As practice transition specialists, we are often asked “Is now a good time to sell a dental practice?” While there are many factors involved in making the decision to transition your practice, the short answer is YES. The current practice transition environment features several attributes that are helping to enhance practice value and make it an ideal time to consider a practice sale:
- High Demand – The substantial increase in the profitability of dental practices and the poor economic outlook in medicine have caused a significant increase in dental school applicants over the past 10 years. With 61 dental schools currently operating in the United States and Puerto Rico and several more in the works, the number of dental school graduates will likely top 5,000 in the coming years. As a result, the pool of potential buyers has increased dramatically over the past few years and this trend is expected to continue in the near future. With a surge in the number of potential buyers comes an increase in the demand for quality practice acquisition opportunities.
- Limited Supply of Acquisition Opportunities – Many doctors who are well within retirement age have delayed the sale of their practices due to the recession. As a result, there have been a relatively fixed number of practice acquisition opportunities available over the past few years. The increase in demand coupled with a limited supply of quality opportunities has resulted in an increase in the value and marketability of dental practices.
It is important to mention, as the baby boomer generation reaches retirement age and the economy and stock market continue their recovery, more and more sellers will enter the marketplace. Therefore, it is expected that supply and demand will eventually reach equilibrium and the current window of opportunity to maximize the value of your practice could begin to close.
- High Cost of Practice Start-Ups – Another contributing factor to the increase in practice values is the rising cost of establishing a new dental practice. The prices of dental equipment, technology, and leasehold improvements have increased dramatically over the past decade, resulting in an average cost of approximately $400,000+ to start a practice from scratch. Combined with the significant living expense needs of most dental school graduates (due in large part to a high level of student loan debt) and the time and cost required to start a practice and generate a profit, many doctors are focusing on purchasing an established practice rather than pursuing a start-up. Real estate agents who focus on dental office space have also commented that private practices are struggling to compete with large corporate practices for prime dental locations.
- Low Interest Rates. Due to the fact that most buyers rely on third party financing to fund practice purchases, interest rates and the availability of capital play a major role in practice value and transitions. Interest rates are currently at an all-time low and numerous lenders are offering 100% financing plus working capital to qualified buyers. The current availability and low cost of capital is allowing buyers to comfortably afford to purchase practices and fueling the increased demand for quality practice purchase opportunities.
While the current banking and interest rate environment make it a great time to be buying or selling a practice, interest rates are expected to increasing substantially within the next 5 years. Combined with an increase in the amount of practices available for purchase, this could negatively impact the value and marketability of dental practices across the country.
The factors we have discussed in this article make NOW an ideal time to consider a practice transition. If you are considering a practice transition, don’t go at it alone. A practice broker will help you formulate a transition strategy to meet your individual needs, confidentially market your practice to find a buyer who is the right fit for your office, provide a structured closing process to facilitate a smooth and timely transition, and maximize the value you receive for your practice.