About a year ago I joined the WEO Media podcast to answer a question I still hear from practice owners every single week: when should a dentist even start thinking about a transition?
My answer then is my answer now. Earlier than you think, and not because you should sell sooner. The owners who understand their practice’s value years ahead of a sale get to make every decision from a position of knowledge instead of reaction. The ones who wait until they are tired negotiate tired.
You can watch the full conversation here:
In the conversation we get into the questions that decide real outcomes: when to begin preparing for a sale, how practices are actually valued and why profitability drives the number, how deal structure changes what you take home, what role DSOs play as buyers, why confidentiality has to be protected through the whole process, the misconceptions that cost sellers the most, what post-sale transition periods really look like, and which financial documentation to get in order early.
If those topics sound familiar, it is because they became the backbone of what we publish here. The timing question has a full answer in our month-by-month timeline of selling a dental practice, and the valuation question is where every transition should start: our free, confidential practice valuation gives you the buyer’s-side read on your numbers years before you need it.
Thanks to the team at WEO Media for the conversation.
Full Transcript
Lightly edited for readability.
Joseph (WEO Media): Welcome to Marketing Matters with WEO Media. I have with me today Austin Hunter, who is the CEO and founder of Ascend Strategic Partners. Thank you for being with us, Austin.
Austin Hunter: Absolutely. Thanks for having me on today.
Joseph: It’s a pleasure. As we’ve had the opportunity to talk, we clearly have so much to explore about the type of consulting you offer and the specific area you specialize in, which is transitions: helping a practice prepare for the eventual exit. Because they’re going to exit one way or the other. There’s going to be an endgame. In my experience as a consultant, that always seemed so far away that it was never a topic of conversation, and it probably should have been much sooner than we ever really considered. I think we’d love to explore what critical insights we need to have about what it takes to sell a practice, if you’re up for that.
Austin: Yeah, absolutely. Looking forward to getting started and discussing this topic today. Like you said, it’s never too early. I think that’s really the important thing here. Even if you think you’re ten years away from retirement, or whatever a transition might look like for you, it’s important to start understanding what that looks like today and to start educating yourself on what’s going to go into that process. How far in advance do I need to think about these things? Prepare yourself as best as possible so that you can have the greatest outcome.
Joseph: I think it’s fair to say that conversation needs to happen earlier than before. Realistically, there’s a lot more preparation that goes into selling a practice than was the case twenty, thirty, forty years ago, because there’s so much more to consider now. When you’re working with a practice, I’ll bet nine times out of ten they probably waited too long. They wish they would have started sooner, right?
Austin: Yep. Unfortunately. Or they never really thought about selling the practice, but something happened, or they decided there was an appealing enough offer that they’re going to do it sooner rather than later. But now they’ve wasted a lot of valuable time they could have taken advantage of had they known.
Joseph: So we’ve established that it’s probably never too early. But why is that the case? Why is it never too early to prepare for the sale of your practice?
Austin: You really have to start at the end goal and work backwards. A lot of groups today, a lot of DSOs, are going to require you to work for another three to five years post sale. So if you’re looking at it and saying, hey, I want to retire in five years, you really needed to be selling your practice today, just so you’re able to work out that employment agreement with your new partner and make sure you’re not leaving money on the table by wanting to retire early.
When you work backwards, you say: okay, I’m going to have to work three to five years with this new partner. And before that, it can take anywhere from six to twelve to twenty-four months to really get your practice ready to go to market and to actually sell. That’s why it’s so important to start considering this early and often: what a transition might look like for you, and what the best outcome looks like in your mind. Whether it’s simply the highest dollar value you can unlock, or a partner who’s able to help you grow for the last three to five years of your clinical time.
You spend so much of your time building what’s the equivalent of your baby. You can spend decades building this practice, building your brand, building your image in your community. To honor and respect what you’ve built, and to be granted full credit for everything you’ve put blood, sweat, and tears into, you want to give yourself the best possible chance to achieve your ultimate outcome. So start thinking about it potentially seven years, eight years, even further in advance of when you might want to retire or transition, just so you have the time to get your practice where it needs to be. Get it fully set up and ready for a sale. Get things cleaned up, whether it’s financials you’ve been needing to get on top of, or maybe a new marketing piece you want to try to boost your numbers for twelve months before you get ready for a sale. Give yourself that time to fully explore what it’s going to take, so you’re fully educated when the time comes.
