How To Determine The Selling Price Of Your Practice

Chris Pistorius (00:03):

Hi everybody. It’s Chris Pistorius again, with the Dental and Orthodontic Marketing Podcast.

Chris Pistorius (00:08):

I got a great guest for us this week. We have Megan Urban with OMNI Practice Group. She specifically is a dental practice broker, so she helps dentists buy practices, sell practices, and kind of everything in between. She’s based in Salem, Oregon, but her and her group can work in a lot of the United States. Megan specifically has really spent her whole life in dentistry. I think we’re in for a treat here today. Megan thanks so much for joining the program.

Megan Urban (00:44):

Thank you.

Chris Pistorius (00:45):

Why don’t you start off Megan, by telling us a little bit about what you do, what OMNI is all about and we’ll kind of go from there?

Megan Urban (00:53):

Well, with OMNI, we’ve been a group helping dentists in all the specialties, so orthodontist, periodontist, all the different specialties since gosh, 2004. And like you said, we’re in most every state almost. We do help dentists of all specialties buy and sell practices, even help because of our background and our experience, we can help even if somebody is looking to add an associate and how does work. We do a lot of consulting around dentistry in general, but we certainly help with the buying and selling of dental practices. All of us have our real estate licenses too, so that makes it nice because then we can help if there is any kind of real estate involved, whether it’s a condo or a freestanding building or whatever.

Chris Pistorius (01:40):

Cool. Nice.

Chris Pistorius (01:41):

How do you see the market right now as a whole? Is it a hot market? Is it kind of a stagnant market? Where is it?

Megan Urban (01:49):

It’s a seller’s market. We had a few years, after 2008, I realize that’s a little while back, where I think dentists ended up having to work longer than they thought they would. It’s definitely a seller’s market and banks are lending, so it’s a great market right now. I know a lot of us and a lot of the population always are concerned with the big corporate practices and the direction that’s going, but we still see a lot of dentists that want their own thing. So we’re busy.

Chris Pistorius (02:23):

Yeah, well that’s great. That’s good news.

Chris Pistorius (02:26):

I definitely want to get into to the broker and selling and buying and that kind of stuff. Do you also help? I assume you could help a dentist that maybe has one practice and is looking to expand into additional practices too.

Megan Urban (02:41):

Absolutely. It’s a big deal to add an associate or to add another location. It really is a big deal. We like to help with that so that it has a better result than winging it. It’s a big deal.

Chris Pistorius (02:58):

Yeah. Yeah.

Chris Pistorius (02:59):

Talk a little bit about banks and lending. I know that’s certainly part of it. Have you seen any banks be a little tighter now because of COVID or are we starting to see that kind of expand out now?

Megan Urban (03:12):

A little bit. I think from my perspective, I feel like they do sometimes change their processes and things that they like. Sometimes they like startups, sometimes they don’t. Sometimes they like multiple locations, sometimes they don’t. During the height of COVID I was still selling practices and getting lending for people, but it was a little bit of a different process. We definitely have done all specific lenders that help our dentists. They understand dentistry, so they hear the story; it’s not just the numbers. It is the numbers, but they also hear the story. We have a lot of great banks that we work with.

Chris Pistorius (03:56):

Gotcha. Okay.

Chris Pistorius (03:57):

I’m going to kind of put you into two situations here. Let’s say first of all, I’m coming out of school or maybe I’ve been an associate for a while and I’m ready to buy my own practice. What are some tips or tricks if you will, or what do I need to do to get ready to do that?

Megan Urban (04:13):

I think you need to ask yourself if you’re ready to do it, and then I think you do need to find the right broker that can help you understand the practice that you’re looking at. No practice is perfect. There’s always areas of opportunity, but going in with your eyes wide open, I think is good. So anytime you can work with a broker that does come like I do, like we do from a dental background that truly understands what’s happening and how to make that smooth transition.

Megan Urban (04:48):

I think it’s also time to get your financial information together for the bank. They’re going to usually want maybe the last two or three years of your tax returns. They’re going to want to know what debt you have. And they expect every new dentist to have 200, $500,000 in student debt. Then they’re going to also want to know how much other debt do you have in credit card or that type of thing. Just to be able to get those things together. The other half to their loan is what is the practice cash flow? But if you have your stuff together and you’re ready to roll, that’s a good piece.

Megan Urban (05:31):

They have to look at information about the practice too. If the practice is doing surgical implants and this dentist, like you just said, is new out of school and they don’t do surgical implants yet, what’s the plan? Is the seller going to stay on and do them, or maybe it’s not a big part of the practice so it’s not a concern. Just a lot of details to look at.

