A Q&A on How to Acquire Dental Practices with Kyle Hale, DDS
New Teeth Dental Solutions
League City, Texas
Kyle Hale, DDS, has expanded the number of his practices over the past couple of years to five. He also has plans to buy more. His practice, New Teeth Dental Solutions, is in League City, Texas. Dr. Hale shares some insights about how to acquire a dental practice effectively.
Does a practice acquisition mean your practice fully buys out another practice?
Acquisition means you are gaining control of a practice. Typically, you see this as a 100% buy-out where one doctor is buying another doctor’s practice. Partial buy-ins are common for large practices looking to bring in “partner dentists.”
How do you go about finding a good practice to acquire?
Practice ownership is tough! Finding a good practice means you first need to set some criteria and then stick to that criteria. I bought my first few practices according to criteria that made those acquisitions successful and smooth (but still a lot of arduous work). I then went after a “good deal” even though it was not within the parameters I set for myself, and that practice struggled to launch.
The four criteria I use are:
- Previous year’s revenue over $xxx,xxx
- Location by region (driving distance from my home)
- Payor mix (an FFS, PPO, and Medicaid mix that fits our systems)
- The number of treatment rooms
After you set the criteria, you will need patience. Your ideal practice might not be for sale now, but could be in the near future.
In a metropolitan area, the major practice brokers will typically have several listings at any time. There are also publications, such as the Greater Houston Dental Society classifieds web page or the Texas Dental Association’s Texas Dental Journal. Classified pages will have listings from brokers as well as “for sale by owner” listings.
If you have two potential acquisitions that meet your criteria, how do you decide?
If you have narrowed it down to two locations, that’s great. Having options when it comes to acquisitions means you were patient and did not rush into practice ownership. Picking between two practices that are the same on paper will come down to the people in the practices. The culture of a practice can make or break a transition.
Before closing on any deal, I must meet the key team members who work in the practice. Ideally, you are meeting the office manager and the hygienist(s). These team members have relationships with the existing patients, and you need to know they will be edifying you to their patients after the transition. I’ve learned, from years of acquisition experience, having a “champion” will make your job much easier.
What are the considerations for a new logo and/or practice name?
Typically, you will have one year to use the name and logo of the previous owner. In that time, you will have to make the appropriate changes to the practice. So, if the practice is called “Hale House of Dentistry,” you must rename it. Picking a new name is the first step. I am a huge fan of naming the practice after the community where the practice is located. For example, if the practice is in Galveston, I may call it “The House of Dentistry of Galveston.”
You can have logos and brand images made inexpensively using websites like fiverr.com, but that requires a lot of direction. Branding is a discussion all on its own but have a plan before you close and set an appropriate budget. Sign companies will give bids for new signage using photos of the practice, which is usually the largest cost.
When should you inform/involve your new team members?
You should always inform team members before you close. You need to get a feel for the culture. I would not plan on making big changes to the culture of a practice unless you plan to replace many of the key team members. Changing a culture is an uphill and typically fruitless battle. You want to find a culture you are excited to join. You don’t ever want to sign on the dotted line, then drive over to your new business and introduce yourself as the new owner.
How do you create a positive, collaborative environment?
It might be “your practice,” but my approach has always been that I work for the staff. An ownership transition is traumatic, especially when the team had little or no notice of the transaction. Set a cadence from the beginning and let them know what you will change and what you won’t change. In their minds, you’re “going to change everything.”
You should have one-on-one interviews with the staff and give them a safe environment to be candid. In my last transaction, I found that the previous owner never let the hygienist have any input on what materials she used. I let her switch from one prophy paste to another, and she was very happy because her job got easier. Two years later, she is still a champion in that office.
What are the benefits of an acquisition?
There are two ways to own a practice. You can build it from scratch, often called “de novo,” or you can buy an existing practice. There are advantages and disadvantages to both. In my opinion, an acquisition’s greatest advantage is that it comes with a cash flow. This takes a lot of the stress off the owner. Having money coming in from day one means you can budget appropriately from the beginning and may even turn a profit in the first month.
What are the drawbacks?
