Practice Ownership and Student Loan Debt

A recent article in The McGill Advisory entitled The Hidden Threat of Student Loan Debt brings to the surface an issue we just can’t seem to get around. While the recent grads understand all too well the effects of their indebtedness, doctors seeking to transition their practices – for the most part – remain clueless on how this liability does (or does not) impact the process. Not a week goes by that someone fails to point out to me that “buyers can’t get money to buy my practice” because of their student loan debt. I’m sure that is disappointing for all of the industry lenders to hear in the face of their marketing efforts so let’s set a few things straight:

  1. I can get a qualified buyer 100% financing for a practice purchase PLUS operating capital for cash flow expenses through a number of sources at very competitive rates.
  2. A “Qualified Buyer” does not mean someone without debt. Student loan debts are a fact of life and virtually ALL buyers will have some. Nor does it mean that they have piles of cash in savings. The opposite is the norm.
  3. A buyer’s credit score and work history is more important than their net worth.


On some level, I completely understand. In the mid ‘70s, as my prospects of graduating from the UMKC School of Dentistry in the spring of ’77 were improving, it seemed important to begin the search for a career home. You see, in those days the vast majority of graduates left the building and went into immediate ownership of a practice. Whether built, bought or inherited, self-employment was a given. The question, though, was where would our skills be put to use as not everyone from multiple classes of 160 graduates could stay in the Kansas City metro? I personally looked at a small town about an hour away from St. Louis; a river town east of Kansas City; and a college town in the “other” Johnson County.


Ultimately I decided to stay in my hometown of Raytown. At that time it was a booming first-tier suburb whose dentist population swelled from a handful of old guys in the early ‘70s to 33 practices in 1983. Family and friends? Familiarity? Fear of the unknown? It’s kind of hard to say exactly what caused me to stay locally, but in the long run it worked out.


(Sneak Peak! A slightly edited version of this article is scheduled to appear in the May issue of Dental Economics.)

As more and more practices established in the 60’s, 70’s and early 80’s come on the market, it seems likely that a good number of them will need to be merged into existing practices in order for the retirees to perpetuate care of their patients and maintain custody of records. With enrollment to local dental schools in our market more than a third less than preMergeRightvious levels, a significant number of retirement age doctors will not find buyers to sustain their practices into the next generation. Positioning their practices for a merger into another may well prove to be the best of exit strategies. As we gain more experience with this model, certain factors contributing to the marketability and successful transition of these practices seem to bubble to the top.

Retaining one or more key staff people: It is no secret that many patients will have more connection with the office manager, assistant or hygienist than they do the doctor and having one or more come to the new office has a very powerful effect on patient retention. Besides their familiarity with the patients, a willingness to promote their new boss goes a long way towards acceptance of the changes the new office and doctor may present. Pre-appointed hygiene visits can be “money in the bank” for the new doctor if properly handled.

Finish Big – Part Two: What’s Next?

FinishBigI’m disappointed to say that only a small percentage of calls we get about the potential sale of a dental practice is about creating a transition plan. Most of the time the practice owner calls because they have decided that “the time has come” and wants to know if we can help. The decision to call was not the result of a carefully crafted exit strategy but rather the realization that they are tired of working, want to make a change in their lifestyle, or in some cases declining revenue has taken the profit out of their practice. The lack of a plan often leads to a declining value of the practice and in some cases, the practice is unsellable as an ongoing business. While we try to be as accommodating as possible (otherwise we would be out of business), sometimes it’s too late for us to help.

Bo Burlingham’s book, Finish Big, makes the case that how and when a business is transitioned should be a part of the start-up business plan.

Another Great Day in Lincoln (A Lesson in Subjective Valuation)

There is no doubt that one of the best days of our year is the day we get to speak to the students at the University of Nebraska Medical Center College of Dentistry. The culture of the school and the hospitality of our host, Dr. David Dunning, always make for a great experience. While the fact that Dr. Wolff wrote the chapter on practice valuation may contribute to the attentiveness of the students, the respect shown by the school to outside resources is exemplary. This program is one of the finest in the nation and others should take notice.DrWolffLincoln

No, Dr. Wolff is not trying to sell anyone a classic car. The picture was used as a conversation starter about the concept of Subjective Valuation.

