Case Studies

Case Study #1 – “Should I Sell to a DSO?”

In today’s market, DSO offers can feel flattering and lucrative, which was the case with a recent dental practice owner. A DSO offered him 95 percent of his last year’s collections, which on the surface seemed like a large amount of money and significantly more than individuals were currently paying for similar dental practices on the market. Before he made a decision, he consulted with Menlo. As we delved into the details with him, we realized the offer was too good to be true.

Upon closer examination of the economic details of the offer, the DSO offer only paid 70 percent of the purchase price (66.5 percent of collections) at the time of the sale. The offer also required the seller to continue working at the practice as an associate for two years after the sale. If the seller was able to keep the practice production above a certain number for that two year post-sale period, only then would he receive the remaining purchase price. This caveat would prove difficult since during those two years, the DSO would be in control of the practice performance. During this two year period, the owner would need to continue working full time, receiving payment on 30 percent of his operative collections. 

After running the real numbers scenario with all the facts, the seller realized he would make significantly more money over the next two years by continuing to own and work at the practice. He plans to pursue a private party sale with a brief transition period in two years. With Menlo’s help, he will be earning significantly more over the next two years and will have full control over his practice while retiring in the same time frame. He also knows what to focus on over the next few years to ensure a high profit on the final sale. 

Case Study #2 – “Is a Dental Practice Broker Worth It?”

A skilled and successful dentist came to Menlo mid-career to sell his practice. He needed to relocate across the country for family reasons and had been told by his dental CPA that his practice was worth 75 percent of the last three years of average collections.

Dental CPAs are very skilled within their scope of core competency and have knowledge of general rules of thumb, but an experienced practice advisor completes dozens of local transitions each year, and understands both the qualitative and quantitative factors at play. We wanted to make sure the dentist would receive the best sale price possible. 

We scheduled a time to visit the practice, run practice reports and review the financials.  The facility was immaculate and recently remodeled.  The equipment was in like-new condition, with a $140,000 cerec onmi-cam purchased in the last 18 months.  The last years’ collections were roughly $810,000 (2015) $830,00 (2016) and $1,100,000 (2017). 

The CPA’s rule of thumb would have yielded a sale price of $685,000. The CPA had not visited the practice, had not seen the new equipment or remodeled facility and had not run the practice report to see that hygiene was booked out weeks in advance and all implants, endo, ortho and OS were being referred out. The CPA also didn’t ask what had driven the collections’ increase in 2017. 

These details are crucial to take into account when valuing a dental practice. When we asked the owner about the 2017 increase, he indicated that he equipped two more operatories in the office and opened up three more days per month in the office schedule in late 2016.  From a proper valuation approach, that material change in the practice performance in 2017 was driven by an infrastructure investment, indicating that 2017 was realistically the only previous year that should be used in determining value.  We proposed listing the practice for $990,000 and produced multiple, full-price offers within 2 weeks, including one all cash offer. 

By using Menlo, he received $300,000 more from the sale of his practice, had full confidence in the process, and very little hassle. His choice to use a brokerage more than paid for itself.

Case Study #3 - “Can’t I do it on my own?”

After a speaking engagement at a highly respected Arizona study club, a dentist approached Menlo for a complimentary evaluation of his practice. He had been trying to sell his practice for $880,000 on his own for the past three weeks without any luck and was becoming frustrated.

After touring the facility, running practice management reports, and reviewing financials, we were able to confidently tell the dentist that the practice was worth approximately $1 million based on recently completed practice sales of a similar nature in the same city.  The dentist immediately engaged us, and we brought him three full price offers within three weeks. He selected the best fitting offer and closed the transaction for all cash within 60 days of our listing. He was thrilled with the fast time table and extra $120,000 for retirement.

Case Study #4 – “What About My Building?”

Menlo was interviewed by a husband/wife dentist team with a two-doctor practice to sell.  At our initial visit, the dentists indicated that they also owned the real estate: a 4,200 sq. ft., high end, freestanding building with major street frontage and monument signage.  When we asked what their plans were for the building upon sale of the practice, they said they hadn’t thought through that. 

