Originally published on September 24, 2020. Updated on August 31, 2021.
The emergence of volatile situations, such as the COVID-19 pandemic, has the power to take its toll on any business. With uncertainty in the labor force and an economy filled with peaks and valleys, some businesses may fair well while others may collapse. When a period of adversity is on the rise, dental professionals who are considering a transition may wonder, “do I still want to buy or sell my dental practice?”
If you are looking to buy a practice, you may be hesitant in deciding whether it fiscally makes sense to take the plunge into ownership given such an unstable time. In these situations, some practices may struggle to return to normal while others may see some of their best months ever. This creates uncertainty regarding the short-term viability of your prospective practice, as it’s tough to discern how long it will take to fully service the existing patient base or how long the “production boom” will last. Additionally, in an industry where building trust with your patients is so important, would they be okay with a transition during this time?
Perhaps you were looking to expand by taking on a new partner or cash out the equity you built and ride off into retirement. The fear of an unforeseen sudden drop in value could likely cause you to rethink your plans. After all, why would you sell something you’ve worked hard to build at a reduced price?
Navigating this conundrum can be confusing, but before pulling the cord on your longtime ambition of transitioning into or out of your dental practice, consider the following.
The numbers may look grim now, but that does not mean the practice is doomed.
During our valuation process, we review three to four years of financial history to get an indication of the future business projections. If, for example, we were to examine a practice today, we would consider the financial period covering the first half of 2021 as well as 2020, 2019, 2018 and possibly even 2017. However, times of adversity may change perspective, and one year may not be an honest indicator of the future. Therefore, we focus our attention on the financials of prior years.
With perceived losses in value, some buyers may be tempted to offer less even if there is a prior pending agreement, but a current snapshot of a prospective practice’s most recent financial status may set false expectations.
We ask more questions to further understand. What is the historical performance of the business production? What does the production look like since bouncing back from this adversity? Is production trending back up to where it was prior to the difficult time?
As easily as the current practice value may drop, a solid recovery or consolidation of a market could prompt an increase in price. After all, if the agreed upon price can drop, a seller could argue a higher price upon a later improved valuation. If the valuation portrayed a winning proposition before the period of uncertainty, it’s important to understand and reframe your analysis when determining your decision as the practice returns to normal operations.
Owning is still financially more lucrative.
Despite the nationwide slowdown through the COVID pandemic, many dental practices have demonstrated resilience, and business is recovering. Regardless of the type of adversity, it’s important to know that owners earn more than their employees.
As practices return to normal operations, your gains can (and often will) outpace any short-term losses you may have incurred, especially if you planned well and had a good cash reserve. As an owner, you also gain more autonomy over your ability to operate and bounce back more quickly in unforeseen circumstances.
Additionally, ownership carries extra benefits at everyone’s favorite time of year: tax time. As a business owner, numerous expenses can be written off. Office space, materials, transportation expenses, and other business-related costs all remain eligible as tax write-offs, so this flexibility is another benefit to ownership.
Some changes have brought about new opportunities.
The COVID pandemic requires businesses to adapt by enforcing different rules and regulations and by enhancing communication between companies and their clients. While temporarily affecting financial performance, practices are now presented with new avenues of interacting with their patients and are finding creative ways to improve the overall customer experience.
As change occurs in various business operations, the labor force and the economy, practice owners who view it as an opportunity to be unique and try something new can truly thrive in adversity.
Dentistry is not going away.
Unless a miracle cure for toothaches and dental health is discovered, or a method of teeth cleaning while we sleep is invented, dentistry will remain one of the most evergreen professions in the world. Smart practice owners understand the cycles of short-term economic troughs, and they can feel confident a robot won’t replace their jobs anytime soon. If a practice maintains sound financial performance, a well-developed business plan and a reputation of high-quality, patient-centered service and professionalism, the practice will almost assuredly succeed once again.
The reality is that business owners might face several types of volatility. Global pandemics, health issues, family emergencies and natural disasters can all adversely impact practice owners for periods of time. The owners who prevail through the hardship are the ones that recognize these conditions, prepare solutions in anticipation of these events and adapt when they occur.
To learn more about transitioning in or out of a dental practice amid times of uncertainty, contact a member of our team.