ARE SELLERS GETTING YOUNGER?
Definitely YES! The average age of our sellers has dropped from 62.4 years old to 50.7 years young just over the past 10 years. And this propensity is continuing. We are listing more and more sellers in their mid 40’s all the time. In fact, we predict the average age of our sellers will be in the mid 40’s within the next 3 to 5 years.
Why so young? There are some extremely sound reasons for this trend. Burn-out, stress, boredom, disgust, OSHA are just a few reasons… but, quite frankly, the most recurrent reason for selling at a younger age is purely FINANCIAL!
Many doctors are discovering the PARAGON Pre-Sale Program as a life-changing alternative. The PARAGON Pre-Sale makes it possible to maintain your current take home income level and your present life style for as many years as you desire… while converting your current practice equity into a useable cash investment TODAY! This is a major financial advantage that is very hard to ignore.
For example, let’s say a 45-year-old doctor owns a practice worth $400,000. This doctor is busy enough and entrenched in the proverbial “comfort zone”. By his own admission, it is unlikely that he will put forth the effort to take the practice to a significantly higher level. He has been at or around this $400K value for several years now. If our 45-year-old converted his practice equity into cash today and invested the after-tax portion ($250,000) for the next 20 years at only 10% interest, he would accumulate $1,681,850 by age 65. Consequently, to net the exact same amount by selling the practice at retirement, he would have to sell the practice for $2,541,308 (paying taxes of $859,458 to net $1,681,850) at age 65. That means his practice would have to be grossing around 3.3 million a year at age 65. Are you kidding me? That is not even feasible enough to be classified as a fairy tale!
So what are his realistic options? He could obviously wait to sell because he feels he will eventually put the drive into building the practice gross income up. But even if he could muster the energy, he may still be fighting a losing battle, as far as practice equity is concerned; because the supply and demand trends in dentistry today favor a significant drop in overall dental practice equity values over the next decade. We are fast approaching a “buyer’s market” in which we will see far more sellers than buyers and market values falling (please read “The Diminishing Practice Value” article).
And without acquiring a practice for merger, could our 45-year-old really build his current practice up enough to make a difference anyway? Let’s see. If our 45-year-old dentist waits one more year to sell it would cost him $152,875 at age 65 ($250,000 invested at 10% for 19 years equals $1,528,975). This is about 30% of his current practice value just for procrastinating one year. That means he would have to increase his practice’s gross income by 30% next year just to break even. Can you realistically increase the gross income of your dental practice by 30% in just 12 short months? I once vowed to “never say never”… but I seriously doubt it!
Once a practice reaches its peak value it makes no financial sense not to sell… regardless of age. You can maintain a substantial current income for as long as you desire. You can work when you want to work and only see the patients you want to see. You can pick and choose the procedures you enjoy doing. You can accumulate significantly greater sums of money by retirement age by selling early. You can be in a position to retire at a much earlier age than those dentists who don’t sell early. There appears to be every reason to sell younger and, as far as we can see, no logical reason to put selling off!
And we did not even mention the inherent costs associated with the unknown… death, disability or extended illness. Either could destroy your practice value in a very short time! You owe it to yourself to explore your options. Call PARAGON today for a complimentary consultation. You will be very glad you did
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Wednesday, February 17, 2010
Friday, February 5, 2010
A Better Way to Buy a Dental Practice
DUAL REPRESENTATION
At some point in your career you will discover that gaining access to quality patients will play an important roll in your quest for true success. Of course, you could spend money on advertising, or you could wait around for patients to filter in from referrals, but these methods are excruciatingly slow for building the right kind of practice. By far your best option is to simply purchase a large group of patients all at once from the dentist who controls access to those patients.
You may wish to do so in order to get your career off the ground OR to enhance the revenues and income you are currently deriving from your existing practice OR as insurance against the inroads of managed care on your present practice… for whatever reason you decide, the acquisition of an existing dental practice will be one of the most profitable and rewarding experiences of your life and professional career.
