In part 1 and part 2 of this 3-part series explained how important planning is to transition your dental practice. Part 3 of this blog, explains considerations that impact practice sales, along with the negative impacts, and why you should partner with a Broker. Let’s begin.
A number of other things impact the timing and success of both practice sales and purchasing power, such as the 100% practice financing currently available, an increase in capital gains tax, or an increase in interest rates. How does one determine whether it’s a good time to buy or sell and the inherent benefits to each party?
“I think all of these concerns are just about timing,” Ranger says. “I think it’s just the way of the market. If young dentists out there want to own their own practices, and if these things dictated whether they actually buy a practice or not, then I’m probably in the wrong business!”
From a historical perspective, Ranger says he can’t count how many dentists have told him that when they bought their first practice, they were paying a 9% interest rate. “If you tell a doctor today that their interest rate is going to be 9%, it’ll scare them to death. But if that’s what the rate is today, that’s what it is. I don’t think that’s going to keep buyers from buying practices, and I don’t think that’s going to keep sellers from selling practices.
“Interest rates will always be a factor in how some of the market will think and do things,” he continues. “But as long as the banks are lending, there will always be buyers.”
Ranger further explains that 100% practice financing has been around for a long time, and it does have an impact on interest rates. “It’s a product that banks are either going to use or they’re not. It just depends on the practice because there are no two practices alike. And there are no two banks alike. And the buyers are always going to be different. There are different ways that bankers look at buyers. Whenever we go to a bank to borrow money to buy a car or a house, we all look different than the next person.”
Banks determine the interest rate and what their risk factors may be. If someone presents as a really strong buyer, and the practice they are interested in is a strong investment, then it is not unusual for a bank to provide a 100% financing because that is less of a risk for them. “The more the risk, the less the percent that they’re going to risk themselves to the buyer,” he says. “It’s our job to disseminate the right information not only to the buyer, but to the bank, to help them understand what the practice looks like and provide all the financials and the intricacies of that practice and how it operates.”
Ranger says that the 100% financing is definitely important today. It makes more sense for a buyer to take a loan when the bank will lend them 100% at a 3.5% or 4.5% interest rate rather than spend their own money, which could be invested in something else and making more money.
There are always unpredictable things that can have an impact on sales. For instance, the market crash in 2008. Dentists who were 64 or 65 years old and ready to retire at 65 may have lost half if not 75% of their retirement funds. That may have forced them to work a little longer. Another event like the COVID pandemic would also definitely have an effect.
But Ranger still believes that nothing will totally prevent practice sales while there are dentists reaching the age of retirement who are ready to sell and younger dentists who are ready to buy. “There will always be practices for sale. Today it’s a seller’s market, which basically means there are fewer sellers than buyers.”
Why Partner with a Broker?
“I think it’s very important for a seller, a dentist who has an interest in being educated and learning more about transitioning their practice, to rely on a broker who has the broadest knowledge of the industry and can really help them understand what the process looks like,” Ranger says.
“Everybody needs a coach, right? It kind of goes back to that old saying,” Ranger explains. “Everybody knows who Michael Jordan is. Even Michael Jordan had a coach. He is the best basketball player ever, but he still had a coach. That’s what we are. We help doctors, we coach them up, we educate them about the dental practice transition process. And we customize their experience because they’re all different. Every doctor has a different strategy and it’s our job to help them understand what their options are, identify all the moving parts of that process, and then facilitate the transition process for them. It makes sense for every doctor who wants to sell his or her practice to have good representation. If they don’t, they could lose out on maximizing the value of what they really have, and they could also miss out on some very important parts of their transition that are subtle and not often talked about.”
Ultimately, the best thing you can do to ensure a smooth dental practice transition is to be prepared. Follow these tips, and you’ll be well on your way to ensuring a smooth transition of your practice in the years to come.
About Xite Realty
Xite Realty helps healthcare professionals in through every stage of their career including opening their dream offices to practice sale for retirement. Founded in 2013, Xite Realty has six offices in three states, staffed with professionals to assist our clients open, sell, or purchase a medical practice in the United States. We equip our clients with tangible evidence for their startups by using tailored demographic data and tested healthcare real estate expertise. For more information, visit https://xiteco.com