How Dentists Can Prepare Their Practice for a Successful Sale

On this episode of The Dentist Money Show, Matt has a conversation with Brannon Moncrief from McLerran & Associates to break down what dentists need to know about selling their practice in today’s market. They discuss the differences between DSO and private buyers, why dentists should consider a 3–5 year runway before an exit, and how planning early can keep more transition options open. Brannon also shares some of the biggest mistakes that can hurt a practice sale, including declining production, messy finances, and waiting too long to prepare. Tune in to learn how dentists can better prepare their practice for a sale, understand its value, and build a transition strategy that sets them up for a successful sale.

Check out the article by McLerran & Associates mentioned in the episode here!

Related Readings

The Dentist’s Guide to a Successful Practice Transition

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Podcast Transcript

Matt: Welcome back to the Dentist Money Show where we help Dentist make smart financial decisions. I’m a guy named Matt and I am excited to be here with the CEO of McLaren and Associates, Brannon Moncrief. Brannon, how are ya?

Brannon Moncrief: Hey Matt, good to see ya.

Matt: Yeah, good to see you. Yeah, for those of you that don’t know, we’re on YouTube now. So all these are gonna be on YouTube. So Brannon and I can see each other, even though most people that that consume this show are just listening. But if you want to go to YouTube, you can see see us talking to each other on video. Brannon, also we gotta get this out of the way really quick. this is not me trolling you with my Eagles flag behind me. That was not intentional. We just have to get it out of the way. You’re in you’re in Texas. I’m guessing a Cowboys fan. Okay, well then we’re good.

Brannon Moncrief: Not a Cowboys fan. I’m the opposite of a Cowboys fan. I grew up in Houston. So I’m I’m unfortunately a Texans fan. we think we’re gonna be decent every year, but we haven’t quite gotten there.

Matt: Yeah. Well, it could be worse. You could be a Cowboys fan. Literally

Brannon Moncrief: That’s true. Yeah.

Matt: Every year for I think twenty seven years it’s been Super Bowl this year, and then they end up being mediocre. So could be worse. okay, well then I’m glad I’m glad we got that out of the way, and I don’t feel bad now that I have my I have my Eagle Slack here. So Brannon, it’s great to have you back on the show. We’ve we’ve done this a couple of times. It’s probably what, two or three times now we’ve had ya. It’s been a while.

Brannon Moncrief: Yeah, it’s been a while, so it’s good to be back.

Matt: So that’s why we wanted to have you back. It has been a while. We want to talk about a couple things. We want to get a state of the market of what’s happening right now. I think this is something that dentists are always have top of mind of you know what’s going on just with sales in general, what’s going on with the market of DSOs, private buyers, all that. And then so wanna get a some time on that, but also wanna go through and spend some time on the the critical steps. Of actually selling your practice and and and want to give you a chance to kind of help people understand what your process is and how they can think about that if they’re if they’re you know in this realm or timeline of of selling. So, but before we do anything, Brannon, for those of you because it has been a while, anyone who who maybe n doesn’t know who you are, who maybe hasn’t heard the previous episodes, we get a lot of l new listeners every week and month. So maybe we just start with you and just give a a rundown of you and and who McLaren is and and set the stage for us.