The dentists were also interviewing a national dental brokerage firm. When Menlo inquired what the national firm recommended, the dentists said they suggested just focusing on selling the practice now and sign a generic lease with the practice buyer. As we ran our own calculations, we determined that this strategy was faulty. The dental practice was worth approximately $980,000, and the real estate was worth well over $1,200,000 as an investment with a strategically structured, proper lease. Without a well-written and properly priced lease, the building would have been worth less than $950,000, a decrease in value of almost $250,000 in building sales price. By choosing Menlo, a local advisor who understands both the dental practice and real estate market, they were able to ensure that the building wasn’t devalued as an afterthought to the practice transition, and they were thrilled with the extra profits.

Case Study #5 – “The Wrong Advisor”

After lecturing at a CE class at the annual Western Regional Dental Convention, one attendee stopped us to ask a few questions. His practice had been listed with another broker for the last 18 months, but there had only been a few showings and a single low offer. He had been referred to us before by a friend and banker he trusted but hadn’t been quite ready to make a change.

After attending our class, he terminated his contract with his current broker and hired Menlo to list and sell his practice. The location was more remote, but the equipment and technology was top notch and had steady collections and high cash flow. Within two months, we had a full-price offer (at the same price the original broker had listed the practice) from a young dentist moving to Arizona from out of state.  The sale closed in 45 days, making the total time from listing to closing less than 4 months. The owner was incredibly grateful to be able to retire so quickly and felt great about the sale of his practice.

Case Study #6 – “The Perils of For Sale By Owner”

In 2015, Menlo was contacted by a dentist and his wife who were looking to sell their practice and retire. The practice was in a newer facility with newer equipment and great fundamentals (revenue, cash flow, hygiene, etc).  After giving the owners a high preliminary valuation, the dentist and his wife decided to post a few online ads and try to sell the practice on their own. 

After a year of unsuccessful efforts, the dentist reconnected with our firm and asked us to help transition the practice. Concurrently, they were contacted directly by a credible ‘FSBO’ dentist-buyer from out of state that expressed interest in the practice. The buyer and seller worked without a broker and agreed upon a sale price of $971,000. The dentist worked with his own attorney, the buyer, buyer’s attorney and the buyer’s lender for almost six months before negotiations finally broke down over contract details.

After intense frustration, the dentist again contacted Menlo and formally engaged us to help sell the practice. In 10 days, we had a fully executed Letter of Intent from a local dentist at a cash price of $1,070,000, almost $100,000 more than what the seller was originally trying to sell the practice for. 

By leveraging our market presence and contacts, we knew the perfect buyer for the practice—a dentist who was financially qualified and intrinsically motivated to buy a practice in that particular city. The match was perfect and led to a highly successful sale for both parties, illustrating the benefit of a qualified advisor.

Case Study #7: “Sale in a Hurry”

A dentist came to Menlo after hiring another broker to sell her practice. She wanted to transition from practicing dentistry full time to teach dentistry part time and focus on her children. She held an expensive lease that would be up in 14 months, and she didn’t want to renew. After 12 months her current broker had not found her a buyer, so she contacted Menlo with an impossible request. She needed to be out of her current space in 30 days and hoped we could help find a buyer. 

Our database of dentists and prospective buyers was a huge asset in this situation. We knew of a practice in the area that had too many dentists and not enough work. The close proximity of the practices made it an ideal fit. She could infuse their business with 800 new patients and walk away with a hefty profit and no tie to the expensive lease. The buyers paid full price for the practice, happy to so quickly increase their patient load, and closed in 30 days. Our seller was thrilled to be able to move on to the life she had been looking forward to.

Case Study #8: “The Right Fit”

We met a dentist at a study club who needed help drawing up a fair contract. He was planning on selling his practice and working back for a few years until he was ready for full retirement. He had a buyer and an agreed upon price of $1.6 million.

As we worked on the contract, we noticed that the seller was leaving a couple hundred thousand dollars on the table. When we brought it up, he decided he wanted to honor the price and was fine with the profits.  

