523: Selling a Specialty Practice - Paul Sletten

Selling a Specialty Practice

Episode #523 with Paul Sletten

Someday, you will sell your practice. If you own a specialty practice and don't know where to start, don't miss today’s episode! Kirk Behrendt brings back Paul Sletten, founder of the Sletten Group, to share his expertise and the key things you need to know for a successful transition. Whether you have a few years or a few decades left doing dentistry, it’s always the time to prepare for your exit. To start creating a plan that gives you peace of mind, listen to Episode 523 of The Best Practices Show!

Episode Resources:

• Paul’s email: paul@lifetransitions.com 
• The Sletten Group: https://theslettengroup.com
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Main Takeaways:

Solo practice is not dead or dying.

Have a five-year transition plan in place.

Involve your team in your transition process.

Build and maintain a broad, healthy referral base.

Keep a healthy practice, and you will sell for top-dollar.

Quotes:

“Every transition has the fundamental basics in common with each other, but every one of them is unique because the practice culture is unique as an extension of the core values of the owner or owners.” (2:29—2:44)

“I have to go on record and apologize to all the specialists who have had to sit in dental meetings and try to interpret how it might apply to them when transition issues are discussed, because the seminars are almost all directed at the general dentist. That makes some sense because 80% of the population are general dentists. But the specialists get left out, and there are some really important things to talk about and discuss with them.” (2:48—3:24)

“When we talk about transitions, in general, every person thinking about transition has to put a plan together. And in putting that plan together, we've talked about their need to do it five years in advance of when they intend to implement it. And the reason for that is there are some things to understand.” (3:48—4:13)

“Our plan, when we work with a client, is to help them put the business plan together, and the timetable, and the action steps that lead to the actual transition. But they're also going to want to link that practice plan with their personal life plan. And that applies to all specialists as well.” (5:22—5:49)

“If you contrast what a pediatric practice does compared to an endodontic practice or an oral surgery practice, those two practices are unique. An endodontist or endodontist group of doctors, if it’s a group practice, they need a succession plan. What happens when Mary, who founded this practice 38 years ago, walks out the door, having retired? What do you lose? What walks out with her? And what are you going to need to do in terms of defining an ideal candidate profile for the young doctor that you're going to go out and recruit and bring into the practice to move into that practice culture? What other partners are going to have to step up in some areas where they hadn't been responsible before because Mary has always been the visionary and the keeper of the flame? So, succession planning is really, really important.” (5:50—7:01)

“[Endo and oral surgery] are heavily, heavily reliant on referrals. They work hard to build and retain referral relationships. And one of the cautionary tales that you hear if you listen to people who tried to retire and had a difficult time in getting their practice sold for what they thought it was worth, is that they had missed the point of understanding where they need to keep their referral base expanded in terms of the age range. So, if you are a 65-year-old endodontist in solo practice and you're getting ready to retire, there's a great chance that your entire referral base will be within 10 years of your age in either direction. And they're all getting ready to retire themselves. So, a discerning buyer candidate coming and looking at that situation will notice that, of course, because that's part of the fact-gathering that they will ask questions about when they're looking at whether they should be interested or not. And if you have a tight bunching of ages of the referral community that aligns with the seller’s age, you're going to have some problems.” (7:17—8:44)

“There are some changes in our society, of course, in that patients are living longer — much longer, in many, many cases — on the norm. And so, that isn't quite as much of an issue. It is an issue, but you've got to be sure and continue to meet people and continue to be intentionally visible. But one of the barriers or one of the things that block that kind of thinking is if you're a solo practice and you're going hard every day. You're not thinking about growing your patient base. And so, after a while, the practice even becomes a little bit stagnant. And it’s what the predictability is for whether the buyer is going to be able to afford to buy your practice and will it cash flow well. So, you've got to keep a really sharp eye on attrition in your referral base and be mindful of that. If you're in your 40s right now, keep that in mind as you go through the remainder of your career.” (10:34—11:54)

“Everything is not drying up in the specialties. To me, it gets back to, what are you doing that keeps your practice healthy? What are you doing to continue to have a setting, a practice culture, that people thrive in and love to be part of? If you're doing that, you're not drying up. Now, if somebody goes to sleep at the wheel, that could happen, of course. But I don't see that as a generality.” (12:30—13:01)

“If you get around to staying in a solo practice, it’s more challenging at transition time if you haven't kept your referral base broad and in good, healthy condition like your practice is.” (14:49—15:11)

“A young endodontist is looking for a practice to own. He’s been an associate at three different practices over the last six years, and he is looking for something to buy that can be his own. And so, when we started with him, the first question we asked him is, ‘Do you know what you're looking for? Have you identified what would be an ideal setting for you? Where do you want to live? Where do you want to raise your kids? Where would you feel great practicing? What kind of practice do you want to have? What kind of a team do you want to put together? What are your thoughts? What are your money issues? What kind of school loan debt do you have? What size practice are you looking to buy?’ And the thing about endo practices is that they're so doggone profitable, it’s amazing. It’s not unusual to find one with 65% profit margin in tax. And they have the lowest overhead of anybody in dentistry.” (15:38—16:50)

“Your kids can learn a great deal and add some life skills themselves by watching mom or dad go through a transition. You see what it takes. You have to do a whole bunch of clarifying. Whether you're buying a practice and getting into practice and launching a career, or whether you're ready to get out, the planning skills are life skills that kids need to be exposed to intentionally. And there are great benefits that come when that happens.” (18:35—19:12)

