low-stress careers.

The choice is yours. Everyone has different philosophies. If you want to practice like a best-seller, consider starting or owning one of the best selling practices.

Ontario Dentist – November 1999