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So, What’s the Plan? by Dr. Suzanne Ebert

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Categories: Practice Transitions;
So, What’s the Plan? 

Why you’ve got to start thinking about your retirement and practice sale 5–10 years ahead of time

by Dr. Suzanne Ebert

Retirement requires planning. Many dentists don’t check in with themselves emotionally or financially to create a tangible road map with enough runway to assess and adjust as they pursue their retirement goals. Or they make one decision, such as reducing clinical hours, and don’t consider that the practice value has decreased at the time of sale.

If you’re reading this and think, “My retirement is years away, I’m fine, I’ll figure it out,” ask yourself three questions:
  • What is my practice worth today, and how do I plan to sell it when I retire?
  • Do I want to continue practicing clinical dentistry or fully retire?
  • Do I have a five-to-10-year transition plan for my practice and career?
Depending on your answers to those questions, you might be in great shape … or you might have some things to check in on, including making sure you’ll be financially secure in retirement and that you’re retiring from your practice on your desired terms.

The decisions dentists make during this five-to-10-year period will ultimately affect their transition into retirement, give them a chance to boost their practice value, identify the ideal selling framework of the practice and establish how to finish their final working years. When creating that road map into retirement, let’s take a closer look at the personal and financial conversations needed to help solidify that plan.


Consider dollars and sense
Let’s start with money: The funds a dentist needs to live their desired retirement lifestyle may be directly tied to their practice value as it is today. If the practice value doesn’t affect their personal retirement financial goals, that’s one item off the list! But if it does, this five-to-10-year period before retirement is the time to get an unbiased estimation of the practice’s value in today’s dollars.

Suppose that estimation identifies a financial gap to the dentist’s desired retirement income. In that case, there’s still time to make changes to maximize the final sale price of the practice when the dentist is ready to sell. Did you know the value of the practice is heavily decided based on its performance in the five years leading up to the dentist’s retirement?

Depending on the size of the financial gap between practice value and desired retirement funds, dentists may decide to take steps to grow the practice, maintain it or intentionally allow it to decline. The first two options will help them maintain or maximize the sale price, while allowing it to decline will result in a lower final sale price.

If dentists need to continue or increase their current income, they must evaluate options that lead to greater collections, including increasing hours, tightening up collections or increasing productivity through hiring an associate.

If dentists choose to sell the practice as-is, they have the option to sell now and work on their terms at a safety net clinic, or perhaps sell their practice and stay on as an associate to the new owner (if the practice size and financials support this).

Now, let’s look at the emotional side of transitioning into retirement.


Get in touch with your feelings
Transitioning away from the business responsibility of owning a practice might be easier than the emotional transition away from seeing patients every day.

It’s important for dentists to take an honest look at their roles now and what they hope to achieve in the years just before retirement. Dentists may want a slower transition from their practices and seeing patients for various reasons, including:
  • They love clinical dentistry and aren’t ready to stop.
  • They need to maintain or increase their current income to meet their desired retirement income.
  • They don’t want to leave their patients.
  • They want to keep working for a few years until their spouse retires.
  • They’re two years away from Medicare coverage and don’t want to pay for shortterm private health insurance.
  • They want to mentor another dentist and have a longer practice transition process to help them leave with increased confidence.

Weigh your options
Retirement planning is going to be personal to each dentist and practice. But as each dentist evaluates the emotional and financial process outlined above, let’s take a closer look at a few different retirement transition options, because each has pros and cons.

Hire an associate with a later sale
One option worth exploring is hiring an associate who agrees to purchase the practice at a predetermined future date. This approach works best for dentists who are looking to retire in the next five to seven years and who want to have a slower emotional transition out of the practice. There are a variety of ways these transitions may be structured, but the most successful share the following characteristics:
  • Both the facility and the financials can accommodate more than one dentist.
  • The associate wants to purchase the entire practice within a predetermined period.
  • The owner is committed to selling the practice within the same time frame.
All details of the final sale should be determined within six months of beginning the associateship, including:
  • Structure of the sale and how the value will be determined.
  • Timing of the sale.
  • Terms of the employment agreements.
  • How major purchases and other decisions will be made.
  • What happens if the owner decides not to sell or the associate decides not to buy.
Associate buy-ins allow the retiring dentists to gradually transition out of the practice, transition their practice to an associate who is fully invested in the practice’s success, and increase the practice’s productivity, driving up sales.

