"Mergernomics"

In the ever-evolving dental industry landscape, a solo dental practice’s ongoing growth and success are becoming increasingly challenging.? With rising competition, the influx of Dental Service Organizations (DSO’s), insurance clinics, advertising retail centers, and an unpredictable economy, practitioners must consider ways to expand their traditional patient base.? Many dentists mistakenly join commercial programs to attract more patients, only to find that these fee-conscious patients leave as soon as another provider offers a lower fee.? Merging smaller dental practices into larger ones has become an increasingly attractive option for many practitioners. This strategic move can provide many benefits, ranging from financial gains to enhanced patient care.?

A practice merger—buying and integrating a dental practice into your own—is the best way to expand your practice. When handled properly, patient retention averages 95% or better. This approach adds considerable stability to your practice and ensures a strong position in the future marketplace. The seller can often continue working as an independent contractor for the purchaser until retirement, thus creating passive income for the purchasing dentist.

A practice merger allows you to maximize the use of your existing facility, hire an associate, and overcome “Solo Economic Dependency” by generating income from the associate’s work. Considering the significant investment in your office, it may be time to optimize its use.

With a practice merger, you won’t incur additional costs for fixed expenses such as rent, utilities, and telephone. You can get more work out of your existing staff and may only need to add one or two additional staff members. All other expenses will be directly related to production, such as lab fees, supplies, and commissions paid to the selling dentist or associate. This approach maximizes income and minimizes risk.

The following projection is based on the selling dentist (or associate) producing all the additional work resulting from the merger.? This scenario presents an opportunity to derive passive income from the practice, income generated without additional clinical production by the purchaser. As the seller phases out of the practice, the resulting overflow of patients allows for the addition of an associate, thereby eliminating “Solo Economic Dependency.”

Example:

• Practice Gross Income: $500,000
• Selling Price: $390,000

A down payment of $150,000 (representing the actual cash investment) and merging it into your present facility will produce the following results:

Expenses:

• Additional Assistant: $40,000
• Lab Fees (8%): $40,000
• Supplies (5%): $25,000
• Associate Commission (35%): $175,000
• Additional Hygiene: $45,000

Total Expenses: $325,000

Income:

• Gross Income: $500,000
• Less Expenses: $325,000
• Gross Profit (35% passive income): $175,000
• Less Debt Service - Loan Payments: $79,300

Cash Flow: $95,700 = is a return of 64% of your original ($150k) investment!

If the purchaser chooses to handle all the acquired production, the profit will be approximately $270,700, representing an annual return of 180% on your investment.

Moreover, the purchaser reduces competition and prevents another, possibly more aggressive, competitor from buying the seller’s practice and establishing a foothold in the purchaser’s marketplace.

Each year without a merger is a year of unrecognized (or lost) income that could have been generated from your practice.

If you would like information about opportunities in your area or want to speak to another doctor who has utilized this program, contact Dr. Rod Strickland at (843) 290-8584 or [email protected] for a personal consultation to discuss your needs and options.