The Future of Dental Practices
Unleashing Innovation: The Next Chapter in Dentistry Business
The last 10 years saw dental practice prices rise to their apex in 2022. Those that sold are living off passive income now and for the rest of their lives, and those that didn’t are outside looking in.
Will the dental practice market rebound?
The million-(billion-dollar?!) question is, will we see it happen again? One thing is certain: practice valuations are down almost 80% since they reached their peak.
When Dentacloud was founded in 2018, practice prices were ripe for reaching price levels never seen before. We saw practice valuations more than double since 2018, and the music has now stopped. Looking to the public markets, Dentalcorp’s IPO was a major driver of this super growth. At the peak of the market Dentalcorp’s valuation was $18.20 a share (Nov. 2021) and is currently at $7.60 a share (July 2023). Only DSOs have built more wealth for dentists than Dentacloud in the last five years, because we predicted the height of the market when we founded the company.
Is Now a Good Time to Sell your Dental Practice?
As a dentist, whether you’re at the beginning or the end of your career, you should always be thinking of your exit strategy. Over 2000 dental practices have been sold in the last 5 years. Practicing dentistry does not need to stop after you sell your practice. The two decisions are mutually exclusive. Selling your practice should be more about the financial goals you have. Achieving your financial goals is what helps you practice when you want to, not when you have to. Dentacloud has made the bold prediction that dentists will build more wealth selling their practices in the next five years than they did in the previous ten years.
How do I get my Dental Practice Valued?
There are a few ways you can start. If you have the time, call a traditional practice broker (for example ROI Corp, Heaps & Doyle, PP Sales etc.) and in 3 months or more, they will provide you with a practice valuation at an estimated cost of $5,000 to $10,000. Another option is to get a 5-minute free online valuation by visiting Dentacloud.ai.
How can a Dentist Build Wealth from their Practice?
Partnerships are the future of dentistry, and you will optimize the growth and ultimately value of your practice. Gone are the days of selling solo dental practices for double-digit EBITDA multiples. The dentists who embrace the following, will reap the highest practice valuations, and reach new levels of growth.
- Dentists who develop operational strategies for growth and own multiple locations will have the leading edge.
- Dentists who partner with leading consulting companies, like Elite Practice, to help grow their dental practice will be ahead of the curve.
- Dentists who build associate-driven practices.
- Dentists who leverage the power of partnership will leverage economies of scale as material costs continue to go up. Dental partnership organizations (DPO) have been a major driver of growth in the USA, and we will see this carry into Canada.
“Dentists will build more wealth selling their practices in the next five years”
What’s the Difference between a DPO and a DSO?
Dental Partnership Organizations vs Dental Service Organizations: A DPO is like a DSO, except that dentists control the business of clinics instead of the business leaders of DSOs. Dr. Rondinelli, CEO of the Huron Group, is the leader of an emerging Canadian DPO, where he focuses on building dental leadership to drive business decisions. All dentists on a recapitalization event proportionally benefit on the exit multiple. In the USA the leading DPO is MB2 Dental. They have a billion-dollar valuation and they continue to grow through the power of dental partnership.
Another notable difference between a DPO and a DSO is the percentage of ownership that the dentist keeps at an exit. In a DSO the dentist keeps, on average, 25%, but in a DPO the dentist keeps 70%. A DSO pays money up front to get access to the dental practice’s cashflow, which is why DSOs make you guarantee the EBITDA (cashflow). The DSO wants you to maintain or surpass growth, but they are the ones that benefit from this the most. The DSO creates the business systems centrally, which doesn’t allow the individual dentist owner to innovate or control their business without going to DSO head office to get agreement. DPOs, in contrast, empower the individual dentist to grow their dental practice as they see fit. As a function of this the dentist partners keep the lion’s share of the growth, but they also receive less cash up front as a tradeoff.
Understanding more about DPOs
If we use the analogy of a growing city, the DPO builds the roads and infrastructure needed to have the dental practices thrive well beyond what they could do on their own. By contrast, a DSO owns the roads and infrastructure, and wants you to maintain and hopefully grow your practice, and if you don’t, they hold you accoutable. A DPO, on the other hand, doesn’t focus on holding you accountable to growth -- you hold yourself accountable because you stand to gain the most by doing so. Just as the government doesn’t mandate how you run your dental practice in order to collect more taxes from you, a DPO won’t dictate how to run your business either. Rather, government builds infrastructure like schools to educate citizens, and institutes financial regulations so that banks can lend money to promote the growth of small businesses. These are the roads that lead to your practice’s success. DSOs also support your growth, but they are better suited for dentists who want to only focus on dentistry and less on the business.
What are the Disadvantages of DPOs?
This is not to say that a DPO is right for all dentists. Dentists that are ready to retire and no longer want to be active in their practice besides seeing patients, are excellent candidates for selling to a DSO. The assumption here is that the dentist wants to sell their practice for a higher price in comparison to selling to an individual dentist. And selling to a DSO versus selling to another dentist may not be the solution for someone who wants to stop working right away. However, there is a hybrid solution that still nets the selling dentist more than they would get from selling to an individual dentist. This would involve restructuring through a DSO, or perhaps a DPO if the buying dentist has an appetite for growth and a longer time horizon.
Securing Your Dental Practice's Future: Crafting a Strong Exit Strategy
Assuming the typical career of a dentist lasts 35 years, 3% of Canadian dentists will retire from dental practice each year. This equates to about 480 dentists per year based upon roughly 16,000 dentists in Canada (2001). Since the publication of this article there are not 25,500 dentists, which would roughly correlate to about 800 dentists will retire. This may also be higher as dentists are now working less years. However, some dentists go on working longer than they’d like because they didn’t have a proper exit strategy in place. Others had the foresight in last few years to cash out so that they, and their families, could benefit from their years of hard work and pursue other passions. In the immortal words of Gretzky, “skate to where the puck is going to be, not where it has been”. Corporate dentistry is here to stay. Look no further than pharmacy where 80% of the market is consolidated into 3 major players: Shoppers, Rexall and London Drugs.
Is Corporate Dentistry the Solution for Access to Care for Canadian Lacking Dental Insurance?
The recent news of $13 billion in dental funding from the federal government has some dentists nervous about the impact on the private pay dental industry, but this funding will be beneficial to practice valuations. It might take some innovation to navigate this program, but it will ultimately be a driver of success.
Some say that the new public funding in dental care will accelerate corporate dentistry. The government will be looking for efficient ways to offer care and one could argue that corporate dental providers have more infrastructure and higher efficiency due to centralization to better service the 9 million Canadians that currently do not have dental coverage. It makes signing large scale contracts more efficient and maximizes capacity for offering care to such a large cohort. DSOs could be contemplating ways to get access to the $13 billion in government funding in dental care right now.
9-Million Canadians Don’t have Access to Dental Care
The Elite DPO leadership has also been developing strategies to be part of solving the access to dental care challenges facing 9 million Canadians. Not only does it make financial sense, but it is also socially responsible. We cannot squander the opportunity for immediate and long-term positive change that we have now with dentistry in the spotlight. Being in the dental industry for over two decades has led me to appreciate that the dental world is one of abundance. Our best years are still ahead of many of us, but it’s important that we act now to make sure we are part of the party and not stuck outside looking in.