Th 0611dewor01

Funding your retirement: What’s the strategy for your practice?

Nov. 1, 2006
When it comes to developing a retirement strategy, earning money and saving more money is always the top priority.
Click here to enlarge image

When it comes to developing a retirement strategy, earning money and saving more money is always the top priority. The good news is that there has never been a better time to be a dentist! Patients today have greater affluence and stronger desires for dental care. They want to feel good and they want to look good. Because of these economic realities, dentists should be able to fund their retirement through conventional methods such as IRAs, money markets, and other saving avenues.

But my personal observations over the past five years have not completely supported this assumption. While solo practitioners often do well, the reality is they could be doing much better. There are so many changes taking place in the industry right now and more retirement strategies are available than ever before.

The macro situation

As dentists, we want to believe that the value of our practices will be greater in the future. However, the universal opinion within the dental industry is that the valuation of dental practices will decrease in the future because of supply and demand. To better understand why, let’s take a closer look at a few contributing factors.

First and foremost, we all are aware of the relatively low number of dental graduates expected over the next 15 years or so. At the same time (and depending on economic factors), there will be an equally dramatic increase in dentists approaching retirement. If this occurs, there could be an overabundance of practices for sale with fewer buyers.

In addition, industry statistics tell us that currently, there are not as many female dentists as there are male dentists. However, the number of female dentists is predicted to increase during the next 15 years. This, in turn, means the number of female dental graduates could equal or even surpass the number of male dental graduates. This is particularly noteworthy because industry workforce studies indicate that female dentists are more likely to work part time than their male counterparts. This could lead to a higher percentage of female dentists, and therefore, dentists in general, working in non-ownership practices.

Differences in the next generation of dental graduates also may impact the dental market. This generation, also known as the Millennials, wants flexibility and balance. This means more time off and geographic flexibility. Let’s face it - most households today are dual-income households. That being said, this new generation of dentists is more apt to pick up and relocate to accommodate a spouse’s career needs than in previous decades. Twenty years ago, a dentist, generally male, would have been the major breadwinner in the household. He set up his practice and that’s where the family stayed. During that time, there also weren’t as many career opportunities for spouses as there are today.

Another factor is that there has been an increase in the number of small and large group practices. Our profession is finally accepting group practices as part of the dental community. Many group practices have worked through management and clinical challenges (much like solo practitioners) and are getting better and better. Group practices tend to have more resources to be on the cutting edge of dentistry, embrace new technology, and offer new, updated equipment. Because of this added value, they are becoming a viable alternative for younger doctors compared to the more traditional associateship with a solo practitioner.

What does this all mean? Obviously there is an array of increasing opportunities - personally, professionally, and economically - to satisfy dentists in both ownership and non-ownership situations.

So how do we get from this macro environment to retirement? Traditionally, dentists have worked for 40 years and then sold their practices. The amount they sold their practice for often was a significant retirement-planning event. Today, based on what has discussed here, future values will likely be lower, but that doesn’t mean all is lost.

Exit strategy models

There are many more opportunities available today to dentists who are planning for their retirement. Perhaps the most challenging decision these dentists face is determining which option is best for their own needs. Here are the top three options available to dentists today.