And it’s obviously not small dollars we’re talking about, which just emphasizes how important it is to think about this early and often, and to not be afraid to have a conversation even if you’re five or ten years out. What does the market look like? What can I be doing right now to get myself ready? What does the whole transition process look like, from getting started, to having a conversation with a broker like myself, to the actual diligence and deal process to get to close?
There’s a big piece that I think is lacking in the space, and that’s really solid education about the process, so that we’re equipping owner doctors to make the best possible decisions. Part of why I think today is great is that we can talk about these things and hopefully spark some ideas, get people thinking about the right topics and the right questions, so they’re ready for a transaction.
Joseph: Yeah, let’s do that. Can you walk us through what that process looks like for selling a practice? What decisions need to be made, considering the concept of beginning with the end in mind?
Austin: Sure, let’s play this out. If you were to come to me today and say, “I’m ready to sell my practice, what does that look like from today forward?” If we got started today, there’s a standard set of information that myself and every other broker is going to request. Gathering your financials, gathering PMS reports, that standard set of information, so we can start to understand what your practice looks like and understand what your EBITDA is, which is super important. That’s earnings before interest, taxes, depreciation, and amortization. We start to build a picture of what the value of your practice is with the valuation model, so we can have the conversation with you and say: given the market dynamics, here’s where we think your practice is going to be worth, here’s the range, and here are some of the key things you need to know about the process.
From that point forward, it’s understanding what your goals are. And that’s sometimes not as easy as one conversation. It could be multiple. It could be a couple of dinners. It’s a very important thing, and from our perspective we want to make sure it’s front of mind basically the entire time.
Once we have that valuation ready to go, we’ll get marketing materials together and get ready to take you to market, positioning your practice in a favorable way so that the buyers out there are interested and excited to be a partner with you for the next three to five years. It’s almost like a speed dating process. You’re starting to meet some of the buyers, and it’s really important to keep in mind what a potential partnership looks like. Can I work with this person for the next three to five years? And you obviously want it to be better than “put up with.” You should be excited and happy with the home you find.
The pre-going-to-market timeline is anywhere from three to six weeks, four to eight weeks, somewhere in between. It depends on how quickly we can gather materials and have some of these conversations. So really about a month or two of getting ready to go to market if you’re ready today. Then once you’re in market, and this can vary for a number of reasons, it usually takes about a month to set up initial conversations with buyers so they can understand you, understand your practice, and what you’re looking to get out of it. Then they start to do their own diligence on their end, so they can say: this is what we’re willing to offer for a practice like this.
Once that happens, and let’s say you’ve found your perfect partner and you’re ready to move forward, you would sign something called an LOI, a letter of intent. That gives exclusive rights, together, to the buyer and the seller: you’re willing to move forward under these arrangements with this valuation in mind. That process from then on can take anywhere from two to three months.
It’s important to understand there’s going to be a lot of work involved during that time. Just because you get an LOI signed and you’re moving forward with a buyer, the work doesn’t stop there. Unfortunately it gets even busier. There’s a lot of work that comes once you’re under LOI, and it’s all centered around making sure that once you close, the new partnership comes together as smoothly and seamlessly as possible. Really good buyers in the space are focused on the fact that there should not be a difference for your staff and your patients on day one when it closes. There might be small differences for the staff, like a different credit card processing machine, little things like that, but there really shouldn’t be an impact to your everyday practice.
So all in all, when you consider what this timeline looks like: if you’re ready to hit go today, it can still take anywhere from six to twelve months from getting started to actually selling your practice. And if most places are requiring you to work three to five years after that, you’re potentially looking at six years down the line where you’re still working. Whether you’re ready for retirement now or six years from now, that time moves fast, and it’ll creep up on you.
Joseph: You mentioned valuation. How are dental practices valued, given the number of structures you could entertain? What’s typical?