Probably nowhere is it easier to illustrate this concept than to ask various members of the class to give their dollar value of the 1957 Chevy convertible shown in the picture. Prices ranged from $30,000 to $250,000. Color and engine type made a difference as did originality. Emotion, history and sentimentality were also factors. While the current market price for such a vehicle might be in the $75-100,000 range, the student’s numbers reflected exactly what was asked; what is this car worth to you? Some were ambivalent while others thought it was iconic.

Finish Big, Part One – By Bo Burlingham

FinishBigNot many books found in the business section of the bookstore are written about the exit strategy of small business owners. While you will find countless texts on Marketing, Management, Growth and Development, seldom is much consideration given to the financial, social and psychological implications of ending a career. Bo Burlingham, a frequent contributor to INC. Magazine and author of the book, Small Giants, has taken up the cause with his new book which will be reviewed and discussed in a series of articles on this site over the course of 2015. While dental practices do not usually conform to the definition of Small Businesses (receipts greater than $2.5 million), the experiences of general business entrepreneurs are very similar to dental practice owners. I would suggest that anyone who cares about the future success of the transition of their business to the next generation should pick up a copy of this book and a highlighter and begin a little honest evaluation of your exit strategy.

Well, It’s Happened Again

To those who know me it should be no surprise that one of my favorite NPR shows is Car Talk by the Magliozzi brothers, Ray and Tom. After about an hour of nonsense mixed in with a little bit of advice about everything from transmissions to bread recipes, the signoff begins with the line; “Well, it’s happened again. You’ve wasted another perfectly good hour listening to Car Talk. Our esteemed producer is . . . .” I couldn’t help but think of that line upon hearing of another colleague in my territory that went down unexpectedly and left his family unprepared about what to do with his practice and patients. It seems like this happens way too often.


I recalled an article posted on this site a few years back and believe that it is still on point. A portion of it follows below. For years we have had a Memo of Direction available on our website for those that need a little assistance in getting started with some practice continuation planning. We made it a WORD document so that it can be changed to suit your needs. I will not even be offended if you take our name out and put in another’s. I would prefer someone else be designated rather than no one.

You Want How Much?!

One of Debbie’s and my monthly pleasures is shopping at a local Kansas City antiques center which is only open during the “First Friday” weekend. This particular store epitomizes the word eclectic, and has been the source of numerous purchases. Recently I noticed a couple of 50’s era stools which, although I had no need for them, I thought were really cool. They had been marked at $85 each, but having noticed them not selling for a couple of months, I thought I would flash my negotiation skills and see if I could buy the pair for about $120. Imagine my surprise in finding them not in the usual display but positioned in one of those out-the-door bargain locations for $25 each. Interestingly, though I would have been proud to have bought them for $120, I found myself a little reluctant to hand the cashier $50 for the pair. What happened? Why did it no longer seem like such a good deal?


Obviously the chairs had not changed, nor did the store change their marketing format. The fact is, my perception of their value changed. The chairs went from being kitschy, industrial décor to clearance sale items. Ultimately, I did buy them, but the feeling of victory was tainted.

Write It Off? Not So Fast.

One of the services EMA offers is a pre-transition consultation in which we take stock of the potential seller’s practice and make recommendations about how to best position the practice for sale. This may include our opinions about the physical plant, current technology, service mix, PPO participation, staff size and general marketability. Inevitably though, that conversation will include a comment referring to “cleaning up your financials”. The logic is that practices with clean Profit and Loss statements and tax returns just “show” better to prospective buyers and consequently sell faster. Recent revelations from the banking industry though have caused us to reconsider how important this particular point may be in accomplishing a sale and transition.


Come on, we’ve all done things like putting a spouse and/or children on the payroll or buying “Dental Supplies” that ended up in the home pantry. Boats, airplanes, farm animals (yes, we have adjusted “Hay” from the supply bills), inflated rent to owner occupied real estate, artwork and furniture have all been written off as expenses through the practice. We are making no moral judgment here as we understand that small business owners need to take every available advantage of self-employment. In the past we have simply normalized those expenses in an effort to best estimate the true overhead costs and resulting profitability. Buyers and their accountants understood the process and analyzed the opportunity accordingly.