On the emotional side, this transition can be a big change, and it will require the retiring dentist and new associate to have clear expectations between them. The retiring dentist must understand their ability to share decision-making authority with the associate as the ownership transfer occurs. This is often the most difficult part of these transitions, especially for solo owners who’ve had complete clinical and business autonomy throughout their careers.

Sell to a DSO
Selling to a dental service organization (DSO) could be the solution for doctors who are looking to continue working full time in the practice but who want to avoid dealing with the business side of clinical dentistry.

Every DSO is unique, and so is every DSO sale. But while DSO sales are highly variable in structure, some common themes exist among them. For example, each DSO tends to have specific parameters it expects from practices it acquires. Some will only consider practices with multiple specialties under one location, while others look only for those with six operatories and $1.2 million in collections.

Many dentists are interested in this type of sale because of the historical tendency for DSO sales to net more income to the seller than a sale to a private buyer. However, be aware that DSO sales often come with delayed payments and long-term employment contracts that may include production goals that must be reached for the full payout to occur.

If a retiring dentist is looking into a DSO sale, make sure to fully understand the payout clauses and accept the possibility that collection policies, staffing decisions and outside vendors such as preferred labs or suppliers may change under the new owners.

One consistent point in each transition scenario mentioned in this article is that retiring dentists must ensure they have reviewed any contract provisions that may affect their ability to treat patients to whom they have become accustomed.

Become a part-time practitioner
This transition option may work best for dentists who want to sell their practice now, as-is, and are ready to transition their role to something smaller or completely different. This may include working as an associate in their practice (while still selling the business responsibility) or practicing elsewhere on their own terms.

Some of the different practice options include:
  • Working at a “safety net” clinic. Work a preferred schedule, provide care to underserved populations and leave the responsibility at the clinic’s door. Remember, be sure to include this in any noncompete clauses.
  • Teach. If there are no dental schools or residency programs nearby, consider high schools, colleges, hygiene programs or dental assisting programs. Dentists are valuable instructors in almost any setting.
  • Provide clinical care as a locum tenens dentist. Many practices need episodic help while they look to find a permanent dentist or need coverage because of parental leave or other issues.
  • Work for another practice as a part-time dentist. This works especially well if the practice shares a treatment philosophy or if the dentist is relocating to a new town. Remember, be sure to understand any noncompete restrictions.
If the dentist is comfortable with moving quickly to sell the practice but wants to keep working with a more flexible schedule, these are great ideas about how to do both. The doctor can collect a paycheck and have more flexibility to take time off and spend it as they wish.


Conclusion
Retirement may feel years away, but it’s never too early for dentists to start planning, having honest conversations, and looking at their business. The three questions shared at the beginning of this article are good places to start the conversation and create a road map five to 10 years out. And if dentists have more time, even better!
Looking for more career-related content?

Dentaltown’s members-only online message boards include Practice Transition forums dedicated to retirement planning, practice sales, life after dentistry and much more. Here’s where to ask what your fellow doctors are doing to prepare for the future! To get started, head to dentaltown.com/ptmb.

The ADA Career Services site includes career content, centralized resources, guidance and tools to help you find what you need for your next career step. To access these materials, visit ADA.org/careers.

Author Bio
Dr. Suzanne Ebert Dr. Suzanne Ebert has worked extensively with dentists at all career phases. Through her experiences in clinical practice to working as an executive for her professional organization, Ebert has acquired the insights necessary to help dentists navigate their individual career challenges. She is passionate about providing dentists with the tools they need to make the decisions that are right for them.
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