Chris Pistorius (05:52):

Right.

Chris Pistorius (05:54):

Over the years, I know you’ve been in dentistry a long time and I want hit on that too, but do you see dentists that are more successful just starting a brand new from scratch practice or one’s more successful typically when they buy an existing book of business or an existing practice?

Megan Urban (06:09):

I think it takes a really special person or a unique person that can do a startup. You have to be pretty outgoing. You can’t just sit down in the chair and continue the process. You really have to get out there. That’s where, especially you guys come in handy because it’s not like the old days where you just put your shingle out front with your name and people walk in. So super critical that you think you have the personality and the wherewithal emotionally and financially to do a startup, but then be willing to understand that there’s a cost they’re going to need to put forward to with a great marketing plan. A lot of the banks understand that too, and so they’re going to potentially include that financial piece for marketing.

Chris Pistorius (07:01):

Gotcha. When we talk about starting something from scratch or even buying an existing practice, I think you’re probably right, banks realize that they’re going to need some money to start this up and get their own stuff going, and they’ll include some of those monies for marketing and things like that, right?

Megan Urban (07:23):

Yep. I always tell the young dentists because they’re concerned about the finances and I understand that, but sometimes you really have to keep the big picture in mind. $10,000, 30, $50,000 I realize is a lot of money, but in the life of your career it’s not that much for 30, 40 whatever years.

Chris Pistorius (07:46):

Yeah. We talk a lot about that with dentists. A lot of them, when we get some practices in to do our marketing services, they’re very focused on, “Okay, what are you going to do for me next month,” type thinking, and I totally get that. But they also have to sit back and realize, “Okay, what is a new patient worth to me for the lifetime of them being a patient,” and really knowing their numbers and understanding what each new patient’s worth. And if I do send them 10 brand new patients, how many of those will come back for regular treatment for the rest of their lives potentially? They’ve got to really start thinking about that big picture, not just next month, but next six months, next year, next five years, next 10 years. So I think that’s an excellent point.

Megan Urban (08:31):

Yeah. Which is why I always encourage them too is it is important your new patient count, but let’s look at your re-care. How many did come for their regular cleanings and perio-maintenance? Where all those people going?

Chris Pistorius (08:43):

Yeah, you’re exactly right. I’ve seen it too many times where a dentist will focus on new patients, new patients, new patients, certainly are a huge part of it, but there’s also usually a big pocket of patients that are not active anymore and they’re not coming back in and they’re not spending enough time, or focus on trying to get those patients that potentially already know you, like you and trust you to come back in, and those shouldn’t be the easiest ones to bring back in. That’s why I like to when I approach marketing, I talk about not just new patients, but a holistic approach that’s going to bring patients in from all over the place. I think that’s an awesome point that you made.

Megan Urban (09:21):

Oh, so important. When I talk to dentist and they say, “Well I just have one hygienist. We couldn’t keep another one full.” And I’m like, “Why not? [inaudible 00:09:32]. You’ve been practicing for X number of years and you’ve had X number of new patients per year or per month, whatever, where is everybody?

Chris Pistorius (09:41):

Right. Yeah. You’re totally right.

Chris Pistorius (09:43):

Well let me go to my other scenario here where I’m an existing dentist, and I’ve done it for 20 or 30 years and I don’t want to do it anymore. I’m ready to sell. How long a lead way do you typically get to start thinking about that process and what do you need to have in place? What’s the process with that?

Megan Urban (10:03):

There’s no right answer. I think sometimes dentists are lucky enough to say, hey I have a five-year plan. And that’s where the trusted advisors work together like you and me, the accountant, all that type of stuff to say, how do we make this work in a way that makes sense and we have five years. But if you don’t have five years and you’re ready to sell that still fine too. Either way, we just are going to need to know what your plan is. In fact, I always recommend, it’s not my business and you don’t have to, but I always say, “Yeah, talk to your financial planner. Are you ready? Can you financially retire? And if you can’t maybe you still need to get out because of a health problem or whatever anyway, but what are you going to do with this money in a way that makes sense tax-wise? You still pay your taxes, but what are you going to do with these funds?”