Austin: Valuation is all based on profitability, or EBITDA. Once again, that’s earnings before interest, taxes, depreciation, and amortization. That’s the profit of your practice. There are things that happen when that number gets calculated: adjustments for personal items you’re running through the business, for example, so you’re not being dinged for running a small business the way owners do. As an example, if your practice EBITDA comes out to $300,000 and you get paid a five times multiple on that, your practice would be valued around $1.5 million. The whole space works off a multiple of EBITDA.
That’s why, in my mind, it’s super important that if you’re even a couple of years out from wanting to sell, you make sure your financials are truly in order and you’re in line with industry margins, so your EBITDA is where we would expect it to be based on the type of practice, the size, the geography, all of those factors.
In terms of offers: that $1.5 million, for example, you’re not going to get all of that in just cash. The way deal structures exist in the space today, there are a number of different structures that change from group to group, but a majority rely on a few key things.
One is cash. You’ll receive a portion of your deal as cash, wired directly to you at closing.
Another piece you can receive is equity in the DSO. Some people refer to it as holdco equity. There are a number of names out there, but think of it as owning stock, a private stock, in the DSO. You, along with every other partner doctor in there, have a vested interest in the positive outcome of that DSO. It can be anywhere from 10 to 30% of your offer. That’s where it’s super important to find what you believe is the best partner for you, and one you think is going to be successful in the long run, because those are real dollars tied up in the equity of the DSO.
The other piece is called joint venture or JV equity. Think of it as a percentage, and once again this could be anywhere from 10 to 30% depending on a number of factors, that you still own in your practice. What’s interesting is that you’ll typically receive distributions alongside the DSO, based on your profitability. That can be monthly, quarterly, biannual; it varies from group to group. The JV equity also gives you the ability to cash out down the line. So it keeps you invested in your practice’s best interest, alongside the DSO’s.
There will also be holdbacks or earnouts. A holdback is where they might set aside 10% of the total value and pay it out at the end of year one, saying: as long as you maintain the same level of profitability in your practice for that first year, you’ll receive this money. It’s a hedge for them, because unfortunately people have been burned in the past, where someone decides “this is the equivalent of my retirement” and pulls their foot off the gas. This is a way to protect against that. And earnouts are interesting as well: they give you the ability to make more money down the line. If you hit a set goal in profitability, or maybe collections, they’ll pay you out even more. Those structures can vary a lot.
So those are the key pieces of what an offer structure looks like: cash, holdco equity, JV equity, potentially a holdback, and potentially an earnout. And obviously we’re breezing through this, so I know a lot of questions can come up. It’s always interesting when offers start coming in. If you’re in the process today, find a way to put each of these offers into an apples-to-apples comparison, so you can truly understand what your practice value is today, and also what you’re potentially going to earn over the next five years. That’s also really important.
Joseph: It really is, isn’t it. And what determines the multiple? Is that just market demand at the time?
Austin: It can be a number of things. A lot of it is based off the EBITDA of your practice. If you’re between $500,000 and a million dollars, it’ll be one multiple; if you’re above a million dollars, another. It falls into buckets. But at the same time, there are a lot of other factors that can cause someone to increase that offer, increase that multiple.
One is a competitive bidding process. If you go out to market to ten buyers, for example, and they’re all interested in your practice, it’s almost like selling your house. You wouldn’t show your house to one person and take whatever they offer. You’d love to have multiple offers on the table to help drive the price up. So that’s a factor. Market can sometimes be a factor, depending on where the practice is located. General practice versus specialty can affect it. A number of things come into play. But one of the most important is making sure you are indeed creating that competitive bidding structure, so you have the most options on your side of the court. You have the ability to say: I really love this partner, this is who I want to go with, but at the same time we’re leaving money on the table versus this other offer. Being able to use those to help you get what you want is important.
Joseph: You’re describing a really time-consuming investment for a dentist who’s already busy doing what he does as a dentist. I can’t imagine a dentist ever really being able to do all of that on their own and still keep their head above water. Your role then becomes very much like a consultant as well as an agent on how you’re going to transition and get the best deal possible.