As negotiations began, the buyer was demanding, asking for multiple freebies and added concessions on top of the generous price. His personality was difficult and arrogant. The seller realized that working side-by-side with this dentist would not be something that would be enjoyable at the end of his career, so we unwound the deal and made a new plan.

Menlo worked with the seller to ensure that, when he was ready, his practice would sell for $2 million. We broke down production by each provider in the office, tracked monthly performance and set quarterly goals. The doctor and staff worked exceptionally hard for 18 months, and when we strategically put the practice on the market at the right time and notified motivated buyers, it sold for over $2 million, $125,000 over asking price and $525,000 over the previous offer.

The best part of the transaction wasn’t the significantly higher profit but rather the three full-price offers. Multiple offers enabled the doctor to interview and think carefully about who he would want to spend the next few years working with. He ended up with more money in his pocket and a dentist he has thoroughly enjoyed partnering with. Menlo helped him find success in every way.

Case Study #9: “Pricing My Practice”

Pricing your dental practice accurately is an extremely important step in the transition process. In the two case studies below, we contrast the different outcomes that resulted from (1) a practice priced and marketed at the seller’s selected price point, and (2) a practice priced and marketed at a Menlo-recommended sales price based off market data, practice financials and acquired market expertise. By comparing the two scenarios, we hope you will be able to avoid some of the pitfalls that come with pricing your practice incorrectly.

Scenario 1

Dr. Brown* came to Menlo wanting to sell his practice. He was nearing retirement age and starting to feel the physical wear and tear after 30 years in the chair. After performing a thorough review of his practice, our team sat down with Dr. Brown to determine a sales price. We presented the strengths of the practice, pointed out a few potential hurdles that would need to be overcome, and provided our opinion of value—all the while stressing that the selected sales price is ultimately the decision of the seller. After giving it some thought, Dr. Brown determined he was willing to be patient and decided to list his practice $100,000 above the originally recommended price. Respecting Dr. Brown’s decision, we immediately listed the practice at that price and went to work.

As with most practices in an attractive area, Dr. Brown’s office initially gained substantial interest from buyers. However, upon review, most buyers were deterred by the price, expressing many of the same concerns we outlined to Dr. Brown in our initial conversations. Worried about offending the seller with a ‘low-ball’ offer, most buyers lost interest and moved on to other opportunities. Despite the market feedback, Dr. Brown continued to hold out hope that the right buyer would come around.

Several weeks and then months went by without any active buyer interest. Eventually, some unexpected health complications accelerated Dr. Brown’s need to sell the practice. At this point, most of the initial interest and urgency from buyers had been lost, and, fearing that his health complications would cause practice performance to suffer, Dr. Brown was forced to accept an offer $50,000 below our original recommended price.

Scenario 2

Shortly after our initial interactions with Dr. Brown, Dr. Jones* also approached Menlo desiring to sell her practice. Following the same approach as outlined in Scenario 1, we analyzed the practice and provided a recommended sales price, to which Dr. Jones agreed. Dr. Jones’s practice received significant preliminary interest; however, this time, buyers recognized the practice was competitively priced. Within one week of going to market, the seller received four competitive offers, one of which was sight-unseen. With these offers, Dr. Jones was in a position of leverage and had the ability to select the buyer that would best carry on her legacy without having to compromise on price. After accepting one of the offers (while also securing two back-up offers), Dr. Jones was able to close in less than 45 days.

Menlo Dental Transitions understands that there are various reasons that a seller may need to list their practice above market rate, and we respect our sellers’ decisions. Our greatest desire is to achieve the goals and wishes of our clients.

From our experience, sellers are unlikely to accurately determine the optimal price for their own practice, due to biases of emotional connection and lack of market experience. Whenever possible, you should use experts to determine the best price for your practice, as an accurate market price is the best strategy and will likely result in the highest return.

We are confident in our ability to read the market and will advise the best we can, so you can achieve an outcome like that of Dr. Jones. Please contact us at 480-290-7720 if you are ready to sell your practice.

*Names have been changed.