Megan Urban (10:55):

Really the next best thing is just to know, “Hey, I have my CPA that’s going to electronically send you my tax returns, and here’s the reports that we need from your software.” And then we do evaluation, come up with what we think is the reasonable price and then we recruit and find the right fit. Sometimes sellers are lucky enough to have several options and pick the buyer that they think is going to be the best one in their shoes, sometimes they don’t, just depends. And then it’s time to start thinking about a non-compete. Does the seller … Sometimes all of a sudden the day of closing they’re like, “Well, I really think I kind of want to work a couple of days a week.” And it’s like, “Oh my gosh, hold on. That’s not part of the plan.” The new dentist has to eat. The food now is theirs, and they have to pay the bills and pay the bank.

Megan Urban (11:52):

So it’s really good to think ahead. I think for most of them is what am I going to do? Do I want to have in my non-compete that I have the right to help these five friends of mine for one or two weeks at a time to cover vacation? All those details need to be in the contract. So that’s stuff that you need to think about before.

Chris Pistorius (12:12):

Right.

Chris Pistorius (12:15):

I get asked this a little bit too in marketing is how do you evaluate a dental practice? Is it how much income? Is it how many patients? Is there a basic scenario or a formula on how to evaluate a dental practice?

Megan Urban (12:32):

Yeah. Yeah, there is. It’s actually a fairly complex evaluation that we go through. There is a certain huge part; that’s the last three years of financials. We do look at adjusted cashflow. When you look at somebody’s tax returns, they may have three kids on payroll for tax and retirement benefits. We take that piece out so that we can see what amount of cash would truly be available to a buyer. We do look at the last three years numbers of how much did you collect and how much did you put in your pocket? That’s a big part of it.

Megan Urban (13:15):

And then we do look at what’s the new patient count? I think every new dentist, that’s a huge question for them. What website do they have? We look at the location. Is it urban or rural? Does it look like 1975 in there? We don’t need it to look like the Taj Mahal, but those things do definitely play a piece in it too. Once we have the financial piece, then we say, “Okay what is this other piece?”

Chris Pistorius (13:51):

Right. Okay.

Chris Pistorius (13:53):

I guess if you own your own building, that’s one thing, but I think most dental practices are in some sort of a lease situation. Does it matter how far along they are in their lease and what those terms look like. I guess my question would be, I’m three years from retirement potentially, should I worry about a longer lease to renew with, or a shorter one? What’s your advice for that?

Megan Urban (14:18):

Yeah. That’s very important. I’m glad you said that. It’s super important. A lot of times I noticed when I talk to dentists that have a lease, they don’t even remember. It’s time to dig that out. Find that lease and see how much longer you have and what the details are. Even if you’ve got 20 years left on your lease or something can this new person take it over? So yeah, lease is super important. And I think you definitely need to know what you have available because the bank isn’t going to give the buyer money if they don’t have that building and that space to practice in.

Chris Pistorius (14:55):

Yeah. Yeah. That totally makes sense.

Chris Pistorius (14:58):

Kind of bringing modern world into this … Does marketing a practice and being able to show that you’ve marketed a practice over the last few years, and you can show physically that new patients come in from your marketing efforts, does that help with the value of a practice?

Megan Urban (15:15):

It does. It definitely does. We have plenty of practices that we work with that don’t have a website, that don’t have business cards, that don’t do advertising, or that still do yellow pages, but the new dentists are a little more savvy to all the ways to market and social media and the SEO and all that. So I think that definitely plays a big part in what a buyer looks at for a practice.

Chris Pistorius (15:43):

Okay. What about employees? You’ve got hygienists, you got front desk staff, you’ve got all kinds of employees. Is there anything that you should do prior to selling to get these folks ready? How does that work?

Megan Urban (15:58):

Not really. Typically, we don’t recommend that your staff or your team has any knowledge of you ready to leave. Now that being said, though, I’ve got multiple dentists that I’ve worked with that say, “But this team has been with me 30 years. They’re my friends. They’re my family. I have to tell them.” “Well that’s up to you. Here’s why we’re concerned. We don’t want them to get panicked and nervous and leave because they are a part of the goodwill too. The patients like the team as well.”

Megan Urban (16:35):

But it’s just human nature to get really freaked out and nervous about this kind of stuff. And so we don’t typically recommend that they talk to them or tell them about it until we have a new buyer and it’s pretty tied up. I guess if you really have somebody awful on your team that you’ve been nursing for a while, maybe it’s time to move on. But otherwise there’s not a lot you can typically do there.

Chris Pistorius (17:01):

Yeah. Yeah.

Chris Pistorius (17:02):

I know this is across the board, but if you brought on a dentist who’s looking to sell right now, how long does that process take on average?