Brannon Moncrief: Yeah, appreciate that. so I have spent my entire adult life, my entire professional career on the business side of dentistry. I spent about a decade lending money to dentists all across the country to acquire and start practices. And then I purchased McLaren and Associates 15 years ago. So McLaren’s been around for 35 years, and it was owned by Paul McLaren, former dentist that developed a hand disability and became one of the really first dental practice brokers out there he ran the company for about 20 years. I purchased it 15 years ago. At that point in time, it was kind of a mom and pop practice brokerage firm, like a lot of the firms you still see out there today, focused on traditional practice sales, doctor-to-doctor practice sales, specifically in Texas. scaled that business and expanded it nationwide. And then about seven years ago, got heavily involved in the DSO and private equity space. You know, being based in Texas, we’re headquartered in Austin, although now we have offices all across the country. We were on the forefront a lot of the DSO consolidation that started to occur. You know, Arizona, Texas, Florida, hotbeds for early DSO acquisitory activity. And we were watching some of the larger practices in our backyard choose to sell to a DSO for one reason or the other rather than hire us to sell their practice to a private buyer. And we figured out pretty quickly that. Dentist didn’t understand EBITDA. They didn’t understand how private equity values businesses. They were selling prematurely or to the wrong buyer. They didn’t understand the deal structure or really what they were getting into. So at that point, we decided to build out a team, build out a process to provide sell site advisory to larger practice owners who are going to choose to go down that DSO or PE path for one reason or the other. So fast forward to today, a team of 16 offices all over the country and performing at a high level in both. The doctor to doctor traditional practice sales space. So that legacy business is still alive and well operating nationally, and then also still heavily involved in that DSO private equity world. We close somewhere around 75 transactions a year, and that’s split about 50-50. About half of the go those go to private buyers, half of those go to DSO buyers. But we are sell side advisors. So we only sit on the sell side. We represent founders, we represent practice owners. And I look at our job, and we’re going to talk about a lot of this today. As being to educate doctors regarding, you know, what is your business worth? What are your options to monetize the business? What are the pros and cons of all of those options? And then help you craft the transition strategy that meets your individual needs and then help make sure you crush the outcome, right? That you find the right buyer and you maximize the deal terms.

Matt: Very cool. you emphasize something there that I want to come back to for a moment. You you emphasize that your sell side only. How critical is that to we we talk about all the time in our space, in the financial advisor space, how critical it is to understand how the incentive structure works in our space because it’s very convoluted, it can get really confusing, it can really impact the dentist. It’s the same thing on the broker side. Correct. There’s a reason why you emphasize that. Could you just hit on that for a moment of being a sell side and how that is is something that needs to be emphasized and kind of how it works out there in the space?

Brannon Moncrief: Yeah, being a sell side advisor means that we have a fiduciary obligation solely to the seller. Now, look, we want to put together a win-win deal, right? We want the buyer to be successful. And as the seller, you want the buyer to be successful. And we’ll do a lot of hand holding on the buy side because we want to make sure that they’re educated, they have good advisors, and it’s going to make the deal go smoother and increase the probability that we make it to a closing. But at the end of the day, our fiduciary responsibility is to the seller. We represent them and them only. Whereas there are some brokers out there that, you know, are really buy-side advisors, especially in the DSO world, that masquerade as sell side advisors, but at the end of the day, they work for whoever pays their fee. And then there’s dual representation brokers that claim to represent both the buyer and the seller. And look, at the end of the day, we just believe it’s impossible to be a fiduciary and represent both parties simultaneously. So we strictly stay on the the sell side of the table. both in the private buyer space and in the DSO space.

Matt: Yeah, that’s I’m glad you I’m glad we hit that because it’s again very similar to our space. We always say like not bad people, but a bad incentive structure can have a really bad result. So not disparaging any individual. It’s just incentive structure matters. It’s the Charlie Munger, show me the incentive, I’ll show you the outcome. And so I’m glad you really you detailed that really well. let’s let’s get into the state of the market. Maybe just kind of give a rundown. We were talking about this before we hit record and I was like, we need to hit this because we’re we’re hearing this a lot around kind of things that have changed kind of quickly, it feels like Brannon. As in just the last few years with the market specifically, can you just hit that and kind of give an overview of what’s happening in the market generally?