Austin: Yeah, absolutely. That’s spot on. And it’s good to have someone on your side fighting on your behalf, because while you’re going through this process, you’re still seeing patients, you’re still working a normal day, and it is exhausting. Unfortunately, you will get deal fatigue going through this process. It’s a lot of work. But it should be worth it in the end, because you’ve spent decades building this practice and this brand, and you deserve to get what you’re going to get out of it.
Joseph: And it sounds like if we waited until the last minute, that could be far more stressful, because we feel forced into making decisions we wish we didn’t have to make right away. If there was a different pace to that exit, that really puts the doctor in a much more powerful position.
Austin: Correct. And I think that’s also important: unfortunately, things can happen, whether it’s a health scare or something else that could eventually prevent you from practicing. Make sure you have a plan in place and understand: if something were to happen to me, what would happen to my practice? There are, unfortunately, a lot of situations I’ve run across where there is no plan in place. There’s no associate doctor there able to help pick up the workload. Starting to think about these things will really help you long term.
And in the instance where you do wait, and you’re backed up against the wall in terms of timing, that can also have a negative effect on the value you’ll get. Let’s say you can only work another two or three years. Unfortunately, you’re not going to get the same amount for your practice that you would if you were staying a bit longer. From a buyer’s perspective, there are things they’ll have to do to mitigate and make sure the practice continues operating at the same profitability it did in the past. We run across a lot of instances where a doctor has waited too long, and their options for buyers are limited, and the value they’re getting is limited as well. It’s like planning for your own retirement with retirement funds. It’s the same thing: something you have to think about early, creating a plan for yourself and what that might look like.
Joseph: I had more than one general dentist client, in their late 40s, one early 50s, the prime of their career, not thinking about retirement, who were diagnosed with, in one case Parkinson’s, in another something else that was a game-changer. That immediately put them at a disadvantage, because they didn’t want anyone to know that’s why they were selling. Every time I saw it happen, it was a surprise they weren’t prepared for.
Austin: Yep. And that’s ultimately what I hope, at the end of the day, if someone watches this podcast: that they take ten minutes this weekend and think about, hey, if something were to happen, what does my retirement look like? Just start to jog those thoughts, so they’re not caught off guard. Life is short, a lot of things happen, and I think it’s important that you protect what could be the biggest investment of your life, making sure you and your family get exactly what you deserve out of it.
Joseph: That’s one mistake I happen to have experienced more than once. What are some mistakes you frequently see dentists make regarding the timing of selling their practice?
Austin: We’ve touched on some already, but a lot of people think: I’ll sell when I’m going to retire. They might be able to sell their charts to someone local or sell to another dentist, but if your mindset is “I’ll sell when I’m ready to retire,” you’re realistically leaving a lot of the value you built in your practice on the table.
Another common misconception is that selling means you’re going to quit immediately. Most buyers are going to require you to sign an employment agreement that’s anywhere from three to five years. So what you need to be thinking about is not “when I retire, I’ll be done.” It’s: we’re going to work another solid, potentially five years, potentially even more if you’re excited about where you’re at and your practice is moving in the right direction. There’s a transition period, and you will work a good number of years after the sale.
Another common misconception is: I can decide I’m ready to sell tomorrow, be in the market in two weeks, and have a buyer quickly after that. What it takes, time-wise, to fully get a practice ready for market and find the right buyers is a couple-of-months-long process. And that’s to make sure that, one, your business is being valued where it should be, and two, we’re bringing in all the right buyers and potential partners for you, leaving no stone unturned. While you might think it could be quick and easy, if you want to do it the right way, it takes some time.
Joseph: I want to believe that with your professional help, you’re able to help the doctor insulate the team from a lot of this turmoil. Nothing could be more devastating to production and morale than to see all of these individuals paraded in and out of the office. There’s certainly a level of confidentiality that needs to be respected, and if the doctor’s doing this on his own, I can’t imagine how that’s even possible. But you’re able to keep this on a more professional, confidential level, right?
Austin: Correct. And that’s super important: making sure the staff and operations continue as they normally do. What’s actually really nice about the current buyer universe today is that everyone is respectful of that. They want to make sure they’re working for you at that point, working to get you an offer, and they’re not there to interrupt your business, today or ever. What’s important to them is following your lead in terms of when it’s time to tell your staff, when it’s time to tell your associates, and being as confidential as possible.
