Beyond the Drill: Why Dentists Need to Diversify Their Wealth
Author: Darren Sardoff, President and Chief Investment Officer, King’s Ransom Group
Beyond the Drill: Why Dentists Need to Diversify Their Wealth
For decades, the image of a successful dentist has often been synonymous with owning a thriving practice. It's a point of pride, a testament to years of hard work, and a significant source of income. However, dentists relying solely on their practice as their primary asset can become a risky proposition. While it is unclear what percentage of dentists have most, if not all, of their net worth tied up in their practices, our experience working with dentists is significant. Diversifying holdings through a partial or full sale of their practice is a crucial step towards securing a comfortable and financially stable future.
The Concentration Risk
Many dentists pour their heart, soul, and savings into building their practices. This dedication often translates into a substantial asset, but it also creates a significant concentration risk. If the practice encounters unforeseen challenges – a sudden economic downturn, increased competition, personal health, or other life issues – the dentist's entire financial well-being can be jeopardized.
The Benefits of Diversification
Selling a portion or all of a practice offers several compelling advantages:
Liquidity: A sale converts a relatively illiquid asset (the practice) into liquid capital, providing immediate access to funds for retirement planning, investments, or other financial goals.
Reduced Operational Burden: As dentists age, the day-to-day demands of running a practice can become increasingly taxing. Selling allows them to step back from the administrative and managerial responsibilities, freeing up time and reducing stress.
Diversified Investment Portfolio: The proceeds from a sale can be invested in a diversified portfolio of assets, such as stocks, bonds, real estate, or other businesses. This diversification helps mitigate risk and potentially generate greater long-term returns.
Succession Planning: Selling to a Dental Service Organization (DSO) or another qualified buyer can ensure the continuity of the practice and provide a smooth transition for staff and patients. This also alleviates the pressure of finding a suitable successor.
Maximized Value: The dental practice is often at its highest value when it is running smoothly, and the dentist is still working. Waiting too long to sell can result in a decreased valuation due to declining health, changing market conditions, or outdated equipment.
Tax Optimization: Strategic sales can be structured to minimize tax liabilities, maximizing the net proceeds received by the dentist.
Navigating the Sale
The decision to sell a practice is a significant one. It requires careful planning and professional guidance. Dentists should:
Obtain a Professional Valuation: Most dentists are unaware of their practice’s true market value, so getting smart here is important.
Explore Multiple Sale Options: Depending on the size of the practice, consider selling to a DSO, a private equity group, or an individual buyer. Each option has its own advantages and disadvantages.
Seek Professional Advisors: Consult with advisors, attorneys, and financial experts experienced in dental practice sales to ensure a smooth and successful transaction.
Summary
While a successful dental practice is a valuable asset, it shouldn't be the sole pillar of a dentist's financial portfolio. By strategically diversifying their holdings through a partial or full sale, dentists can mitigate risk, secure their financial future, and enjoy the fruits of their hard-earned labor. It's about moving beyond the drill!
About King’s Ransom Group
King’s Ransom Group (“KRG”) is a private investment firm and M&A advisor, working with companies across the business services, healthcare, and marketing industries. KRG’s healthcare group advises dental practices nationwide in all facets of their sales process to help practices find the best and right investors and partners. KRG’s team has decades of experience founding and operating businesses across various sectors as well as financial expertise, having worked at some of the largest firms on Wall Street. For more information, please visit: www.kingsransomgroup.com.
About DentyVal
Thinking of selling your practice, or perhaps you've already received an offer? DentyVal’s innovative technology gives you a confidential and unbiased estimate of its value within minutes. Developed by the dental industry's most trusted financial experts, DentyVal gives you the confidence that you're getting the highest value for your practice.
DentyVal is 100% confidential, and the information you provide is solely used for generating your valuation. You'll also have the opportunity to have a no-obligation conversation with one of our dental market experts to discuss your valuation and/or learn how we can help you get the best sale deal possible.
Whether you're interested in selling now or in the future, it's not too early to be well-informed! Try DentyVal now!