Brannon Moncrief: Yeah, so I like to talk about the private buyer market versus the DSO market because they’re they’re really kind of they’re two ecosystems that are are relatively independent from one another. So in the private buyer world, you know, I’ve been in that business for the past 25 years, right? 10 as a banker and 15 as a broker. It has not changed remarkably. So practices still trade for somewhere in the range of 70 to 90 percent of revenue in most cases or Let’s call it two to two and a half times seller’s discretionary cash flow. you’ll have outliers there, you know, practices that are in a really sexy market with a lot of demand, fee for service, eight plus operatories doing over a million a year that might trade for 100% of revenue. And you might have practices in a rural market, very little demand, maybe an antiquated office that might trade below 70% of revenue. But they typically trade somewhere in that range. There are plenty of young entrepreneurial doctors out there that are looking to pursue practice ownership. I think there’s kind of a misnomer that, you know, young dentists don’t want to be owners. And the reality is that if you build a marketable and valuable business, there’s going to be someone standing there that that wants to buy it. We really haven’t seen a significant decline in demand in the private buyer world. And There’s 100% financing available from multiple dental-specific lenders out there. So relatively easy to secure financing for those deals. I will say private buyers have changed in regards to what they’re looking for. You know, most of them are looking for practices within 60 miles of a major metro area for themselves or or their spouse. they’re typically looking for offices with five or more operatories minimum annual revenue of let’s call it 900,000, if not a million plus, that’s changed pretty remarkably. And I think that’s driven by the fact that the young dentists have a lot of student loan debt typically and they have high lifestyle expectations. So you have to buy a larger practice to service that debt and create enough income to live the lifestyle they want to live. so th the the big change in that market is practices that are located in tertiary markets, rural markets, antiquated offices, practices with revenue of, let’s call it less than $700,000 in top line revenue, less than $250,000 in net cash flow have become increasingly more difficult to sell and are selling at a pretty steep discount. So that’s been really the mark change that’s happened over the past, let’s call it five years in the doctor-to-doctor world. But that market relatively consistent for the past 20 or so years. Really, we’ve seen the most noise, the most change in the DSO market. I think that’s where a lot of the misinformation, that’s where a lot of the noise, that’s where a lot of the buzz is in the market. you know, pre-COVID and coming out of COVID, DSO consolidation, that market was white hot. Private equity was head over heels in love with dentistry, acquiring practices at an incredibly fast clip. And especially in 21 and 22, Paying elevated valuations and not using a lot of discipline regarding what they were buying or how they were structuring deals. And then the macroeconomic environment changed pretty remarkably in 2023. Interest rates increase faster than they have in the history of the Fed. Most private equity backed DSOs are heavily leveraged. Therefore, interest rates play a major role in their cash flow. So when interest rates increase dratically, in combination with the fact that they’re coming off this period where They bought a ton of practices at elevated valuations. They weren’t really integrating and operating those assets. It was kind of a recipe for disaster and a course correction. So as a result of that, a lot of DSOs found themselves over their skis financially or operationally, come 23, 24, and had to pull back from the market and either stop buying or they they narrowed their buy box significantly. Right, as far as what they were looking for, how what they were going to pay for those assets and how they were going to structure deals. And that’s kind of been the new norm, right? DSOs are being scrutinized more than ever when they go to recap by these institutional investors. And there’s a trickle-down effect there where they’re really looking only these days for high quality assets, right? Like multiple doctor practices, EBITDA north of 500,000. eight or more operatories located within 60 miles of a major metro area, typically looking for practices that are growing year over year from a revenue and EBITDA perspective. So really class A assets is what they want to buy. They’ve they know what they’re good at and know what they’re bad at. Right. We’re far enough into the consolidation cycle that a lot of these DSOs, you know, they’ve tripped and skinned their knee. I hope some of them have unfortunately, you know, fallen off the ladder and broken their neck. but they know what they’re good at and they know what they’re bad at and they’re Much better at evaluating which assets they want to buy, what they want to pay for those assets, and how they want to structure deals. So valuations peaked in 21 and 22. They’ve definitely cooled off a little bit, although they are still elevated and attractive for high, high quality assets. Deal structures have evolved to preserve cash. So you’re seeing a little bit less cash at close these days than you were seeing previously. And deal structures have evolved to create alignment with the founder post sale. So you’re seeing like earnouts and holdbacks and joint venture equity, retained equity within the practice becoming more of the norm so that the doctor is truly a partner in the business and has a vested interest in keeping their foot on the gas post acquisition. So the DSOs can kind of protect their downside via leveraging the structure to do so. So that’s That’s been the major change over the past few years.

