Episode 407: Know Your Number: The Insider’s Guide to Practice Transitions with Scott Plantenberg

Angie: Welcome to the Less Insurance Dependence podcast. I’m your host, Angie, and this show is dedicated to helping dental professionals build stronger, more profitable practices with less reliance on insurance. Today we’re talking about something that many dentists eventually consider but often prepare for too late: practice transitions. Joining me today is Scott Plantenberg from Professional Transition Strategies. Scott brings over 35 years of healthcare experience, including more than two decades of working specifically in dentistry. His background includes dental sales, consulting, practice analysis, and, most recently, working on the buy side of dental transactions. Today, we’re discussing Know Your Number: The Insider’s Guide to Practice Transitions. Scott, welcome to the show.

Scott Plantenberg: Great to be here. Thank you.

Scott Plantenberg: There are a few things, but right up front, just not knowing from their own perspective what the practice is worth. They might negotiate from someone else’s valuation, usually one that the buyer generated. The DSOs are really structured — they’ve got a business development team, analysts, boards all in place to determine a practice value from their perspective. Sometimes we’ll see the CPA that works with a seller, and they’ve spent years looking at a practice from a tax savings perspective — personal expenses, family on the payroll — and they just don’t understand how an investor looks at the practice related to this adjusted EBITDA calculation. The last thing where a doctor loses value is they just wait too long. They don’t begin exploring their transition options until they’re ready to be done, and then they only have one option.

Scott Plantenberg: We had one a few years back. Doctor was talking directly with a DSO, really liked that DSO, got a decent offer, but then said, I think I could do better. We created a process. We had probably 10 buyers competing for that practice. This one was in Oregon, and the doctor ended up choosing the same buyer that he’d originally chosen on his own. But because there were 10 groups competing, the offer was one and a half times EBITDA higher from the same group because of that competitive process.

Scott Plantenberg: One of the biggest mistakes is just how they view it. They view it as an event, and it really is a process. It’s a lot of decisions over the course of years leading up to the transition that can have an impact. If a doctor’s expecting a transition soon, sometimes they’re taking more time off, they might reduce marketing efforts, they don’t hold the staff accountable to sustain the practice like it had done before. A downward trend, every buyer sees that, and it’s always going to typically result in a discounted offer. Whereas a doctor who’s got three to five years out, typically the financials are clean and strong, or at least they have time to improve them.

Scott Plantenberg: Any investor, you gotta look at this from the investor eyes. They wanna make sure whatever they’re paying for, they get a solid return. The most predictable way to get a solid return on the investment is the engine, and the doctor is the key component in all of this. If the doctor wants to be gone, there’s not a predictable reassurance that it’s gonna continue to perform at that level. The way a buyer controls that risk is to pay less upfront. Our average age of dentist that transacted last year was 46 years old, so they had a long runway, and the investor buyer is way more willing to lean in with a better deal, better structured terms.

Scott Plantenberg: There are definitely brokers that are quietly being paid by a DSO, and we as brokers are representing the seller, but now the buyer is actually influencing things because of some type of a kickback. We view that as a conflict of interest. Since we’re paid by the seller, we work for the seller. Historically, we’re seeing the offers be one to one and a half times EBITDA higher, which, again, a strong practice with $500,000 of EBITDA, you’re talking about an extra $750,000 or more in how an offer might come in.

Scott Plantenberg: In the DSO world, most valuations are done as a multiple of EBITDA. So if your EBITDA’s off by a hundred thousand dollars and the offer is six times EBITDA, you’re talking about a $600,000 difference. I’ve got a client right now, and there’s some negotiation on one of the support staff, are they included in the valuation or not. And that person’s pretty well compensated. So literally the entire valuation can fluctuate by seven or $800,000 because this EBITDA number has some play in it.

Angie: Whether someone is thinking about selling, staying independent, or simply understanding where they currently stand, having clarity changes every decision they make. And for practices looking to strengthen their growth and visibility, Ekwa Marketing offers a complimentary marketing strategy meeting at lessinsurancedependence.com/msm or book a complimentary coaching strategy meeting with Gary at lessinsurancedependence.com/csm.

Scott Plantenberg: As a seller, knowing how you would be valued, it’s the single source of leverage that you have. As a former buyer, we were trying to get a deal, right? We wanted great practices, perfect numbers, and we wanted it at a discount. It’s like your house, if someone knocked on your door offering you money to sell your home, but you’d already had your home appraised, then you’d be confident knowing that’s a really good offer, or you’d be confident knowing that walking away made sense. If you already know what your practice is worth, then you’ve got the power in making an informed decision. And maybe the decision is not to sell it all.

Scott Plantenberg: They know right up front, this is somebody who values me. I’ve got a great asset, I’ve got a great practice, and there should be people fighting over what I have. We want our doctors to be in a position that, hey, if I don’t hear what I need to hear, I just walk away. No harm, no foul. We don’t charge anything to do that prospectus, we don’t charge anything to take a practice to market. There’s not an upfront fee. We only get paid when the doctor gets paid. And sometimes the answer is, do nothing, keep doing what you’re doing.

Scott Plantenberg: Get that prospectus done. It’s unbiased, it’s a third party valuation, it’s actually completed internally by a dental specific CPA. We literally have had doctors for five years, six years, seven years, updating their prospectus, working on their practice, so that when they’re ready, they’re gonna get the best possible offer. It’s free, it’s confidential, there’s no obligation to proceed. The other thing, whatever you do, is avoid the unsolicited offer from a DSO. The best thing you can do is get informed, and a prospectus is the best way to do that.