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Transitions Roundtable—We ask two experts the same question on a complex issue

April 1, 2017
What areas of the US have the most value for a potential buyer of a dental practice? Is there a “hot” market for young dentists looking to become owners? Two experts share their opinions.

Question:

What areas of the United States have the most value for a potential buyer? Is there a “hot” market for young dentists looking to become owners?

MARIA MELONE

A first-time practice owner has many things to consider when trying to identify the right practice to purchase. There are any number of demographic factors to consider, including population size, patient income, patient education levels, and more.

Over the last several years, we have seen younger doctors gravitating to major metropolitan areas. These urban centers are attractive places to be when you consider the array of activities they offer, such as arts, culture, and sports. However, these areas also generally come with a high cost of living and a greater saturation of dentists to population, which leads to increased competition. This increased competition has two levels. First, you will compete against other buyers to purchase a listed practice, which will likely drive up the purchase price. Second, you will continue to compete against others in the marketplace for patients.

Alternatively, suburban and semirural areas tend to have a lower cost of living and less competition. These can be communities that provide a great environment for raising a family with a wonderful quality of life, and with limited competition from other dentists.

I recently worked with a first-time buyer who was considering purchasing a practice that was 60 miles from a major metropolitan area. He had been an associate doctor in this practice, and as the owner he stood to make in excess of $750,000 per year. But he was hesitant to buy the practice because he and his wife were “city people.”

I suggested that with the level of income he stood to make, after a few years of paying down some of his practice debt, he and his wife could easily afford a pied-à-terre in the city for weekend visits. I’m happy to report that my client did purchase that practice and he has grown the business even more by acquiring some of his competitors.

SCOTT MCDONALD

Rather than make an overly simplistic recommendation on locations with “potential,” I would like to call attention to the fact that not everyone wants the same things from a practice area. Let me divide the ideal locations into three criteria.

Sites with potential growth - I’ll take North Dakota and Washington, DC, off the table right away. Too much uncertainty! The places with potential growth are Texas, especially the Dallas/Ft. Worth, San Antonio, Austin, and Houston areas; Utah, especially northern Utah County and southern Salt Lake County; Colorado, especially north and east of Denver; and Florida, especially the west coast. Just be aware that competition will be heavier than average in nearly every case in these areas.

Places with favorable return on their investment - Factors such as the cost of doing business, the tax burden, and staff salaries will make the return on investment different from just growth in these areas. The money earned in these locations is easier to keep, although the nightlife may not be stunning. Arkansas; the eastern region of Missouri; Ohio, particularly the northern half; South Carolina; and Oklahoma score surprisingly well. Lower competition and reasonable growth are serious benefits.

Hidden nuggets that might be below your radar screen - There are some developing areas that may have snuck past you. These include Idaho, both east and west along the southern half; Iowa between US 20 and I-80; North Carolina, particularly in the central and eastern regions; Tennessee, especially in the metropolitan areas and the outskirt suburban areas; and Kentucky (yes, Kentucky)!

Here’s a note of caution: Not every dentist is suited for every area. Therefore, even though these areas are above average in their favorability factors, they may not be the right place for you even if a practice becomes available. Also, it is unlikely that many of these locations will work for a scratch practice.

Maria G. Melone, CPA, CVA, began her accounting career at KPMG. She then spent 10 years working for one of the largest dental support organizations, handling all aspects of the buying side of dental transactions. She has helped facilitate hundreds of transactions and has valued even more. She is a founder of MORR Dental Solutions LLC and dentaldealmate.com.

Scott McDonald is the owner of DoctorDemographics.com, and publisher of the Perfect Place to Put a Practice Podcast.

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