Matt: Brannon, I couldn’t help but think when you’re going through that, we’ve all experienced this. We’ve all experienced the one too many cookies in one sitting, one too many scoops of ice cream, one too many drinks at the barbecue, and then we pay the price. And that that’s what I feel like maybe was happening with some with the DSOs as you were highlighting with coming out of COVID. I’m curious w the relationship between these two, because I heard kind of a parallel there a little bit when you talked about. Private buyers becoming a little bit more like these young docs coming out, which by the way, anecdotally, the dun dentists we’ve talked to, we’ve noticed no change whatsoever of like the desire to to buy. maybe that’s selection bias because of who we talk to on the phone, you know, when they’re calling us, but we’ve seen no change. So that that’s that’s I think a a good thing. but I heard the parallel there of these younger docs being more scru or having kind of a more focused eye around like location to a metr major metropolitan area. You said that with both, and then valuations and things. I’m wondering if is one related to the other? Like have DSOs impacted the private market in that way, in that way at all? Or is though are those changes, simultaneous changes happening kind of just in parallel?

Brannon Moncrief: I think those simultaneous changes are are happening in parallel and aren’t necessarily related. That said, I think we have seen, you know, inflationary pressure on overhead post-COVID begin to squeeze margins. And therefore, both on the private buyer side and the DSO side, they’re looking for larger practices that are not as impacted by that inflationary pressure and have the ability to continue to show growth, you know, year over year from an organic perspective. So both private buyers and DSOs are looking for larger, more profitable practices that are more sustainable long term. Because with that inflationary pressure, I mean, I think that we are in the middle of a mass extinction event where practices with revenue of less than a million are probably not going to exist come five to 10 years from now. Because that inflationary pressure is going to continue and we’re not seeing the reimbursement rates keep up. With that inflationary pressure. It’s gonna squeeze margin over time. And unless something radically changes, right? Like leveraging AI to significantly decrease labor cost or something like that, you know, something’s gotta give. especially given, again, the the student loan debt that these kids are coming out of school with, three, four hundred thousand dollars on average, it’s not gonna make sense to go to dental school if you if you don’t have the ability to create a job or a a practice where you’re gonna make three, four, five hundred thousand dollars a year.

Matt: Yeah, totally agree. We we see the same thing and above my pay grade, but what I’d love to see give is a breaking of the monopoly and corruption that is the insurance companies. That would be that would be awesome if we could do something about that. But that’s a discussion for another for another day. okay. Fantastic summary. I think that gives people a really good sense of where where we’re at. I’d love to shift gears a little bit and talk more about practical process. Around dentists who are kind of thinking about this or and and one thing that we say a lot is you should be thinking about this a lot sooner than you think, even if you’re not actually at a place of going out and shopping your practice, but you should be thinking of exit mid-career. And I’d actually love to get your take on this, Brannon, around that thought, around just the the general thought process of thinking about exiting. even upon entering even upon buying a practice or at least being mid career, ’cause my take is that that kind of focuses you on how you’re actually going to run the business. But what are your thoughts on that generally?

Brannon Moncrief: Yeah, in my opinion, I don’t care if you think you’re five years away from, you know, selling the business and exiting it for some reason or the other, or twenty-five years away from doing so, you need to build a sell-ready business. So you need to be focused on what drives marketability and value when it’s time to monetize the business, because I do think that will anchor you to the the right components of building a successful practice.

