From Scale to Sale: 5 Tips to Maximize the Value of Your Group Practice & Ensure it is Scaled for Success

Over the past several years, the dental market has been flooded by consultants, Facebook groups, networks, institutes, educational programs, and events. All of their messages are geared towards the entrepreneurial dentist and growth of the group practice market.

Some believe this is a direct response to the corporatized consolidation of dentistry. A “hedge” against the DSO industry titans, or rather, a last stand to maintain the privately-owned practice market in the wake of PE, dental/medical integration, insurance and regulatory impacts.

Still others feel that it is the result of business savvy dental practice owners attempting to capitalize on the impending consolidatory mechanisms in play and cash in on those market movements.

While arguments can be made on both sides of the table, it is neither important nor relevant to the purposes of my penning today. What is abundantly clear, is the incredible need within dentistry for additional education on the differences between a single location private practice owner and a successfully operating, profitable group practice that is attractive to ownership, associates, team members and future investors.

Having helped build group practices, coach dental entrepreneurs, sell large multi-site entities and now purchase those similar entities, I thought it might be helpful for dentists to have a guide from which to work.

There are many missteps that can be taken, and truly, the devil is in the details. I’ve narrowed it down to 5 helpful tips that will allow you maximize the value of your practice as it grows, while making sure that growth is scaled for success.

1. Start at the End

Why are you doing this and what is your end goal? You have one location. It’s going well. Everyone is telling you to open a second location, but are everyone’s opinion’s enough? Why would you take that step, that risk?

In working with dozens of dentists, I can tell you that very few doctors take their first few steps while thinking about their last. Identification of these goals are critical to the structure and success of your entity. These goals will dictate numerous decisions you make every step of the way, and while the course may not be in a straight line, having a clearly charted endgame (yup, total Avengers reference there) will minimize the zigzagging that you do along the way.

Begin with the end in mind. Do you want to own and operate a 10-20 location group for the next 20 years? Do you have bigger things in mind? 100 locations? 200? What type of geography are you interested in covering? Are there enough enviable markets adjacent to realize your growth goals? Do you want to sell out to PE? A DSO? These are all things that should become a part of your vernacular and discussions with your spouse and your team. I can’t emphasize this enough, do everything you can to figure out where you want to go and build backwards.

2. Keep Systems and Processes Aligned

Continuity within your group practice is of infinite importance as you grow. Hire associates and team members who share your vision and values. Target the same demographics of patients as you expand into new locations, and maintain the same processes with insurance providers, systems, and team policies. This should be priority one when opening a new site. Systems and processes are your friend, and the better you are at ensuring that the systems and processes you have successfully operating your first practice are replicable, the higher the likelihood of success in subsequent locations.

I regularly run into multi-site groups that have locations that are setup completely differently than all of their other practices. This is an operational nightmare, and, from an acquisition strategy standpoint, it devalues the entity as a whole. Onboarding three identical practices is a lot easier than onboarding three completely unique practices. This should be common sense, but remarkably, it’s often not adhered to.

Movement of team members from location to location is critical to the success of a young, growing group practice. And when I say critical, I mean, make it or break it critical. Every possible thought should be given at the front end of growth to making this as seamless and easy as possible. Consistency of systems and offerings go a long way towards doing this.

3. Befriend Your Banker

I usually leave this part up to my banker brethren. However, as a teaser, you’re going to have some challenges in growing your group with traditional lending. I often see doctors go out to a local hometown lender for their initial practice loan. Depending upon rates, they may go another route for their second, or just consolidate with a different lender on round two or three. Fast forward a few years and an owner has seven or eight practices, upwards of $7-10+MM in debt attached to his/her personal guarantee and the banks are now eliminating that doctor’s ability to continue expansion efforts. They don’t understand the business. They’re squeamish about practices on the note that don’t have an owner working in them and there’s been no strategic monetary policy associated with the growth of the group.

Take some time and sit down to build a business plan complete with a growth strategy and projections. Add dates to that strategy if at all possible. Have a meeting with your direct banker, and the individual you are working with that has experience with group practices. Do this before you purchase your first location. Or at least, as close thereafter as you can.  Present your business model, goals, target markets and growth projections with them and find out the benchmarks they’re looking for, and what you need to do to operate within their guidelines. This will go a long way towards securing long-term funding and will help you with that roadmap be it through traditional capital methods, or alternative vehicles.

4. Lay Out Your Plan With Legal

The legal structure is both complex, and well out of my area of expertise. Typically, a local dental practice’s legal representative isn’t well-versed in group practice dynamics. Spend some time vetting your representation and make sure you find a legal team that has experience in the market segment, throughout multiple stages of founding, expansion, operation and transition/acquisition.

Pay especially close attention to associate contracts and equity options, liquidation of shares/sale of assets protocols, and continuation of operation/succession should something happen to the primary owner (you). These are areas where you need to have well established protocols in place before you make the jump to practice number two. By the way, establishing these legal systems will help you with your lenders as well.

5. Plan Your Exit Strategy Early

Congratulations! You’ve gotten to the end of your career and you’re ready to look at a transition strategy. Assuming your transition is legally set up to funnel through you and not your associates/shareholders, you have a golden opportunity to take your group to the open market.

As a well-established group of practice’s operating in lockstep with one funding source, an operations team which is efficient and well-trained with a profitable bottom line, you will be in an optimal position to demand a premium.

Start having these conversations five to seven years before you plan to depart, as you’ll drive maximum value if you can work through the transition and beyond.

Because a significant portion of your earnout will be down the road, make sure you’re comfortable working with leadership at the entity you’re negotiating with. Make sure the cultures are similar enough that your team will be taken care of and want to stick around, especially your associate doctors. Clinical autonomy is a critical component of this and it’s worth doing your due diligence into how the organization operates on this front. Many acquisitions go bad in the long term because of a mismatch. When this mismatch plays out, almost invariably the practices suffer, which can dramatically affect your trailing earnouts and the enterprise value you receive.

Talk to Me

If you’re looking to maximize the value of your practice and build strategies that scale, shoot me an email. Our affiliation model with local group practices allows for complete clinical autonomy determined by the doctor/shareholder group, while all back-office operations and acquisition processes are handled by American Dental Partners. We are incredibly unique in the landscape of dental support organizations and are excited to move into the future with a rapidly growing group of affiliates, practices and team members.

I’ll be at the Dykema meeting July 10-12 at the Omni Dallas Hotel
and would love to meet prospective group practice owners.
Email me to schedule a time to meet.

Josh Swearingen
Director, Corporate Development
[email protected]
Connect on LinkedIn
Read Josh’s article, “The One-Stop Shop Delivery Model – This is Just the Beginning

 

 

 


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