Because at the end of the day, worst case, you go down the process with someone and it just doesn’t work. The last thing you want is for your staff to have known about it and then there’s no deal. That can affect everything: seeing patients, patient volume, staff turnover for sure. There are a number of things that can come up, so buyers want to make sure it stays as private and confidential as possible.
And another thing: we make sure we’re there on your behalf, working for you, protecting you, whether it’s something a buyer is trying to do or any number of things, and being a resource to help you through the process. So even if either side were to say “this isn’t working out,” there’s no material impact to your business today. I think that’s really important.
Joseph: I think that’s critical. Correct me if I’m wrong, but it sounds like the predominant mix of potential buyers you bring to the table are DSOs today. Or are you bringing other private potential buyers, sole proprietors like themselves?
Austin: I would say the majority of what we deal with are DSOs and dental organizations. There are a lot of names out there: there’s IDSO, which is invisible DSO; there’s DPO, which is dental partnership organization. Realistically they’re all structured very similarly. There will be differences in what support services they offer and what ownership looks like, but we predominantly work with DSOs on the buy side.
Really, that’s a factor of valuation. If you were to sell to another provider, another dentist in your area, you’re not going to get the same value that you would from partnering with a DSO. That goes back to the key components of an offer. One, generally, they’re going to pay more. They have more capital, deeper pockets. And two, there’s what we call the second bite of the apple: the holdco equity. When that DSO sells, you get an increased amount on your holdco equity. And your JV equity as well. There are multiple opportunities down the line to make money on that equity piece, and those don’t always exist if you sell to another practice owner. It’s good to understand the differences between selling to another practice and selling to a DSO.
Joseph: Well, that’s an education process right there. They need to invest time in understanding.
Austin: There’s a lot to understand. And unfortunately, a couple of bad apples can sour a whole industry, when in reality right now there are a lot of really good players focused on the right things and actually supporting these dental practices. It’s unlocked a level of liquidity for dental practice owners that hasn’t existed in the past. Twenty-plus years ago, even ten years ago, if you sold your dental practice, you weren’t getting a fraction of what you’re able to get today. That additional liquidity and value is important, both for the hard work you’ve put in for decades, and for your retirement and your family. It allows you to unlock things you couldn’t previously, and it makes a meaningful difference.
Joseph: So what you also have available today is a list of former clients and dentists who actually went with DSOs and realized it was actually a really good deal: I’m glad I did, and I’m happy where I am. That’s a different take.
Austin: Yeah, absolutely. That 100% exists out there. When you’re considering going through a process of transitioning your practice and finding a partner, it’s really important to either ask for references or make phone calls to people you know who have partnered with them, and honestly ask what their experience has been like. The more you ask those questions and hear experiences from other people, the more it educates you on what to look out for and what’s important to you in the process. Maybe there’s something a group does that you’re not a fan of. That’s the beauty of having a broker: you can say, “This is important to me, I don’t want this,” and your potential buyers are either aware or the process is catered to exactly that. Going back again: it’s never too early to start thinking about these things and having conversations, to educate yourself on what this will look like and, most importantly, what you want out of it.
Joseph: Because starting earlier allows the seller to do a level of due diligence he wouldn’t normally get a chance to do. That changes everything and puts him in a power position.
Following a lecture I recently did in the South, a dentist who was clearly over 60 came up to me and said, “You know, I finally decided to bite the bullet and build a website.” I said, “Excuse me, you’ve never had a website?” There really are rural areas in America where the town is small enough that everybody knows who you are. Obviously he’s missed a lot of the value in what a website can do. But that reminded me of the number of doctors who aren’t thinking of a website until they’re getting ready to retire, which is a little late. That’s another one of those areas: if you’re really going to impact your valuation, you don’t want to start looking at how to improve your production and collections and overall profitability after you’ve got a buyer at the table. You want to be doing that in advance so you can really maximize your value. There must be other areas to start considering now, regardless of whether you’re selling in five or ten years.