Matt: Yeah.

Brannon Moncrief: But also life happens, right? Like things are going to happen in your life that may derail your plan that may cause you to sell sooner rather than later. And we are seeing the average age of our client, our sellers, move down significantly. We are seeing a lot of docs in their mid to late 40s take their practice to market. And it may be that they’re looking to relocate or or something like that, but oftentimes it’s because they built these large, very successful businesses And it’s come at a significant cost, right?

Matt: Yeah.

Brannon Moncrief: They they’re feeling burned out, they’re feeling overwhelmed from an operational perspective. they’ve missed a lot of their kids growing up and and time with family. They’ve sacrificed that to build a successful business, and their business is likely their most valuable asset on their personal financial statement, and they’re looking to potentially monetize all of it or a piece of it, protect the value of what they’ve built. And then they still have good income potential on a go forward basis, assuming that they’re a strong producer or they retain equity in the business post sale. So the average age of our client has moved from like 65 years old 10 years ago to, you know, mid forties these days. So that tells

Matt: Wow.

Brannon Moncrief: you that the marketplace has changed considerably in that regard.

Matt: Yeah. That’s actually kind of shocking to me. That’s a pretty drastic shift downward or you know, to a much earlier age. You said that’s happened over

Brannon Moncrief: I think

Matt: the last fifteen, twenty years?

Brannon Moncrief: Yeah, it’s happened really over the past ten years. One, it’s a product of the DSO market. Right.

Matt: It’s gotta as I say it’s gotta be DSOs, yeah.

Brannon Moncrief: So so a lot of it is the DSO market and the fact that the DSO market has evolved to kind of meet middle aged Dentist where they’re at in the sense that these joint venture deal structures where you know the doc can cash out sixty percent equity at a seven times even a multiple and then retain a meaningful amount of equity on a go forward basis, but now have a partner help them you know, operate the business. So that deal structure, I think, has encouraged a lot of younger doctors to go to market. And then like I said, I think just the pressure of owning a large, successful practice, the burden of management has grown exponentially over

Matt: Yeah.

Brannon Moncrief: the past 10 years. And I think a lot of docs are are are feeling that pressure and you know seeing the headwinds that private practice is facing. And, you know, good DSOs are designed to to fight those headwinds and and have the capability of doing so because size equals leverage and economies of scale and you get to a point where you’re able to kind of push back against the payers and the vendors and fight some of that inflationary pressure on overhead and get some better, you know, reimbursement rates.

Matt: okay. So getting more again, more specific. So we’re saying we we both agree that you should be thinking about this. And I love how you framed that. It it informs how you approach your business and the the things that lead to value, even if you’re not actually exiting. But let’s get more focused in you’re going to exit. And you you guys were we can actually probably post this in the show notes. You guys have an article from your website that will you made my life really easy here. Cause you laid out your process. You laid out an 11-step process that I kind of want to go through and help people understand who are maybe getting closer to this idea of exiting. And so you so the first part of this, you talk about having a runway. And you you guys laid out specifically in this article a three to five-year runway. I’m curious. Why that time frame? What’s happening in that window that can’t be compressed, that you can’t overlook and would would need to give you that time?

Brannon Moncrief: Yeah, so so two reasons. If we’re talking about going the DSO route, like if you wait until the day you’re ready to exit, that option’s off the table because

Matt: Yeah.

