Picture it with me: you’re enjoying a relaxing Saturday morning at home. As you sit on the front porch reading the paper, you notice that the grass needs cutting, the dead limb over the garage did not come down by itself while you were practicing dentistry all week, and although the leaves fell months ago, you still haven’t removed them from the flower beds. There’s certainly some work to do outside. Not wanting to tackle the chores today, you wander inside.
As you walk past the fridge, you glance at the long list of honey do’s placed up there weeks ago that continues to grow. As you pour another cup of coffee and think about how to get through this mountain of work around the house, the doorbell rings.
You head to the font door and through the glass you see a man examining the broken shutters, unkept grass, and leaf-filled beds. You open the door; he introduces himself and tells you how wonderful it is to meet you and that he believes your home would be perfect in his portfolio. He loves the location and square footage, he shares your vision for the lawn and a renovation, and best of all, he’d like to buy your house from you!
You wonder if this is an angel from heaven. Nope, afraid not. This is simply an investor who’s trying to buy your house at the lowest possible price so that he can make the most money when he sells it. Nothing wrong with him or his business, but you need to understand his motives.
More advice from Kevin Cumbus
This situation is similar to other unsolicited offers you’ve received. Your business is always in motion and there are things that all business owners intend to do that they just don’t get around to that will increase revenue and profitability. When you’re approached by a DSO/IDSO with an unsolicited offer, they know your business is not prepped to sell. They know you’re sitting on a proverbial honey-do list that you can certainly accomplish and when you do, it will add revenue, EBITDA, and value to your business.
They would prefer that you not make those improvements before they buy it. They want to make the improvements and enjoy the upside that comes along with that. Inviting someone to look at your numbers when you’re not prepared to sell is akin to giving them a tour of a house that has a leaky faucet and broken gutters and shutters. The bones of the house are solid and there is value there, but think about how much more it could sell for if the house were prepped for sale?
In Charlotte, North Carolina, we’re still seeing an unceasing appetite for homes, even with the rising rate environment. Sellers know, given this voracious buy-side, that the way to maximize value in a sale is to hire a broker, prep the house for sale, and run an auction process. Brokers more than pay for themselves and ensure there will be multiple bids. The same is true in the dental world.
We’re lucky enough to work with dentists and specialists from throughout the nation to help them prepare their businesses for sale. The preparation for the sale involves a deep analysis of your financials, production reports, employment agreements, and leases. We help our clients understand where the issues are in their business and how to address them when we go to market.
In 2022, our clients enjoyed exit values on average of 240% of collections, and one client sold his business for more than 700% of collections. This was all made possible because they took the time to prepare the business for sale and run a process. They wanted to sell for top dollar and not simply accept the first offer they received. Through the years, we’ve worked with dozens of clients who received unsolicited offers from DSOs. When they engaged us to help prep their businesses for sale and take them through a process, we were able to give them a 5x–7x return on our fee over the offer they had in hand.
Editor's note: This article appeared in the April 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.