When I talk to dentists that want to sell their practice one of the first question I usually ask is:
“What kind of dentist do you want to buy your practice?” Frequently, the answer is, “I’d like to get a part-time associate who would buy work with me for a couple of years and then buy my practice”
This is the method of practice purchase that makes the most sense to many older dentists. It is often how they originally purchased their practice. But, the purchase of dental practices has changed, especially since the early 2000’s. Those changes make it more difficult to find an associate that will eventually purchase the practice. It is not as easy as it was in the past.
There are several reasons for this change:
Dental School Debt
In 1985 the average dental school graduate owed approximately $35,000 on average in student loan debt. By 2000, that amount had risen to more than $150,000. Today it is near $350,000 and is not uncommon for new grads to have student loan debt of over $700,000. This means that new grads and younger dentists, in general, must make a substantial income to service their student loan debt. Monthly debt payments can be as much as $5,000 for these new grads and it is quite challenging for any younger dentist to earn enough income to make these payments. This means that most younger dentists must make at least $150,000 a year and that is mor than most practice owners can afford to pay a part time associate that they hope will one day purchase their practice. The younger dentists cannot and will not agree to make substantially less money for a several years in the hope that they will eventually be able to purchase the practice.
For these younger dentists a much better plan is to work as an associate at a corporate dental office, make a good living, pay their monthly dental school debt, and then, if they want to purchase a practice, just find one that is for sale and one in which the selling dentist is willing to sell and retire.
How Dental Practice Purchases are Financed
In 1985 almost 70% of dental practice purchases were in some way financed by the selling dentist. Most times it was a percentage of the sale that was financed by the seller, but 100% seller-financed dental practice sales were not uncommon. Since they were “loaning” money to their practice buyer it was less risky if they knew about the person buying. The Several year apprenticeship allowed both seller and buyer to become comfortable with each other. This fit in well for the buyer as well since the bank was more likely to loan money for a practice sale where the new buyer had been in the practice for some time. It gave the banks a higher level of confidence when loaning money if banks were financing part of the sale price.
Today almost all dental practices are sold with 100% bank financing and today 100% bank financing is fairly easy to obtain. If the bank turns down a prospective practice purchase loan, either the practice is priced too high to justify the sales price or the buyer is not credit-worthy, but these days anyone with reasonable credit can finance the purchase of a dental practice if it is priced accurately according to its value.
One last point about seller financing. If you are considering it as a seller, don’t do it! I have only been involved in a handful of these over the past 21 years and almost all of them ultimately caused a rift between seller and buyer. Eventually there was a problem with monthly payments and this resulted in tension and loss of trust between the seller and buyer. This affected the transfer of goodwill and as such the value of the practice. Since
the value of a dental practice is almost entirely the value of the goodwill that is transferred from the practice seller to the practice buyer. Nothing destroys that goodwill faster than arguments over monthly payments.
Let me repeat, DON’T FINANCE THE SALE OF YOUR DENTAL PRACTICE!
The Changing Goals and Needs of Dentists
In 1985 most dental school grads were entrepreneurial. They either owned their practice or planned on owning a practice in the near future. The desire to be a small business owner and the perceived control of their destiny was extremely important to them. If they wanted to work six days a week building a practice, they wanted that to be their right but more importantly their choice. Owning their dental practice was much more than a quest for more money. It was a personal career vision. If owning a practice meant that they had to be a sort of “apprentice” to an older dentist for a few years, that was just the price they had to pay to eventually own a dental practice. They were willing to pay that price even if it meant that they would make less money while in their apprenticeship.
In the early 2000s, the desire for dental practice ownership began to shift. Fewer and fewer young dentists wanted to take on the responsibilities of practice ownership. As of 2021, research shows that less than 40% of dental school grads ever want to own a dental practice. In my personal experience, I believe it is much closer to 25% that have that burning desire to ever be a practice owner. The focus of today’s dental school graduates has changed from dental practice ownership and control of their professional future to emphasis and concern about lifestyle and family life. Most younger dentists are concerned about time off from practice and working a reduced schedule so that they can pursue areas outside of their careers. When you look at this objectively, it is not surprising because these same trends have been happening in the general population as well. As it stands today many younger dentists are just not willing to make the sacrifices necessary to own and operate a successful dental practice. They have decided that some loss of control and income is worth the price to pay for the lifestyle they want to live.
For many younger dentists today, it is much easier to settle for finding a long-term associateship that enables them to pay off their student loan debt and provide them the freedom to live the lifestyle they desire without all of the responsibilities that come with practice ownership. This means that the pool of available dentists that might be willing to work in your practice for a few years and then to purchase it has shrunk.
What Today’s Buyer Wants When They Purchase a Dental Practice
This brings us to the next logical question, if young dentists’ desires have changed, what exactly do they want when they do decide to buy a dental practice? What is important for selling dentists to understand is that today’s younger dentists value different traits in a dental practice than their older colleagues.
Not too long ago, financial numbers were the number one criterion for the desirability of a dental practice. Also, high on the list was the quality of staff and the number of competing dentists in a given area. If a great practice was available in an area that was an hour from where the practice buyer currently lived, yesterday’s dental practice purchasers were more than willing to uproot themselves and their families and move. The thought was that it was more difficult to find a good practice to make your dental home than it was to find a good house and community to live in.
Today young dentists have a different view of the important characteristics of a dental practice. Today, location is the number one criterion. If it is not close to where they make their home, no matter how profitable or technologically up-to-date it is, today’s practice buyers are simply not interested. And speaking of updated technology and décor, it is a very high priority. Old equipment, outdated paint, or furnishings are a major black mark for today’s practice buyers. Numbers are still important, but they are not the only selling feature.
When you add up all of these reasons, it is easy to see that times have changed. The younger members of our dental profession have a different view of what makes a great dental practice. This change in perspective has made it more challenging to find an associate to work in your practice for a few years and transition to ownership. Difficult does not mean impossible, but if you are determined to transition your practice this way, be prepared for headwinds and pack your patience.