Brannon Moncrief: DSOs are looking for a three to five year postclosed commitment. And the standard is really moved to five years. Now, that doesn’t mean five years of you working chair side at your current clip. You’re gonna have a lot of autonomy to work as much or as little as you want, but they want you to have a vested interest in the business for five years post sale because They know the founder is the beating heart of the business. And if you remove the founder from the business, it is highly probable that the business is going to decline in relatively short order. The other reason is if you’ve got a three to five year one runway, most private buyers are looking at a three year window. So they’re looking at three years of financials when they’re evaluating your practice, right? What they want to pay, if they want to buy your practice and what they want to pay for it. And you want to make sure that your financials are very clean. Within that three-year window leading up to a sale. Also, the earlier you plan, the more transition options that are available to you, right? If you want to do a DSO affiliation or you want to do some type of phased associate to purchase or some type of associate buy-in partnership that eventually leads to a buyout, none of those options are really available to you if you’re, you know, less than a couple of years away from exiting the business. And then getting educated early about. What drives marketability? What drives value? It allows you the time to pull those levers along the way to make sure that your practice is as healthy, as valuable, as marketed as possible when you’re ready to actually entertain interest from buyers. And, you know, all too often we get the call the day the doctor’s ready to exit. All the

Matt: I was just gonna ask that.

Brannon Moncrief: all the transition options are off the table with the exception of an outright sale to a private buyer. With a short-term transition. At that point, the asset is what it is. We don’t have the time to pull any of those levers to help improve marketability and value. And oftentimes we’re looking at the books going, Man, I wish you would have called me a few years ago because you either, you know, took your foot off the gas and you’ve been working less, and therefore revenue’s been declining.

Matt: Senioritis, they call it.

Brannon Moncrief: Yep. Yep. Revenue’s been declining. And then by the way, with declining revenue, we’re seeing inflationary pressure on overhead. So it’s killing the cash flow leading up to a sale. or you know, maybe you’ve been too aggressive in writing off personal expenses through your business and your financials are an absolute train wreck and the amount of adbacks is insurmountable. And it’s gonna be difficult to get buyers, their advisors, and lenders to buy in. To the adbacks that we have to make to show what the true net cash flow of the business is. there’s a lot of mistakes that practice owners can make leading up to a sale that is going to hurt your ability to monetize the business and/or hurt the value of the business. The sooner we start talking, the sooner you get your team involved, right? Get a relationship established with a sell side advisor or broker, you know, get your financial advisor involved in that conversation, get your dental CPA involved in that conversation. Get your spouse involved in that conversation. The sooner we get the team together and we start devising a transition strategy and we start really looking at what do we need to do to cross our Ts, dot our I’s as we approach a sale, the better off you’re gonna be when it comes time to sell. Also, not only financially, but also emotionally, right? It’s a very emotional process to sell a practice. And a lot of people they don’t think about that until. Typically we get the letter of intent in hand, right? Until the offer comes in or two weeks before closing, they start acting insane because that’s when it becomes real. So the sooner you start planning, the longer runway you you have to emotionally prepare for what it’s gonna feel like to sell your baby. And you also need to think about, especially if you’re selling and you’re planning to exit the business and retire, what are you gonna do in retirement? Like, do you have something to jump to? And if you don’t, this process is going to be a lot more emotional and a lot more difficult. And you’re the seller that I’m going to worry about, you know, a month before close, you know, getting cold feet and freaking out because you’re like, if I’m not driving to the office on Monday, what the hell am I doing? So you need to be thinking about all of these things as you approach your transition.

Matt: Brannon, you are speaking my language. You’re spreading my language here. This is so perfect. it’s like we’re on the same page with all the stuff, which is why you’re here. It’s crazy. I think that last point is so critical. I think it’s really easy for dentists with their personality to check all the boxes on the spreadsheet and be really prepared. Let’s say they they are even prepared. They’ve talked to you, they’ve They’ve done they’ve been, they’re super organized. They’ve they’ve gotten all the ducks in a row financially, both in the business, they have all the metrics, they all of that. But if but one missing piece that is so critical is that last part. Are you running away from something? Are you moving towards something? That’s so different. And I think a a c a path to emptiness and regret and like what the heck did I do? is this I’m running away. I just, I gotta get out of here versus I have thoughtfully, I’ve thoughtfully curated other, you know, other things in my life, hobbies, relationships, a sense of purpose, a social structure. That this is not like woo-woo stuff. This is so critical to a valuable to

Brannon Moncrief: It’s real.

