Post Pandemic Dental Practice Sales in 2021 and Beyond
Thank god 2020 is behind us, but is it? When selling your business, the banks and CPA’s like to take a snapshot of the last three years of gross revenues when doing their valuations. Maybe 2020 was on par with the prior years but probably not considering you were ordered to close for some period of time. By example, lets say 2018 was $1,000,000 (Rev), 2019 was $1,000,000 (Rev) and 2020 was $750,000 (Rev). That makes the three year average sales of $916,666 (Rev). Assuming a value of 85% of gross sales that results in a valuation of $779,166 instead of $850,000 if 2020 had been normal . In addition, banks are being very particular about 2020 operations when preparing valuations. They are looking very carefully to see that volume of sales moved in an upward direction after you opened your office. Everyone knows sales were most likely declining but if the numbers were not moving in the right direction it could make a 2021 sale difficult.
2021 Covid-19 Restrictions and Dental Practice Sales
Is 2021 a good time to position your practice to sell on the open market? The simple answer is, maybe? How long are you going to practice COVID-19 dentistry? Are you tired of having patients wait in their car until you call them to come in to your office? Are you having to wear gloves, shields and additional PPE? Remember how uncomfortable it was wearing all of that PPE last summer? First and foremost, are you healthy? Are you at risk by practicing dentistry during a pandemic? Will there be buyers out there during these trying times? The other consideration is the duration on the virus and how it will continue to impact the practice of dentistry. The vaccine process has started and optimistically will lead to an eventual end but how long?
When starting to consider the process, we can help you evaluate all of your options.
Please call Charles Feitel at 301.365.6940 or email him at firstname.lastname@example.org to schedule your free consultation. We will help you navigate these “interesting” times!
Medical and Dental Real Estate Leases Are Crucial Aspects of Your Business
Now that you have decided its time to sell your medical/dental practice, where do you go from here? You have built the business into a successful well oiled machine that has a great patient list as well as a great revenue stream but its time to move onto greener pastures. In most cases, the practice broker, accountant and lender focus on tax returns, P & L statements and balance sheets. All of this is valuable information but often times the lease agreement or lease renewal agreement can be the difference in selling or not selling your business.
LOCATION, LOCATION, LOCATION
As you have established business in a particular location chances are the buyer wants to stay in that location. If the lease has a lot of time remaining this can be done with a lease assignment. But do you have the right to assign your lease ? If not, the landlord may be able to prevent you from selling your business. Or, is the current lease a “fair “ deal. Is the rate a market rent for that area? If not, you may or may not be able to negotiate a better deal. Finally, does the selling doctor remain liable on the lease agreement? If he/she wants to retire to Florida staying on as a lease guarantor may not be a good model. Do you have the correct lease terms in place if you require construction in order to build out the space you desire? A lot of times you can negotiate a window of time to prevent yourself from paying several months rent while you can’t even operate your business due to construction and financing matters. These are all questions we have dealt with over the years.
Finding The Best Office Space For Your Clients and Potential Future Buyers
When you decide its time to sell your business, often times, the buyer becomes very important to you. It only makes sense. For your entire lifetime you have built this business, which has supported you and your family and caused you great joys over a lifetime. Many times you have staff members who are part of the team and have been with you many, many years. It is important to you that your patients and staff continue to have a good medical/dental experience even when you are long gone. This is where the dilemma often occurs between selling to a corporate buyer or an individual. In general, corporate buyers are more concerned about the bottom line and will often pay more for your business. However, often times they require you to stay on board for up to three years after closing as an employee running the business. Also certain practices are better targets for corporate buyers based on a myriad of circumstances. In general, larger more visible offices appeal to DSO’s and MSO’s but not always. In summation, its always about the “bottom line”.
