Practice Transitions & The Open Door of Corporate Dentistry

Have you heard? Corporate dentistry is killing the dental industry.

But, wait. Is it, really?

Demystifying Corporate Dentistry

It’s a common mistake to quickly dismiss dental service organizations (DSOs) as towering giants, acquiring clinics and slashing expenses overnight. Painting corporate dentistry as nothing more than an unfriendly buyout taking away the soul of your livelihood is tempting. And while it’s an easy mistake to make, amid conversations and literature debating this very idea, it doesn’t mean that corporate dentistry can, and should, be considered that way.

It’s difficult to overlook the reality that ownership trends and operations of dental practices across North America have seen a shift in the last decade. When a patient walks into a dentist’s office this weekend, they can no longer assume that ownership rests in the hands of the sole practitioner alone. Group practices and the growth of DSOs are beginning to appeal to those dentists who wish to partner with organizations that possess a sincere and genuine goal towards effective, efficient, and mutually beneficial collaboration.

In theory, at the heart of corporate dentistry is an inherent predisposition towards collaboration. You become a team made up of experts – both clinical and business – to help your practice in a more complex and competitive dental landscape.  As a selling dentist, you join forces with a group of people working towards the same common goal: ensuring that your practice is transitioned in the most seamless way possible. You team up with a group whose goals are aligned with yours.

Ensuring your employees are taken care of and handling menial operational tasks disappear from your agenda. Business license renewals, lease renewals, equipment registrations, compliance with laws, arguing with your landlord over who gets to fix your pipes now receive support from the group. All in all, the tasks that distract you from what you actually signed up for, being a dentist and enjoying your career, get handled by the new team.

If you are considering selling your dental practice, it wouldn’t hurt to consider the diversity of selling structures that could be available to you and the advantages of dental group practice. Conversations regarding the evolution and growth of practice structures are evolving, and uncovering the mysteries of corporate dentistry doesn’t necessarily mean unveiling the realities of a negative, crippling future – in fact, shutting the door to considering the multiple possibilities of growth potential could be considered a critical disservice to you and your practice.

So, while we’ve slightly demystified corporate dentistry and all its practical possibilities, let’s talk about preparing for the transition of your practice, should you decide that it’s time to move on.

Eventually, the time will come when you begin to consider, and prepare for, the sale of your business – are you ready?

Considerations When Selling Your Practice

Selling a business is a complex process that involves a world of people (accountants, attorneys, brokers, consultants, investment advisors, and more) and it’s important to keep the following moving parts in consideration as you prepare for your sale and the transition of your business:

Would Your Lease Look Attractive to a Purchaser (DSO, or Otherwise)?

It is important to give yourself a runway of at least five to ten years to prepare the structure of your lease for an eventual assignment and sale:

• Term, Options. Do you have enough term left in your lease to remain attractive to a future purchaser? Are option periods available? It’s important to ensure that your lease supports the goals of your practice and guarantees that enough option periods available for a future purchaser to assure a lender financing the transaction that the practice has a viable location to operate from.
• Use Provision. Consider making your lease purchaser-friendly. Ensure that your permitted use provision allows a potential purchaser to practice any and all specialties in addition to general dentistry – it ensures that a purchaser may cast a wider net with their service menu, even if you do not.
• Assignment. Does your lease allow you to easily assign your agreement to a future purchaser of your practice? How much discretion does your landlord have when choosing the next tenant to your space? And more importantly, if and when you decide to sell your practice, is your landlord entitled to the profits of your sale? Ensuring that your lease can be assigned (with enough term and options available) contributes significantly to the eventual value of your practice.
• Other Practical Considerations. If you consider selling to a DSO (or any purchaser, for that matter), what would be important to them? Renovation and cosmetic alterations language, parking, signage options, exclusivity from competition, are among many other provisions you may consider negotiating into your lease to maximize practice value.

Practice Appraisal

Do you know what your practice is actually worth? Cumulatively, considerations can include the location of your practice, the technologies available at your clinic for day to day operations, the value of your patient list and goodwill, equipment and other assets, the structure of your lease agreement, among other considerations, when arriving at a final number. Are you curious about what that final number could look like? As you take your time to plan for the eventual sale of your practice, it wouldn’t hurt to spend some time with an accountant to ensure you’re prepared for offers that eventually come your way. Nowadays, too many dentists think that the value of their practice is made up purely of financial criteria (revenue, profits), and overlook aspects of the practice like risk management (employee contracts, proper office leases), and practice culture.

Timeline

When the time comes to sell a practice, many dentists realize one very common mistake: they didn’t give themselves enough time. Time is needed to prepare and research selling options, structure their lease in a profitable way, speak to an accountant about profitable structuring, and many other steps. The sale of your practice is one of the most important financial transactions you could make professionally. It is important to give yourself enough time to ensure that the process is both profitable and seamless.

All the Possibilities

Ultimately, the choice to sell your practice is yours – you decide whom to sell it to and when it happens. But it is important to ensure that:

a) The path leading up to the day you make those choices is steady, seamless, and well-informed.

b) You consider the many resources available to you that may assist with making that choice.

c) You open the door to the various possibilities available to you when selling your practice.

Be prepared, do your research, and find your perfect fit. Don’t shut the door to the diversity of selling structures and buyer options available to you. Corporate dentistry is one of those many available options. While it’s easy to fall prey to tradition, considering a partnership with a DSO is a viable, increasingly popular option that isn’t necessarily harmful to at least explore.

Contrary to popular opinion, there’s a possibility that you’ll realize you aren’t selling your soul but, in fact, are ensuring your practice has a renewed, viable, and successful future ahead!

Questions about your dental lease or real estate portfolio? 

Sign up here for a personalized dental office lease consultation with a Cirrus expert. We’re here to help!

Cirrus Consulting Group has 25 years of experience supporting dentists through practice transitions and negotiating with landlords across North America. Consider hiring seasoned professionals to support you through the preparation stage of a sale, and to help you create and negotiate a properly structured lease agreement that fits your desired long-term business objectives.

About the Author

Barbara de Dios, B.A. LL.B | Associate Lawyer, Cirrus Consulting Group

Barbara de Dios works on behalf of clients across North America in connection to the review, drafting, and negotiation of commercial lease agreements as Associate Lawyer at Cirrus Consulting Group. She also works as Corporate Counsel at Canadian Dental Services Corporation. Barbara’s previous experience includes an associate counsel role for a capital markets and investment company in Toronto, specializing in corporate governance and general corporate/commercial law, where she completed her articles. Barbara graduated from the University of Toronto and earned her legal degree from the University of Birmingham, and was called to the Ontario bar in September 2016.