Matt: Like to a retirement that actually means something. So I love that you brought that up.

Brannon Moncrief: Yeah, and and you know, the reason we bring it up is because it is real and is it’s important to talk about, but it’s also self-serving, you know, to to talk about it as a broker because for a long time we didn’t talk about it and we learned the hard way. And what we would often see is as we’re navigating the negotiation of the deal and the legal agreements, you know, about a month before close, oftentimes our seller would start making all these crazy asks. And it’s like, These ask are not even close to market. This is going to kill this deal. And what we started to realize is our clients were purposely but subconsciously sabotaging their own deal because they

Matt: Hm.

Brannon Moncrief: weren’t emotionally ready to to close the sale. So now we spend a lot of time with clients talking about the emotional aspects, obviously and the financial aspects as well. On the front end, just to make sure they’re ready. And I I like what you said. Do they have something that they’re moving towards? I think that’s super important.

Matt: How much do you just while we’re on this topic, how much do you want the spouse or partner or family involved in this discussion? Do you do you ever have them involved or encourage the doc to have them involved?

Brannon Moncrief: depends on how sane they are.

Matt: The doctor or the spouse or partner?

Brannon Moncrief: I mean, either one yeah, look, I I think it’s obviously important that you you involve your spouse in this decision. because especially if you’re gonna be X in the business and you’re gonna be spending a lot more time at home, your relationship’s going to to change, right? so you’ve got to think about the monetary Yeah. I mean, people don’t think about this stuff

Matt: Yep. It might. Yes. Yep.

Brannon Moncrief: In until after the fact. So you I think you have to collectively make the decision from a financial perspective. But you also have to collectively make the decision from a relationship and from the the perspective of what is life going to look like when you’re no longer going to the office, you know, every day.

Matt: Yeah.

Brannon Moncrief: because that’s gonna change. And and that could be wonderful or it could be, you know, really bad, depending on, you know, how your relationship is structured. But no doubt it’s going to change and you need to be prepared for that change.

Matt: Yeah. Yeah. What’s the saying? I I love you, but not for lunch, or something like that. It’s like so I

Brannon Moncrief: I haven’t heard that one, but I like it.

Matt: heard that on a show or something, but I thought it was kind of funny. It’s like I I love you or I married you, but not for lunch. Not I’m not gonna hang out with you during lunch. so yeah, jokes aside, it does change the relationship dynamics and that that needs to be addressed. let’s talk about the deal itself. So like the valuation piece, like going to market, What like first I guess just what goes into evaluation? And I know we’re kind of talking in parallel around or between DSO and private. It might be different, but it does feel like these things are kind of becoming more connected, at least as far as the base level needs. So just like the nuts and bolts, like what what are you gathering as far as reports, financials? Like what do you want to see for evaluation?