REAL EStATE, ITS AN EMOTIONAL DECISION
When deciding whether or not selling your practice is the right move let a professional evaluate your business and who potential buyers could be for your future exit. Although we do not have a “crystal ball”, experience goes a long way in setting up a plan for the upcoming future. Current market conditions play a big role in finding the best buyer. Trends in dentistry and medicine will often dictate your best path to follow. Also, when placing a value on the medical office space, corporate and individual buyers use a different accounting method. While corporate buyers evaluate multipliers and EBITA , individuals use percent (%) of gross revenue calculations.
Here at HPRG we can provide you a “free” analysis to figure out which direction you should proceed. We know this business is your “baby” and we share your emotion in the ultimate sales process.
Real Estate Negotiations are Key to a Successful Practice Sale and Transition
Don’t overlook your real estate when selling your practice. The location, look and feel of your office is a vital part of your practices success. Especially if you are attempting to sell it now or in the future. You may be in an office building and a lot of new young dentists want a storefront location. You may want to lease the condo you own but the new young buyer may want to buy your space for the same reason you did years ago. The lease or the ownership position you maintain can greatly affect the viability and value of your medical office space. Banks require long term leases to finance transitions and buyers want to have a “market” lease. If the buyer buys the building he is only going to pay market value.
Medical and Dental Practice Owners
As a practice owner, if you own the real estate, will you have capital gains implications if you sell the building? If you assign the lease agreement are you still legally on the hook in the event of a default? Some practice brokers will claim they can help with the leasing or sale of the real estate in addition to the sale of the business. Be careful here! Practice brokers are not licensed real estate brokers and should not be engaged in the real estate business legally. Moreover, they do not have the requisite experience or knowledge to handle your real estate situation. Nor do they have understand the local areas in terms of the data necessary to make a firm decision like market pricing, age range, population density, foot traffic, up and coming areas, etc. I have seen practice brokers try to juggle values of real estate and offices to “make the deal”. The problem is that the business and real estate are valued different by the bank. The practice is based on gross revenues or EBITA but the real estate is valued on comps and CAP rates. That means “mixing” the two is often a recipe for disaster at the goal line of the deal. We recommend a transition expert to sell the business and a real estate expert to sell or lease the real estate.
These are just a few questions you need to be aware of when getting ready to sell your practice.
For a complimentary assessment of your individual situation call Charles Feitel at 301.365.6940 or email me at email@example.com
Is the middle of a pandemic a good time to market your dental or medical practice for sale?
The short answer is ….. maybe.
If you are a mature dentist or doctor are you concerned about being exposed to the virus?
How much longer were you going to work in your plans pre-pandemic?
Has your staffing been under control or has it been stressful?
What has your office performance been since re-opening?
In theory, the virus may have pushed values downward but interest rates for buying dentists are at an all time low!
Are you willing to work in the “new normal”?
Covid-19 and Selling Your Practice
If you are struggling to answer any of these questions or have definitively answered some of them, then it may be time to take action! Whether it be retirement, expansion, or shrinking your practice, there is always a solution to help get you what you desire. If you are interested in selling your practice then learning the proper steps to take prior to jumping ship is something you may want to do. Especially during these uncertain times with Covid-19 still at our doorstep.
Covid -19 changed everything. There is a large possibility certain industries may never be the same in terms of their operations and rules. The medical and dental professions could be those particular industries. Since this pandemic began, we have had lock downs, mask mandates, required use of hand sanitizer and much much more! Our frontline workers, doctors among others, have all been tirelessly working to help us save lives and keep the world moving forward. They alone are tired of wearing all of the PPE garb and may never want to wear it again. Are we certain that this could not become the norm for the future in these industries?
These are things that now need to be considered when purchasing or selling a practice of your own. When leasing or purchasing real estate you need to understand what happened during this pandemic and plan accordingly.
For a free consultation to see if NOW is a good time, call HPRG, THE Medical and Dental Transitions Group!
Our unique sales approach makes us the wise choice for selling your practice. 24 years experience is what it takes to insure you have the most successful transition experience.