You should know, however, that purchasing a practice is a very complex process that unfolds over several months (or even years) and is not simply a matter of finding a practice in the classifieds; negotiating a "good deal"; and, living happily ever after. Purchasing a dental practice is not like buying a new car or a piece of real estate. In a very real way you will be acquiring a whole set of new relationships with people who do not know you and who may not trust you as either their new dentist or their new boss. You will not be able to see or touch most of what you are paying for until long after the ink is dry on your contracts. If this sounds a bit scary, it should! The dream of owning your own practice can quickly become your worst nightmare. There are innumerable ways to foul things up and many of your colleagues out there are on the cutting edge of finding new ways to foul this process up each and every day.
At PARAGON we call the process of acquiring a dental practice a practice transition... a word that stresses a sense of both time and change. The word transition further highlights the fact that we are dealing with a process, not an event. Over the past two decades, we have dedicated ourselves to understanding what really takes place during a transition, and how to make the process better, smoother, and far more profitable for our clients. Our experience in hundreds of dental practice transitions across the country has allowed us to develop and refine a truly superior method of transitioning professional practices. Once you understand this unique process, we think you'll agree.
We call this process Dual Representation. Our track record is impeccable. We have a virtual 100% closure ratio on all transitions that go to contract, yet amazingly, there are still those who maintain that it is "impossible" to represent the interests of two "opposing" parties in a transaction. What matters most is that the two sides achieve their long-term objectives. We have found that Dual Representation allows this to happen in a powerful way.
Of course, skeptics maintain that unilateral representation has worked very well in real estate and other brokered transactions for many years. To that we simply say that purchasing a dental practice is not at all like purchasing a piece of real estate. When a buyer and seller sit down to hammer out a real estate transaction they can posture and cajole and play real hardball. After all, the property itself has no life of its own and will be the same whether the purchaser is a “White Knight” or “Attila the Hun”. The two sides certainly do not have to live together in the house after the sale. They don't even have to like each other. Surely, no tenant will leave because the landlord didn't get a fair shake. Not so with a dental practice. Damage done during arduous negotiation eventually comes home to roost. Staff members are usually the first to pick up on it. Later it makes its way to the patients, who begin to leave for unexplained reasons. Sometimes the seller himself lets the word out. Other times it is a single remark to a staff member at a stressful moment that takes on a life of its own and makes its way back to the patients. Either way, the paradox remains -- the more a deal is negotiated… the more everyone loses.
Dual Representation dictates that we develop and maintain a client / consultant relationship with both the buyer and seller in every transaction. For the seller, this means that we take the time to understand his or her objectives and that we not allow those objectives to be compromised. After all, it is the seller that has a lifetime of toil and effort at stake. For the buyer, this means that we develop a keen awareness of his or her goals and aspirations and that we do everything in our power to assist in accomplishing those goals. After all, it is the buyer who will put his future on the line to acquire a practice. It also means that we take great care to make sure that the two clients in a transaction have compatible goals and objectives. This concept is totally foreign to the typical brokered transactions where virtually any warm body is a candidate to buy. Whenever we work toward a transition with our clients, the question is always, "Are the needs and objectives of these two individuals sufficiently compatible to allow a true Win/Win transaction, or will someone need to compromise their objectives in order to get a deal done?"
Whereas Dual Representation may appear on the surface to be a serious conflict of interest, it is in reality a mechanism for bringing integrity and discipline to the sale process. As an intermediary expert with fiduciary responsibilities extending to both parties, we must make sure that the transactions we put together are absolutely appropriate and fair to all concerned. We must be prepared to recommend that a deal be passed rather than forced, because with Dual Representation, we live or die by the success of the transaction. Dual Representation forces us to be long-term goal oriented about our business and to only facilitate equitable transactions. Brokers, on the other hand, can walk away with their fee and always blame the buyer or the seller, thus disclaiming any responsibility for fouling things up if the transition does not go well.
In his best-selling book, Seven Habits of Highly Effective People, Dr. Stephen Covey describes the true nature of a Win/Win transaction as the only viable option in business deals. The alternatives of Lose/Win, Win/Lose, and Lose/Lose, are all unacceptable in the long run because they will all eventually lead to undesirable results. As Dr. Covey so aptly states, "There's no way to achieve Win/Win ends with Win/Lose or Lose/Win means." - precisely what the traditional methods of unilateral representation in practice sales have in common. It is critical to understand that we are not dealing in a zero-sum game where the pie is only so big with the reality that for one side to get, the other side has to give. No one party has to gain at the other's expense. In fact, just the opposite is true. If both parties become sensitive to the needs of the other, and if they can clearly see that the realization of their individual goals and objectives are intertwined, then the synergy that results can propel the practice and the doctors to a far greater degree of success than they ever dreamed possible. That is why at PARAGON it is “Win/Win” or it is NO DEAL!