  • Close their doors and walk away;
  • Sell to an associate, partner, or incoming doctor;
  • Sell to group practice or management company and continue to practice dentistry in their own practice.
  • Closing the doors - For dentists who truly want to retire and stop practicing dentistry, the traditional options may be best. They can choose to close their doors and retire immediately, or they may sell their practice to an associate or partner and then gradually transition to retirement.Partnership option - Many solo practitioners look for young doctors to come in and help support their practices. These associates or partners provide security and, if they “buy in” to a practice, this generally secures a succession plan for the future. This is a logical step in a retirement plan, at least traditionally.Sometimes, however, solo practitioners experience difficulty when trying to recruit young dentists on their own. Furthermore, not all young associates are financially viable as partners and here’s why.Ten years ago, I believed that the production of approximately 80 percent of dental practices fell into a narrow range, from $300,000 to $500,000 or $400,000 to $600,000. Today, however, a significant number of solo practices are achieving well beyond the $1 million mark and this appears to be more common than first thought by many solo practitioners. The amount of investment needed for these $1 million practices may be too great for young associates.There is, however, a non-traditional perspective with regard to selling to an “investor” associate, especially if the solo dentist doesn’t have an associate. This option would be to partner with a group practice or management company. These non-traditional partners can help solo practitioners capture a portion of their equity and can provide other benefits as well. At Heartland Dental Care (HDC), we knew we could help these solo dentists capture a portion of their equity and provide access to training, buying power, human resource services, and overall expertise.For example, when a few dozen dentists we spoke with were planning to take the partnership route, we asked, “Why don’t you let us be your ‘junior partner?’” However, the overriding concern for most solo practice owners has always been the fear of giving up control. To address this concern, we developed a new partnership model. In this model, the solo dentist sells only a minority interest of his or her practice to us. This assures the dentist that he or she remains in control, but it allows us to work with the dentist and his or her team to implement training, standardized systems, and purchasing-power savings. Retaining ownership also allows the doctor to benefit from the future growth of his or her practice.If our early experiences with this model continue and are consistent, it may become widespread in the industry in a few years. The results we have observed have been far beyond what most dentists would have believed possible.Sales option - For dentists who are interested in selling their practice to capture the highest possible value but would like to continue practicing dentistry, a non-traditional approach would be to sell their practice outright to a group practice with a management company. This option can offer the best of both worlds - a good valuation when a practice is performing at its peak and, often, an actual increase in personal income for the selling doctor from the continuation of practicing dentistry.Many solo dentists believe the myth that their personal income will decrease if they choose to affiliate with a larger group. The reasoning behind this is that if the new owner - the group practice - takes its share of the profits, then they are left with less than “X.” A common reality, however, is that the practice will expand, thus increasing the income of solo dentists over what they were earning before.For example, dentists who have worked with HDC for three years or more average $300,000 total in annual income, and are far better off financially than a very high percentage of their classmates in solo practice. Often, those classmates had been earning less than the average dentist at HDC because they were carrying all the risk and burden themselves. Through affiliation with HDC, as an example, the burden and pressure are removed, and the dentist’s enjoyment of practicing returns. We have seen this so often; when the shackles are released, dentists are amazed at the transformation in themselves and their practices.We’ve found that when these doctors make this discovery, they become amazingly open to implementing changes in their systems, which can double their practices. We’ve observed this first-hand at Heartland through our many affiliations with solo practitioners.Doctors who sell their practices to HDC may gain an additional benefit to help support their retirement strategy - inclusion in an Employee Stock Ownership Plan (ESOP), which is very unique in the industry right now. As an illustration, those who are involved in our ESOP will receive, on average, $30,000 to $50,000 a year toward their retirement. This offers a potentially irresistible incentive for affiliation and may be compelling for a large number of solo dentists.Today, there are a variety of traditional and non-traditional options available to dentists who are looking toward and planning for their retirement. Something to keep in mind is this: for those dentists who plan to sell their practices today, the value of those practices is probably as high as it will ever be. If dentists are going to get paid “X” for their practices, why shouldn’t they consider options that are available that will allow them to capture that equity as early as possible?Now is a great time to be in dentistry, especially for those who are contemplating their retirement strategies.
    Dr. Rick Workman is the president, CEO, and founder of Heartland Dental Care in Effingham, Ill. He has more than 25 years of experience developing, acquiring, and managing dental practices with a focus on establishing the highest possible standard of care. With more than 175 practices in 12 states, Dr. Workman’s efforts garnered him the 2003 Ernst & Young Entrepreneur of the Year Award in the Masters Category and Excellence in Dentistry’s 2004 Dental Executive of the Year Award. Contact Dr. Workman by phone at (217) 540-5100, or via e-mail at [email protected].

    Sponsored Recommendations

    Clinical Study: OraCare Reduced Probing Depths 4450% Better than Brushing Alone

    Good oral hygiene is essential to preserving gum health. In this study the improvements seen were statistically superior at reducing pocket depth than brushing alone (control ...

    Clincial Study: OraCare Proven to Improve Gingival Health by 604% in just a 6 Week Period

    A new clinical study reveals how OraCare showed improvement in the whole mouth as bleeding, plaque reduction, interproximal sites, and probing depths were all evaluated. All areas...

    Chlorine Dioxide Efficacy Against Pathogens and How it Compares to Chlorhexidine

    Explore our library of studies to learn about the historical application of chlorine dioxide, efficacy against pathogens, how it compares to chlorhexidine and more.

    Whitepaper: The Blueprint for Practice Growth

    With just a few changes, you can significantly boost revenue and grow your practice. In this white paper, Dr. Katz covers: Establishing consistent diagnosis protocols, Addressing...