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Navigating Your Dental Practice Transition: Strategies for a Secure & Fulfilling Future with Fortune Management

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January 23, 2025

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Rethinking the Traditional Retirement Path

Here’s the truth: that traditional retirement model just doesn't cut it anymore. We all know the future is uncertain, and relying solely on the sale of our practice for retirement is risky. What happens if the market isn't in your favor when you decide to sell? At Fortune, we encourage our doctors to look at creating passive income streams, think of things like real estate acquisitions. This can give you a predictable stream of income that will support you in your future, whatever it looks like. It’s about opening your mind to all the different ways that we can create a secure future for you. So you need to start exploring and implementing these strategies now, over time – that’s the key.

Understanding Your Options: DSO vs. Private Practice Buyers

When you do eventually consider transitioning out of your practice, it's vital that you have a clear picture of who will be your buyer. In our market, we generally see two different types: financial sponsors, or your Dental Service Organizations (DSOs), and strategic buyers, or fellow private practice dentists. These two options are very different, and as such, should be understood fully prior to listing.

DSO transactions are often backed by private equity firms or investment banks. These are buyers that are usually looking to hold the practice for 3 to 10 years before they recapitalize or get acquired by an even larger DSO. While they can sometimes offer premium prices, they come with conditions and often prioritize maximizing value for shareholders, not necessarily patient care.

Strategic buyers, on the other hand, are usually looking at the long-term investment, sometimes 15, 20 or even 25 years. These buyers tend to be your fellow private practice dentists, and they are looking for an investment for the long run. With them, you'll often find more flexibility and a smoother process. However, due to their own capital and financing limitations, they may not offer a premium price and you might run into things like hold backs, earn outs, and seller notes. But, here’s the most significant difference: a strategic buyer is looking to grow in their patient care journey with you, because their highest priority is, like yours, patient care. A DSO, on the other hand, has a primary focus on creating value for shareholders, not patient experience. It’s important to ask yourself: What is most important to you? Which buying model truly reflects the legacy you’re trying to build for your practice?

Maximizing Your Practice Value: It's All About Cash Flow

Here's the truth that we need to understand: your practice's worth is derived from one thing and one thing alone. It's not based on how many patients you see; it's not about whether you're in a booming location or whether you have the newest gadgets or the most sophisticated technology (though this does have an impact). The value of your practice is entirely based on cash flow, that is, how much money comes in, minus what goes out. Therefore, every single decision that you make in your practice is an investment with the goal of increasing cash flow. So how do we do this?

Cash flow comes from two places: increasing top-line revenue and decreasing overhead. You're doing a great job when your schedule is optimized with efficiency, hygiene reactivation is constant, and you're making sure you're getting paid fairly for your services. This is how we grow organically, and it's the foundation of every successful dental practice. However, organic growth is just one small portion of the cash flow puzzle. For you to really maximize cash flow, you have to create opportunities with mergers and acquisitions, and build strategic alliances that cut your costs. Whether that’s an insurance relationship that allows you to reduce your write-offs or a lab partner that will provide you with the quality products your patients need, you’ve got to make sure that your strategy is multi-faceted to create the greatest impact on cash flow. Remember, every strategic move you make now influences your practice’s value down the road. At Fortune Management, that’s what we're here for - to help you maximize all of the opportunities that present themselves.

When is the Right Time to Transition?

Now, when do we start seriously thinking about our transition? There are two major variables to consider. First, and probably the easiest to determine, is where are you in life? You need to think about age, life goals, debt, cash flow and post-retirement needs. If you have reached your goals and you’re ready to move onto the next stage of your life, then it’s probably time to move forward.

Secondly, we’ve got to think about the market. Where are we in terms of seller’s market versus buyer’s market? We know there’s ebb and flows, value is always going up and down. The timing of your transition will vary based on the current climate and your ability to capitalize on the current market conditions.

However, at Fortune Management, we understand that transition doesn't necessarily mean retirement. You may want to transition out of the ownership of one practice and into ownership of another practice. You may want to own four, five, or six different practices throughout the course of your career. It’s about doing what you love, what brings you joy and fulfillment. And what is your local market doing? How are trends shifting? It's about being strategic and pulling the trigger when the market says it's time.

Avoiding Common Transition Mistakes

We've seen a lot of transitions over the years, and we've noticed some common mistakes that can really hurt a practice. One of the biggest problems is a lack of due diligence before closing. For instance, we’ve all seen that proactive dentist, with systems and strategies, sell to a more reactive dentist and 30 to 40% of the revenue disappears on day one. The lack of diligence to understand the true value of the practice is paramount.

Another big mistake is a lack of efficiency during the actual closing process. This can lead to seller fatigue and impatience. And then, once the deal has closed, the biggest problem is often implementing too many changes too fast. We understand the need to make improvements, but remember, the people you hired and the patients that you serve have just experienced a huge change, and they need you to be a leader, not a dictator. Change, done too quickly, will accelerate attrition of your team and your patients. Yes, you may get some results quicker but at what cost?