There is something else you should know if you are about to buy a dental practice. It is the fundamental truth that what really matters the most is not how much you pay for the practice, but what you actually receive for the money invested. PARAGON had a client who passed up an opportunity to acquire a wonderful practice grossing $400,000 per year in the best part of town. The buyer was also contacted by a practice broker who offered the buyer a great deal on another practice grossing about the same amount as our opportunity. The broker's great deal was priced $100,000 less, so the buyer passed on our practice and bought the practice the broker offered. PARAGON later sold the original practice for its full value. Three years later the buyer who got the great deal approached us at a dental convention and told us of his experience. The past three years had been a living nightmare and financial survival was truly day to day. What he thought was a great deal was in reality a carefully disguised disaster. On the other hand, our client who purchased the original practice for $100,000 more was now earning well into mid six figures with no concern at all for his financial future. The bottom line is that it is not what you pay for a practice, but what you end up with that truly matters… and what you end up with is largely a function of the process you use to acquire your practice.
If you remember nothing else from this article, please remember that everyone deserves to win. You merely have to decide that you want the transaction to be fair for all… and it happens! A "Win/Win" transaction is all that is acceptable to PARAGON and we know dual representation accomplishes this goal.
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
At some point in your career you will discover that gaining access to quality patients will play an important roll in your quest for true success. Of course, you could spend money on advertising, or you could wait around for patients to filter in from referrals, but these methods are excruciatingly slow for building the right kind of practice. By far your best option is to simply purchase a large group of patients all at once from the dentist who controls access to those patients.
You may wish to do so in order to get your career off the ground OR to enhance the revenues and income you are currently deriving from your existing practice OR as insurance against the inroads of managed care on your present practice… for whatever reason you decide, the acquisition of an existing dental practice will be one of the most profitable and rewarding experiences of your life and professional career.
You should know, however, that purchasing a practice is a very complex process that unfolds over several months (or even years) and is not simply a matter of finding a practice in the classifieds; negotiating a "good deal"; and, living happily ever after. Purchasing a dental practice is not like buying a new car or a piece of real estate. In a very real way you will be acquiring a whole set of new relationships with people who do not know you and who may not trust you as either their new dentist or their new boss. You will not be able to see or touch most of what you are paying for until long after the ink is dry on your contracts. If this sounds a bit scary, it should! The dream of owning your own practice can quickly become your worst nightmare. There are innumerable ways to foul things up and many of your colleagues out there are on the cutting edge of finding new ways to foul this process up each and every day.
At PARAGON we call the process of acquiring a dental practice a practice transition... a word that stresses a sense of both time and change. The word transition further highlights the fact that we are dealing with a process, not an event. Over the past two decades, we have dedicated ourselves to understanding what really takes place during a transition, and how to make the process better, smoother, and far more profitable for our clients. Our experience in hundreds of dental practice transitions across the country has allowed us to develop and refine a truly superior method of transitioning professional practices. Once you understand this unique process, we think you'll agree.
We call this process Dual Representation. Our track record is impeccable. We have a virtual 100% closure ratio on all transitions that go to contract, yet amazingly, there are still those who maintain that it is "impossible" to represent the interests of two "opposing" parties in a transaction. What matters most is that the two sides achieve their long-term objectives. We have found that Dual Representation allows this to happen in a powerful way.
