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Second Opinion: Why Won’t My Practice Sell? by Timothy Lott, CPA, CVA

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Why Won't My Practice Sell?
by Timothy Lott, CPA, CVA
Second opinions are common in health care, whether a doctor is sorting out a difficult case or a patient is not sure what to do next. In the context of our magazine, the first opinion will always belong to the reader. This feature will allow fellow dental professionals to share their opinions on various topics, providing you with a "second opinion." Perhaps some of these observations will change your mind, while others will solidify your position. In the end, our goal is to create discussion and debate to enrich our profession.
- Thomas Giacobbi, DDS, FAGD, Editorial Director, Dentaltown Magazine

Having represented dentists for almost 30 years, as well as representing hundreds of buyers in their efforts to purchase dental practices, I've seen what seems like thousands of dental practices for sale. Many times the practices that buyers are looking at simply aren't worth the time, expense and diligence needed to purchase so we have to pass on it and move on to the next opportunity. Many practices won't get more than a cursory look if the information doesn't look reasonable at first glance.

I believe the majority of practices that don't get attention are located in areas that the younger generation just doesn't want to live. To keep it simple, I'll suggest there are three types of locations for practices: hot, cold and everywhere else. If you're located in a cold area where most doctors simply don't want to live or practice, it's quite difficult for you to even get someone to look at your practice. If you're located in a hot area, anything sells, even practices that have no business selling will wind up finding a buyer. Some of the hot areas I've witnessed include parts of Texas, Northern Virginia, most of California and more recently, Chicago, and parts of the northeast. There are certainly many more "hot" areas but the ones I've mentioned seem to rise to the top. So what about the practices that are "everywhere else"? If you have a practice located in one of these "everywhere else" areas that simply won't sell, why is that? Perhaps you're getting looks and no one is willing to make an offer. What is it about your practice that makes a buyer pass you by? Here are some issues potential sellers can learn from - what are buyers and their advisors looking for when deciding which practices to pursue?

Price

Let's get price out of the way first. While price is certainly important, it is not the primary driver in many cases. I've had situations where practices have been overpriced yet we've advised the buyer to pay the premium because we see potential for a great future for that practice.

Curb Appeal (Inside and Out)

I'm not talking about what it looks like from the outside. I'm wondering if anyone even knows where your practice is. If practices with great locations sell quickly then the opposite usually holds true as well. Practices in poor locations don't get much attention. Like real estate, location, location, location is a key concern with many buyers. Even if you have a decent location, most buyers place just as much emphasis on what's inside. If you're still practicing as though it's 1975 (and there has been little updating), most buyers believe it'll cost them too much money to bring the practice up to today's standards. They don't want the headaches and costs associated with updating a 30+ year old practice in addition to paying a seller a hefty price for the goodwill.

Books and Records

Speaking of updating, an issue that's near and dear to any CPA: the books and records of the target practice. We have a basic list of initial data we like to see when assessing an opportunity. If the seller is unable to compile this basic information, it really limits the ability of the buyer or advisor to analyze the practice. We've seen handwritten practice financials, production reports and tax returns. If we are unable to gain a level of comfort with the basic information, and there isn't anything else about the practice that makes it attractive, we simply have to move on.

Diminished Goodwill

Sometimes we'll come across a practice that has a great location and has been updated, yet the owner has cut back so much over the years before deciding to sell. There's not much left in terms of patients. These practices have very little goodwill value. Most of their value is either in the location or the equipment, however, the owner has placed a premium on the practice and prospective buyers simply don't want to purchase a start-up situation for the asking price. They would rather start their own practices for the same money and build them to their specifications.

All Isn't As It Appears

False advertising is another hold-back. We've seen practices that appear to be ideal situations -they're located in a decent location, they've been updated and the revenue and overhead seem appropriate. However, as we dig into the information and look behind the curtain we begin to see a practice that's completely different than what's advertised. A prime example is a practice that's being sold as a general dentistry practice and once you look into how the revenue is generated you find it's more like a specialty practice that's been relying on referrals. That can turn off prospective buyers quickly.