What is the true long term cost of losing valued patients and team members, and what was the opportunity lost when your changes were not strategic? So you need to be patient, you need to be strategic about how you implement change, and you always need to put your people first.

Maximizing Value During the Transaction

Maximizing value during a transaction is going to happen in two ways. First, as the seller, you need to make sure that you make decisions that accelerate cash flow. Whether you’re focusing on organic growth, top-line revenue or cost control, all those will maximize cash flow and that is what the buyer is ultimately buying. The second thing you must be able to do is help the buyer see the true, inherent value of the practice. But this is where things can get a bit tricky, because if you convince the buyer that there's way more value than he originally thought, then you’re deteriorating the return on investment. We've got to find a win-win that works for everyone involved.

We've learned that the most important thing is open and honest communication. Being willing to discuss what both parties want, what's their highest priority, and being transparent with each other about those needs is absolutely necessary for a successful transition. For a buyer, it may not even be about cash flow; perhaps they need a practice that's close to their child’s school or that's close to their spouse's workplace. Our job at Fortune Management is to understand what truly motivates all involved, so that we can find creative solutions and get deals done. It's when someone is not willing to be flexible and open-minded that we've seen deals fail, every time.

Building Your Team of Experts

At Fortune Management, we believe you’re the average of the five people you spend the most time with. Therefore, we’re always mindful of who we are letting into our inner circle. For us, if there are five people in the room and they all agree, then four of them are unnecessary, so we need to bring in people that push us, that challenge us, and that have a vision of your future, not your past or present.

You see, it’s important that the people who support you are good at the things you’re not good at. If you struggle with communication, leadership, or decision-making, you need to hire someone that excels at these things to guide you. And, you need to find someone who is comfortable with disagreements, that sees the diversity in thought as an opportunity to grow, not a weakness to push away. You don't need someone who will tell you what you want to hear, you need someone who will guide you to where you need to go, even if it is uncomfortable.

Ultimately, you need to find people who are not only going to help you through the present challenges, but also the second, third, and fourth stages of your practice. And that’s what Fortune Management brings to the table. We help you see things you would never see yourself, and we know we're providing you with the guidance you need to achieve extraordinary results.

The Power of the Practice Team

The role that your team plays during your practice transition is absolutely essential. In fact, the team has more anxiety and uncertainty about the process than even the buyer or seller. And we've seen it happen so many times where there is a complete lack of alignment in the leadership style of the seller and the buyer, and it always ends up with casualties and turnover post-closing. This is why it’s vital to create very open lines of communication with your staff and start that conversation early on, acknowledging the difficulties that they are going to encounter. You need to create systems that reward them for their efforts, you need to retain them, and you need to make them part of the conversation.

When you make decisions that have consequences for other people, you need to include those people in the decision, even if the details of that decision are confidential throughout the process. While you may strive to keep transitions confidential, your team can tell if someone is posturing for transition, and rather than keeping them in the dark, we believe they need to be included in the conversation from beginning to end, so it's something that's happening with them, and for them.

The Importance of Technology

Technology is a huge driver for the success of a dental practice, especially during a transition. Technology accelerates cash flow, reduces overhead, streamlines workflow, and creates a more efficient patient experience. When we look at the most successful dental practices across the nation, they're all technologically inclined and digitally advanced. However, if we look at the practices that are struggling through transition, they're not. And for a buyer, that could be a huge barrier as they are looking at substantial investments just to bring the practice up to the speed they need for their practice style.

But more than that, technology creates an environment where your employees are always learning and growing. And that’s paramount to patient retention. In an era where patients have options, you need to create a practice where patients feel like they are getting the highest standards of care. In order to retain your team, you need to create an environment where they are constantly acquiring new skills and learning how to do new things.

It Starts with a Diagnosis

Too often we jump right into “what should I do?” without understanding where we are starting from. In your practice, just like any good doctor, treatment without diagnosis is malpractice. So when you ask what the best path is to take for transitioning your practice, our first question will be this: “Let's take radiographs, let’s get a CBCT, and let's do a comprehensive exam to see where your practice actually is, not just where you think it is.”

Once we know that information, then we need to find out what your goals are. What kind of a transition are you wanting? What does the next three, four, or five years of your life look like, and what do you need to achieve for financial freedom? Once we understand this, then and only then, can we formulate a personalized path forward.

Therefore, our best advice is to surround yourself with people who have been down this road before, people who have seen it all and know what you don't. This is not the first time anyone has ever transitioned a practice, and it's certainly not our first time at Fortune Management. We know how to put deal structures together to meet both the buyer and seller’s needs. At Fortune, we’re the professionals that guide you to the path you didn't even know existed, all before you start the journey.

We’re With You Every Step of the Way

Transitioning your dental practice is a huge milestone, but it doesn't have to be stressful. If you are open-minded, willing to learn, and surround yourself with the right people, you'll find that your future is secure, bright, and rewarding. It's time to look beyond the traditional paths, to take control of your narrative, and to create the future you've always dreamed of. If you're ready to start exploring alternative transition strategies, reach out to us here at Fortune Management. We’re here to help you build an extraordinary practice and extraordinary life, every step of the way.