The Transition Advisor's Corner - Random Musings from the Front

The purpose of this blog is to share current, real world, experiences on the topics of practice valuation, practice transition, retirement planning, and building equity value - over time - in your dental practice.

Blog By:
seanepp

“When life gives you lemons, make lemonade.” - Elbert Hubbard, 1908

So, you elected to transition your dental practice(s) into a group (DSO, DPO, DMO, DXO).  The total enterprise value and rollover equity story were just too darn compelling to resist!  Besides, many of your colleagues and classmates were already in the pool inviting you in!

At some point post-closing though, you’ve realized that things are not going exactly as explained to you during your initial speed dating and honeymoon process.

Maybe you’ve raised concerns to leadership and they’ve been a) deflected away, b) buried under a pile of more important “to-dos”, or c) simply shot down altogether?

The good news is the practice and team are still doing ok, for now, whilst the anticipated utopia becomes anything but.  Lab, supply, and equipment vendors are complaining about slow payment.  Supply cupboards are starting to run low.  Overtime is rejected despite patient demand.  Expense management becomes an area of focus despite the favorable performance of your subject practice(s).  Long-term staff begin to depart one by one, sometimes en masse.

Does any of this sound familiar?  

These are some of the more common symptoms of group practices when they start to lean into financial distress.  

Accounts payable get stretched to the breaking point.  Collection practices become aggressive, possibly outsourced.  Staff morale wanes.  Some staff may be lost.  Long-term patients start to notice things, and they choose to vote with their feet.

Now, the management team at the group is likely to assure everyone that “nothing is wrong”, or “we’re all over it”.  They mostly likely are not.  Many dental groups, especially newer/younger ones, spend much of their early years learning some expensive DIY lessons.  Most of it is related to human resources and change management.

What are your options?

That depends on individual risk appetite and the degree of financial distress the group is facing.  

One critical signal would be payment blockages - i.e. when the group’s secured lender(s) act upon their rights to block payments to junior lenders (seller note holders), joint venture partners, or other payments to affiliates.  Is the business operating under forbearance with their primary creditors?  Have you received notices as to the write down/off of equity or other junior capital interests?

If the answer is yes to any of the above, you may be in an interesting position to explore reacquiring your practice(s).  

Navigating those discussions and successfully “rehoming” your practice(s) is where the right advisor(s) can add substantial insight, know-how, and value.

So, instead of lemon juice in your eyes, make some refreshing lemonade!  Lemonade that you can turn around and remarket to a different buyer down the road.

Long story short, financial distress at the group level can present opportunities.  Success usually requires patience, a steady hand, and a fearlessness to ask the hard questions.

The only bad question is the one you don’t ask!  

Stay frosty and have a fantastic holiday weekend! 

Sean