Richly Compensated Staff

Sometimes owners have been great people to work for, they've treated their employees very well with raises every year, occasional bonuses, tax-free expense reimbursements and oodles of paid vacation time all while reducing hours. So now you have a team who is used to a cushy compensation package, working 20 hours per week, and represents 40 percent of your total overhead of 80 percent. There's very little profit for a prospective buyer. The thought of having to deal with the overpaid staff issue is overwhelming for most buyers (especially when they are new to ownership). On top of that, they are being told to try and keep the staff at all costs even though they're greatly overpaid.

Far End of the Spectrum

"How about being extreme? That's right, if you've developed the type of practice that falls to either end of a spectrum, you've reduced your buyer pool. A practice that's completely fee-for-service in an area that's abundant with PPO patients will find it difficult to attract a buyer that's willing to take the risk on that type of practice. It must have other attractive attributes to get the right buyer. The same holds true with a practice that participates with every PPO under the sun (along with federal programs). If these practices aren't large enough you'll find that the overhead is so enormous, as a percentage of revenue, that buyers will continue to look for more profitable practices. Many buyers will see this as the type of practice where they have to work the hardest for smaller reward. If you're in one of those "cold" areas I mentioned, there might not be a whole lot you can do and if you're in one of the "hot" areas, you might not have to do much at all. If you're "everywhere else" you should really get help in evaluating your practice, not only for price, but for all the other areas of your practice. It's important to understand what buyers are thinking and looking for so you can prepare your practice for sale. Determine if your practice has any of the issues I mentioned and try to correct the issues before offering it for sale. 		Driving Buyers

While I've covered some of the more prevalent reasons that a practice won't sell, we've seen many other issues that have kept buyers from completing deals on practices. Instead of going into detail on each and every issue, here's a list of some of the other issues that will drive buyers:
  • An absentee owner using associates without contracts
  • Owners with many associates in the past who have been offered to buy and haven't purchased
  • Owners with another practice(s) in close proximity or just moved their practice and are trying to sell the "old" location
  • Owner working with a difficult broker or advisor
  • Unusually high dentistry production compared to hygiene production
  • Owner/advisors not answering questions and providing details (dodging the questions)
  • Owners insisting on doing a deal without professionals and suggesting the buyer avoid professionals as well
  • Owner trying to rush a deal
  • A practice that's been sold multiple times over a short period of time


Author's Bio
Timothy Lott is a partner with Naden/Lean, LLC, a professional services and CPA firm with a specific concentration in the dental industry. He has been working with dental professionals for 30 years. In addition to the traditional CPA services, he advises his clients on practice performance, practice transitions and succession planning, start-up consulting and buyer representation. He's the main contributor to the award-winning Dental CPA Blog which is popular with dentists across the country.

Over the past 10 years Tim has increased his focus on buyer representation. On almost any given day he'll be involved in more than a dozen practice transitions (on behalf of buyers) all over the country. Tim is constantly sharing his wealth of practice transition knowledge on Dentaltown in an effort to help dentists and prospective buyers.

Tim is a CPA and CVA (Certified Valuation Analyst), acknowledging his knowledge and expertise in practice valuation issues. He became a licensed Investment Advisor Representative in 2008. He has presented at various dental study clubs, dental society meetings, other dental related seminars and has participated in many practice mergers, acquisitions and buy/sell arrangements. When Tim isn't provided wisdom to dentists he can be found under the hood of his classic Firebird, splitting logs, on the softball diamond or exploring some lost trail deep in the woods. Tim can be contacted at www.dentalcpas.com. You can also find him on the Dentaltown.com message board forums as "Tim Lott, CPA, CVA."
Dentaltown Magazine
September 2025
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