How to Define an Exit Strategy For a Large Dental Practice

Melissa LuVisi
December 30, 2021 | 3 min read

Running a large dental group (e.g., 10-20 locations) is different from operating a solo or small multi-location practice. When you plan to sell the business, your exit strategy also needs to be different.

While smaller practices focus on selling their patient base, larger ones have different emphases. These include the ongoing delivery of professional services for fees, the ability to achieve profit and cash flows, and the infrastructure for generating long-term revenue — elements that will help you command a much higher price point.

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Here’s what you must address in your exit strategy:

1. Shift Your Focus

Besides delivering what your patients need, you must address what buyers and investors want. Instead of making a living, you need to shift the focus to generating a return on investment. 

So what do buyers and investors look for? 

They want a business that creates value, generates healthy cash flows, shows high profitability, has a market-oriented management team, and demonstrates growth potential. They look for a fair entry valuation and a practice that offers ample exit options.

To position your business favorably, you must show consistent performance history and patient base growth with the appropriate M&A metrics. Demonstrate economy of scale in your processes and your team’s focus on revenue production and expansion. 

2. Combine to Grow

If you want to achieve a certain scale or add specialty services to your practice before putting it on the market, you can combine several practices through mergers or acquisitions. Then, you can sell the larger entity at a higher price point.

The new combined practice allows you to gain efficiencies in management, compliance, facility, human resources, back-office operations, and IT infrastructure. Such partnership can also help you expand geographic footprint, assimilate more transactions, and grow the value of the business.

3. Take “You” Out of the Equation

When you sell your practice and leave the business, buyers want to be sure that it’ll continue to operate effectively and profitably. Evaluate all your processes to see how you’re involved in the practice's operations. Simply put, anything that can’t happen without your involvement needs to change.

Document all the policies and procedures in your practice. Implementing dental practice management software can help you define workflows and automate repetitive tasks — from patient communications to claim submissions and revenue discovery — to ensure that your processes are repeatable and scalable in the future by the new owner.

4. Assemble a Board of Advisors

Executing an exit strategy isn’t a walk in the park. You need working knowledge about these complicated processes. An experienced third party, such as an outside director or consultant, can provide the guidance you need to shorten the learning curve. 

Look for professionals who have gone through the process under similar circumstances. In fact, having an expert in your court can help establish credibility with potential buyers, investors, and lenders. Your advisors should bring independent perspectives, strategic thinking, and valuable contacts to the table.

5. Solicit Buyer Interest

When you’re ready to put the practice on the market, you need to generate interest from potential buyers. Start by sending a personalized transaction overview (also called a term sheet) to as many prospective buyers as you can. Then, provide those who express interest with more details in the form of an executive summary.

Those who continue to show interest will ask for an operating plan with assumptions and financial forecasts. At this point, you should have all your financial reports lined up and ready for a detailed investigation by the potential buyers.

Additionally, many advisors have contacts looking for deals. They can guide you on preparing solicitation documents, locating buyers, orchestrating your outreach, and negotiating the transaction.

Final Thoughts

Selling a large dental practice that has multiple offices requires substantial effort to set the stage for success. Besides addressing the current market condition, your exit strategy must position your practice for future success and demonstrate long-term ROI to potential buyers.

While market conditions may change, the use of new technologies to streamline operations and support growth will only increase. By putting the right workflows and IT infrastructure in place, you can attract serious buyers who are willing to pay top dollars for a well-run operation.

Learn more about our enterprise DSO solution and see how we can help you increase the value of your practice. 

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