Austin: That brings up a great point, and one that’s important for everyone to understand. Any changes you’re going to make to your practice, whether it’s spending additional marketing dollars on a website and some SEO work or anything else: the way your practice is looked at, and ultimately what the value is based on for EBITDA, is your trailing twelve months. Your latest twelve months of financials.
Let’s say you have a new marketing campaign that’s really boosting your collections and the total patients coming in the door. In order for you to get full credit for that, you need to have it in your financials for twelve months. This is why it’s important to consider these things early. If you have something you want to do, whether it reduces costs so your expenses are lower, or drives patients in the door and boosts collections, you realistically need a full twelve months of whatever that is in your financials to get full credit.
That’s where it goes back to early and often. If you’re thinking about selling and you need to build a website, and that new website is realistically going to bring new patients in the door, or make online booking easier, whatever it might be, it’s important to have that done early so you can fully maximize the benefit and be valued on it. Getting these improvements in place and having a solid twelve months with them goes a long way in terms of the value you’ll get.
And that’s something we help clients with all the time. We do something called pre-sale consulting. We’ll work with a practice, go through their financials, show them what their valuation looks like today, and compare them to industry benchmarks. We’ll look at their cost buckets and expense buckets and say: here’s where the industry is on average, and here are some things you can do to right the ship and fix some of those expenses. There are also things we can help deploy on the marketing front, working with firms like yours: if they don’t have a website, or they haven’t been spending anything on marketing, what can we do to boost revenue, collections, and new patients? We wrap all of that up in a deliverable: here’s a playbook for you. If you really want to sell in two years, here’s what you need to be doing today to get yourself where you want to be. And that’s a conversation too: what are you looking to get out of it, do you have a number in mind? Let’s understand where you are today, and then let’s help you get to where you want to be.
Joseph: You mentioned twelve months. If a practice has been stagnant for several years, but then begins to grow at, say, 10% a year, and they maintain that growth over twelve to twenty-four months, that impacts their value?
Austin: Oh, 100%. It makes a really big impact. You’re obviously going to boost your EBITDA number through that growth, but on top of that, everyone loves a growing practice, so you’ll have even more buyers showing up to the table wanting your practice. It’s not always about growth; there are other things that play a factor. But if you’ve shown a proven playbook in how you’re growing the business, they’re only going to throw gasoline on that fire and help you more, whether it’s better pricing on supplies or better reimbursement rates. That, I would say, is super important.
Joseph: That’s so helpful. Austin, is there anything else you’d like to share with our listeners about how you provide guidance, and the type of consulting support Ascend Strategic Partners offers?
Austin: It can be anything from having a conversation. Anyone who wants to reach out and learn a little more about what the market looks like today, or understand what their practice would be valued at today: we can do that free of charge. That plays into the part I think is super important, which is education. Any way we can help educate someone and get them to a place where they understand what they could do down the line, that’s something we’re willing to do.
One of the things I mentioned is pre-sale consulting. That’s a service we offer where, let’s say you’re twelve or twenty-four months out from wanting to sell: what does your practice look like today, where do you want to get it, and what can we realistically get it to? Think of it as getting ready to sell your house. You don’t want it to be a mess. You want it prepped so it presents well when people are being shown the house. Same thing: let’s get your financials in order, get the practice in order, and do everything we need to do so you’re in the best shape possible when it’s time to sell.
And then the other thing is standard brokerage: taking your practice to market, walking you through what all the steps look like, being there as your partner and helping you get what you want out of your practice. It’s not an easy process, like we mentioned. It’s very time consuming. But it’s really important to have a trusted partner by your side, someone looking out for your best interest and not just a paycheck. At the end of the day, there are stats out there that a brokerage firm will get you 25 to 50% more of the value of your practice than if you were to go out by yourself and ask a DSO, “Are you interested in buying?” There’s no competitive process at that point. And it’s important to have someone who knows the market to make sure you’re not leaving anything on the table.
That’s really it in a nutshell. If anyone has questions or topics they want to discuss, please feel free to reach out. We’re always available and happy to help in any way we can.
Joseph: Help us with your contact information there, Austin.
Austin: My phone number is 813-528-3319, and you can email me at ahunter@ascendstrategicpartners.com.
Joseph: Wonderful. Thank you so much for your time.