“It’s important for people to understand that several of the loudest preachers out there saying that solo practice is dying or dead and comparing it to the dinosaurs, they're investors in DSOs.” (19:25—19:42)

“As we’re working with this young endodontist, we’re asking them all these questions as a couple. You need the input of both parties. They're both huge stakeholders. One will run the practice and be in the practice. The other might very well not be in the practice, but nonetheless, they're influencers. They need to make some decisions together.” (20:03—20:32)

“There are awesome practices available in smaller towns. I don't mean tiny towns like the one I grew up in with 2,500 people, I mean 50,000, 60,000, 75,000. There are unbelievably good lifestyles available in communities like that, and amazing practices. I strongly recommend people at least look at those. If they have proximity to a major city, that's even better. There are great lives to be lived in places like that as well, as an option.” (20:38—21:17)

“[For endo or oral surgery], I'll give you a big number and I'll give you a small number. A big number would be 45 to 50, to have a relationship with that many people. But you're going to make it or break it based on the dirty dozen. If you have 12 great referrers, you've got a career — as long as you nurture those relationships and pay close attention to them.” (21:41—22:12)

“By tailoring a schedule and your work commitment, your clinical time-at-the-chair commitment, then you can do all kinds of things with that that are creative and that will blend in beautifully with your lifestyle.” (24:11—24:25)

“There's a timetable that's in place from the time that a specialist makes a decision to transition — this is why you need a five-year plan. It, predictably, is going to take longer to recruit a specialist than a generalist. There are notable exceptions to what I've just said. But that's true, what I've just mentioned. It’s going to take longer. Let's say you're solo and you're going to do a search. You need to plan on taking two to three years. It can happen faster than that, and you need to be prepared if it does, and ready and flexible. But it could take that long, especially if you're taking the time to be really selective so that you leave your team and your referral doctors in a great place by bringing in a successor that they're going to relate to. That's a gift to all of them, and to the new person taking over the ownership.” (27:59—29:10)

“If you have a two-doctor partnership, your operating agreement for the partnership between the two partners should have a clause in it. The typical clause that you see, way more than half the time, is that the younger partner would have the first right of refusal to buy the practice on notification of your intent to retire. That's the wrong way to do it, in my opinion. I think you're way better off having language that requires the partner to buy it. It’s good for you because it ensures you, the seller, of not having to go through some steps that are, indeed, avoidable. And it's really good for the younger partner because it allows the younger partner to bring in an associate of their own choosing and move that person through a process where they eventually become an owner as well.” (29:48—30:54)

“Another common practice that I used to see 40-plus years ago when I started in the business was that you never tell the team until you've sold the practice. Both of those issues defy logic. There are a lot of people who are dental brokers clinging tightly to the notion that you shouldn't tell your team until you have the deal all finished. And what's the rationale behind that? Well, they’ll tell you that you run the risk of losing your team if you tell them that you're leaving. And I say you run a far greater risk of losing your team if you don't tell them. Once you've made your choice, your decision, why not invite your team to participate in the process actively? They should meet the candidates. You should get an idea from them what kind of personality and what kind of a skill set, attitudes, core beliefs, would fit in your practice culture. They're the ones who have the best insights to that.” (32:01—33:25)

“When somebody asks you, [‘How much longer do you intend to practice?’], they're really asking two questions. The question is, ‘How much longer are you going to be here, doc?’ The second question — the real question — is, ‘What will I have to do when you're not here anymore, doctor? Will I have to leave and find another practice?’ So, lean into it. Don't tap dance. Lean into it and say, ‘Well, I'm going to retire at some point in my career. And, by the way, when I do, what kind of person would you want in here? I'd love your input.’” (36:38—37:14)

“I've even heard things like periodontal practices don't sell for as much as they used to. Endodontic practices don't sell for as much as they used to. That's not true. If they are a great practice and it’s really a healthy practice, they sell for top-dollar. If they're in a desirable location, in a good suite, and where the owners have taken really great care of the referral community that supports them, they're selling for top-dollar.” (38:37—39:16)

Snippets:

0:00 Introduction.

1:57 Paul’s background.

3:34 Why succession planning is important.

7:04 Be cognizant of the age of your referral sources. 

11:59 Are specialties and solo practices drying up?

15:11 What to look for when buying an endo practice.

17:08 Planning skills are critical life skills.

20:00 Small-town practices can be great options.

21:18 How many referrers do you need in endo or oral surgery?

22:42 Tailor your schedule and work commitment.

24:44 Other important items to think about.

27:49 The timetable for a successful transition.

29:10 Advice for selling to a younger partner.

31:28 Tell your team about your transition plans.

37:20 Talk about what will change and what won't change.

38:24 Last thoughts on specialty transitions.

41:28 How to get in touch with Paul.

Paul Sletten Bio:

Paul D. Sletten founded the Sletten Group, Inc. in 1975 in Denver, Colorado. They are in their 48th year of business and have developed an international clientele, having assisted and completed transitions in all 50 states, six provinces in Canada, and two states in Australia. They continue to exclusively work with fee-for-service dentists and their teams around the country. 

It is exciting to see both people and practices grow, and to know they have had a hand in so many transitions brings them enormous joy. Their wide-ranging experiences allow them to bring what they have learned to each new client situation. This experience helps them know how to tailor their services to the unique needs of each client and to be able to offer multiple options to almost any client situation. Due to this ability to customize their services, the Sletten Group also works with all of the specialty practices in the dental industry. 

Paul has spoken at more than 285 dental meetings around the country. This...