There are two main drawbacks to acquisitions that are typically not issues you will have with a de novo practice: 1) technology and 2) team culture. Most practices for sale have computers and other technology that will need to be updated. Compliance standards have never been as costly as they are today, and that starts with an investment in technology. Team culture is something that is as much a part of a practice as the physical walls of the building. You can change it, but first, you need to knock down the walls.
Team culture should be one of the screening criteria you are using to evaluate a possible acquisition. A tip for doing this is to see if you and the previous owner have any similarities; could you and the seller be friends?
What legal advice will a practice need?
The transition process will have two main legal documents that will need to be evaluated by an attorney: 1) The Asset Purchase Agreement and 2) The Lease Agreement. The Asset Purchase Agreement (APA) is the document finalizing the sale of the practice. It is paramount you review this with a qualified attorney who has experience in dental practice transitions.
APA: Some key points to review in the APA: Type of relationship with the previous owner. Will he/she stay on as an associate, and what will be his/her compensation structure? In what ways and for how long may you use the previous owner’s name regarding marketing?
A significant piece of the APA will define the division of goodwill (intangible assets) and physical assets as part of the purchase. These are the two things you are “buying” in the APA. There are tax implications here, and having a good CPA in your corner will prevent any surprise tax consequences at the end of the year. In my experience, the more money allocated toward physical assets, the better from a buyer’s perspective since this amount can be depreciated quicker than the goodwill.
Lease Agreement: While the lease agreement should be fairly standard, you will want to make sure you understand the type of lease and any rights or options you have as the new tenant. The most common type of lease is a triple net (or “NNN”) lease.
Will a practice need financial advice? If so, what type of consultant would you recommend?
Buying a practice is an investment in your future. There are hundreds of consultants out there. Just like how you screened for what practice you were going to buy, you should also screen potential consultants. I believe consultants should have evidence of their achievements that prove their results when their own necks were on the line.
When I started growing our group, I joined Dr. Mark Coste’s Elite Practice Mastermind program at the Dental Success Institute, DSI. DSI is a small group of dentists in nearly the same boat as you. Mark has been there and done that. Joining DSI gets you small group support that will take a large part of the learning curve out. It sped up my learning curve by 24 months.
I also joined the Dental Success Network (DSN). DSN is a larger group using a social media platform called Workplace by Facebook. Functionally, it’s the same as Facebook, but the culture of DSN is nowhere to be found on the free Facebook groups anywhere. In DSN, there is mutual respect and understanding.
I believe every member of DSN wants to see you succeed and is willing to share experience, protocols, and documents that will help you on your journey.
Before you engage consultants, ask for references and call them. Talk to the doctors using their services and ask them how long they have been engaged with that consultant and what positive changes they have seen within their own practice.
What other advice do you have for doctors considering an acquisition?
- Be patient. The rocket ship isn’t going to be built and take off at the same time.
- Remember you work for your team. Focus on supporting them and giving them the tools they need to succeed.
- Focus on your leadership development more than your clinical development in those first two years.
- Work out a plan to pay yourself in the first three months. Many doctors only take what is leftover. Don’t work for free. (I recommend paying yourself just like an associate.)
Dr. Hale’s List of Books for Leadership Development
For leadership development, I recommend these books in this order:
Leadership and Self Deceptions by The Arbinger Institute
Extreme Ownership by Jocko Willink and Leif Babin
Tribal Leadership by Dave Logan
The Obstacle is the Way by Ryan Holiday
The Ultimate Sales Machine by Chet Holmes
The 4 Disciplines of Execution by Sean Covey
The Servant by James Hunter
A Personal Note from Dr. Hale
I absolutely love what I do! I graduated from dental school in 2016. I bought my first practice in 2017, and we now own five dental practices in the Houston area. I practice clinical dentistry two days a week and focus on the development and growth of our organization the rest of the time. I love what our organization is able to do for our patients, our teams, and our doctors. If you want to reach out and ask a question or want to share your success story, I would love to hear it. Feel free to email me at kyle@krmdds.com.
Published in Catalyst – Fall/Winter 2021.
Category: Practice Consulting
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