Of course, skeptics maintain that unilateral representation has worked very well in real estate and other brokered transactions for many years. To that we simply say that purchasing a dental practice is not at all like purchasing a piece of real estate. When a buyer and seller sit down to hammer out a real estate transaction they can posture and cajole and play real hardball. After all, the property itself has no life of its own and will be the same whether the purchaser is a “White Knight” or “Attila the Hun”. The two sides certainly do not have to live together in the house after the sale. They don't even have to like each other. Surely, no tenant will leave because the landlord didn't get a fair shake. Not so with a dental practice. Damage done during arduous negotiation eventually comes home to roost. Staff members are usually the first to pick up on it. Later it makes its way to the patients, who begin to leave for unexplained reasons. Sometimes the seller himself lets the word out. Other times it is a single remark to a staff member at a stressful moment that takes on a life of its own and makes its way back to the patients. Either way, the paradox remains -- the more a deal is negotiated… the more everyone loses.
Dual Representation dictates that we develop and maintain a client / consultant relationship with both the buyer and seller in every transaction. For the seller, this means that we take the time to understand his or her objectives and that we not allow those objectives to be compromised. After all, it is the seller that has a lifetime of toil and effort at stake. For the buyer, this means that we develop a keen awareness of his or her goals and aspirations and that we do everything in our power to assist in accomplishing those goals. After all, it is the buyer who will put his future on the line to acquire a practice. It also means that we take great care to make sure that the two clients in a transaction have compatible goals and objectives. This concept is totally foreign to the typical brokered transactions where virtually any warm body is a candidate to buy. Whenever we work toward a transition with our clients, the question is always, "Are the needs and objectives of these two individuals sufficiently compatible to allow a true Win/Win transaction, or will someone need to compromise their objectives in order to get a deal done?"
Whereas Dual Representation may appear on the surface to be a serious conflict of interest, it is in reality a mechanism for bringing integrity and discipline to the sale process. As an intermediary expert with fiduciary responsibilities extending to both parties, we must make sure that the transactions we put together are absolutely appropriate and fair to all concerned. We must be prepared to recommend that a deal be passed rather than forced, because with Dual Representation, we live or die by the success of the transaction. Dual Representation forces us to be long-term goal oriented about our business and to only facilitate equitable transactions. Brokers, on the other hand, can walk away with their fee and always blame the buyer or the seller, thus disclaiming any responsibility for fouling things up if the transition does not go well.
In his best-selling book, Seven Habits of Highly Effective People, Dr. Stephen Covey describes the true nature of a Win/Win transaction as the only viable option in business deals. The alternatives of Lose/Win, Win/Lose, and Lose/Lose, are all unacceptable in the long run because they will all eventually lead to undesirable results. As Dr. Covey so aptly states, "There's no way to achieve Win/Win ends with Win/Lose or Lose/Win means." - precisely what the traditional methods of unilateral representation in practice sales have in common. It is critical to understand that we are not dealing in a zero-sum game where the pie is only so big with the reality that for one side to get, the other side has to give. No one party has to gain at the other's expense. In fact, just the opposite is true. If both parties become sensitive to the needs of the other, and if they can clearly see that the realization of their individual goals and objectives are intertwined, then the synergy that results can propel the practice and the doctors to a far greater degree of success than they ever dreamed possible. That is why at PARAGON it is “Win/Win” or it is NO DEAL!
There is something else you should know if you are about to buy a dental practice. It is the fundamental truth that what really matters the most is not how much you pay for the practice, but what you actually receive for the money invested. PARAGON had a client who passed up an opportunity to acquire a wonderful practice grossing $400,000 per year in the best part of town. The buyer was also contacted by a practice broker who offered the buyer a great deal on another practice grossing about the same amount as our opportunity. The broker's great deal was priced $100,000 less, so the buyer passed on our practice and bought the practice the broker offered. PARAGON later sold the original practice for its full value. Three years later the buyer who got the great deal approached us at a dental convention and told us of his experience. The past three years had been a living nightmare and financial survival was truly day to day. What he thought was a great deal was in reality a carefully disguised disaster. On the other hand, our client who purchased the original practice for $100,000 more was now earning well into mid six figures with no concern at all for his financial future. The bottom line is that it is not what you pay for a practice, but what you end up with that truly matters… and what you end up with is largely a function of the process you use to acquire your practice.
If you remember nothing else from this article, please remember that everyone deserves to win. You merely have to decide that you want the transaction to be fair for all… and it happens! A "Win/Win" transaction is all that is acceptable to PARAGON and we know dual representation accomplishes this goal.
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
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