Megan Urban (17:12):

It definitely depends. I guess maybe six months, maybe less. I’ve seen some happen in a month and a half, but I’d say they’re typically usually around six maybe. And that’s allowing for time to find the right buyer and they contact their advisors too, their CPA and their lenders and attorney and get all that straightened out. Again, it goes much quicker if you have dental specific lenders and dental specific attorneys that are involved and know what they’re doing and can wrap it up pretty quickly.

Chris Pistorius (17:49):

Right. Okay. Okay.

Chris Pistorius (17:51):

Now I know OMNI can … Maybe you can talk a little bit about between yourself and your company, who can you service? Where can you help dentists?

Megan Urban (18:01):

Depending on what we’re doing to some degree any state. On our team we have, gosh, I don’t know, probably four dentists that are also brokers. We have a CPA. We have MBAs. We have several of us that have been in the dental industry forever. We’re definitely licensed, especially with our real estate license in I’ll say Oregon, Washington, Alaska, Idaho, Nevada, Arizona, California, Colorado, Ohio. I hope I didn’t miss any there.

Chris Pistorius (18:44):

All over the place.

Chris Pistorius (18:46):

Let’s say somebody is ready to buy their practice or they’re ready to sell their practice. What is typically a first step when they contact somebody like you? What do you do first?

Megan Urban (18:57):

Just ask a lot of questions honestly, to find out what they want to do, what their goal is, if they want to stay on and work some or they don’t. Just in general is we just literally talk about what the process is. “Yeah, here’s how this works. Here’s how we advertise and market your practice. We have hundreds of dentists looking for practice. Well, I do, so as a team, we would have thousands and thousands that I can reach out to. I need to know about your practice and what we’re selling. Who we’re looking for to take over for you.”

Megan Urban (19:37):

That’s really just a simple start. It’s just literally to talk and talk about the practice and what the process is. Yes, we get evaluation and they come and look at your practice and they get lending, and literally just to share that knowledge and guide them.

Chris Pistorius (19:53):

Yeah. Yeah. And in hiring somebody like you with this much experience, over the years I’m sure you’ve got tons of contacts and lending and all other expertise in selling and buying practices, right?

Megan Urban (20:07):

Yep. Yeah. We have all the dental specific attorneys and accountants and lenders that all know how to come together and make it as stress free as possible to the transition.

Chris Pistorius (20:22):

Sure. Yeah. I think that’s the thing. We’ve had experiences here at our agency where practices have grown and they need to expand. It’s a very stressful process a lot of the times. You think about yourself when you buy a home; it’s one of the most stressful times of your life. So I think if you can find the right person to partner with to help you through that process and they know the ins and outs, any less stress that can be involved the better, right?

Megan Urban (20:52):

Yeah. Absolutely. And then that’s what I even find out too is how often they want to communicate with me. Maybe they don’t know yet, but as we go along, they’ll decide. I have some people if I don’t talk to them every day, they wonder what’s going on. But others are like, “I don’t need to know who asked for my information. Just tell me when you have something.” I’m like, “Okay, you got it.”

Chris Pistorius (21:17):

Well Megan, if somebody is watching this and they may be in that process or thought pattern of sell or buy or something in between, what’s the best way to reach out and get a hold of you?

Megan Urban (21:26):

You can call me, email me, whatever you want. Our website is omni-pg, as in practicegroup.com. It will have my phone number and my email. I’m available. This is what we do.

Chris Pistorius (21:45):

Awesome. I’ll make sure that on the video wherever you’re watching this or listening to this, your details will be attached to that as well. Somebody can easily reach out and get a hold of you if they have questions or just need advice.

Megan Urban (22:00):

Yeah. Sometimes it’s just talking through something. I have all these years of experience and when you’re in your own little office by yourself, maybe you have a couple of golf buddies that are dentists, but you just don’t know. So sometimes talking through a few things.

Chris Pistorius (22:19):

Yeah, for sure.

Chris Pistorius (22:20):

Well Megan, I appreciate you taking the time to be with us today. I know you’re very busy. Maybe we can follow up in a few months and just see how the market is and go from there. Thanks so much for taking the time to be with us today.

Megan Urban (22:34):

Thank you so much.

Chris Pistorius (22:35):

All right. Awesome.

Chris Pistorius (22:37):

Well, thanks everybody for watching. I hope you got a lot out of this. Some great information that Megan just unpacked for us; buying and selling and everything in between, how to get ready for it, how to prepare, what questions sometimes to ask, things like that.

Chris Pistorius (22:53):

Please join us in our next episode and thanks again for joining us today.