Brannon Moncrief: Yeah, and our goal oftentimes is to do evaluation, you know, years in advance of going to market. That’s how we get to know each other. That’s how we get to unpack all the unique aspects of your business and then give you that guidance on what levers to pull to increase marketability, demand, and valuation when the time comes to take it to market. When we do evaluation, we’re typically looking for three years of financials. We have a a five-page questionnaire about your practice that’s relatively simple. You can answer most of it off the top of your head. And then we actually remote into the practice management software and pull all the reports, all the KPIs that we need for that three year period, because we’re looking at both qual quantitative and qualitative aspects of the practice because they tell a story when you lay them on top of each other. You know, we have a CPA on staff, we have several financial analysts on staff, we do about 450 practice valuations every year. So that’s really the foundation of our business. That’s where everything starts. to Do a deep dive, get to know the client, get to know their business, and talk about all the qualitative and quantitative aspects that lead to value. And oftentimes we’re doing valuation through both lenses. We’re doing a private buyer valuation to show the client, hey, here’s what your business is worth if you sold it to a private buyer. Here’s what that looks like structurally. You know, typically 100% cash at close and a relatively short-term commitment post-sale, versus Here’s what your practice is worth in the DSO world. And here’s all the nuance involved in that. What’s the post-sale commitment? What is the deal structure likely going look like? And how does that compare to the private buyer valuation? What are the pros and cons if you juxtapose, you know, both of those transition options? so valuation process typically takes about a month. you typically want involve your CPA because there’s gonna be some technical financial questions as we you know, comb through the financials. I mean, we go through literally line by line the PL and look at the expenses and try to pull out, extract any non-cash, discretionary, non recurring personal expenses that you’re writing off to the business. So we’re truly representing accurately your overhead, your net cash flow, and your EBITDA. And once we go through that valuation process, we typically have a Zoom call where we go over it in detail. and walk you through it, answer any questions that you have, and then talk about, hey, what’s next? Are we looking to go to market in short order? Or are we talking about going to market in three years and we’re going to do some consultation surrounding, you know, hey, what changes do you want to make to the business to make it look sexier as we approach a sale?

Matt: Yeah. So you’re saying all those Air Jordans that you’re putting on under like your your clothing for the on the PL, your your uniform probably have has to be pulled out at some point. as you go through that, it it it’s again reinforcing this idea of why you would do this sooner than later, much sooner than you think, years out even, because you’re able to identify those things and and and start pulling on those levers to increase value. So I that that absolutely makes sense. what surprises do you what surprises have you seen from the denicide of around what actually is valuable versus maybe what surprises them on the downside? Like as a comparison, I we all it always I think people always get surprised when it comes to like I remodeled this part of my house. Why didn’t that add value? Like I put in new sprinkler heads, no one cares. What what’s the equivalent to that when it comes to a practice?

Brannon Moncrief: So that’s a that’s a great question. I I think one of the things that comes up a lot is doctors being very proud of the fact that their practice is like a unicorn, right? Like they they’re very unique, their personality is unique, their skill set’s unique, their practice is unique, and unique is not always good when we’re talking about, you know, selling an asset, right? it’s like if you, you know, have a sports car that’s got some crazy exterior color and some you know, very, very weird, you know, interior that you were just in love with, or same thing with the house, right? It’s gonna take a very specific buyer to want to buy that asset, right? So if you limit the buyer pool, you’re limiting marketability and you’re likely going to hurt your value to some degree. So oftentimes if and when one of our clients has a practice that is super unique or has a very unique component to it that actually deters buyers and may inhibit the the ability to sell the practice or you know hurt the valuation to some degree. I will say that cash flow is king, right? If you’re talking about selling a practice, the reason that buyers acquire practices rather than start them from scratch is to acquire a patient base and acquire recurring revenue. Otherwise, they’ll go buy a practice they’ll go start a practice from scratch and get to pick all the equipment and all the finishes and that type of stuff. So while curb appeal does matter, Profitability is a prerequisite for value in the world of selling a practice. So a lot of times what shocks people is if they have this beautiful, sexy office, but their overhead’s very high for one reason or the other, and valuation comes in on the low end of the range of what they were expecting. They’re like, what are you talking about? I’ve got all the latest and greatest technology. Look at my Google reviews. You know, this office is incredible. And it’s like, I get that, Doc, but you’ve got to understand. You paid off your debt 10 years ago, right? You have no practice debt. Your living expense needs are very much within control because you’ve lived within your means. You’re doing $1.2 million top line a year and you’re making $250,000 and you’re perfectly happy. But we’ve got to look at it through the buyer’s lens. And the buyer has $400,000 in student loan debt. They’re just starting a family. They’re buying their first house. And they’re about to pay you a million bucks to acquire your practice. That $250 evaporates extremely quickly. So it doesn’t matter how sexy your office is aesthetically, if you don’t have the cash flow there to justify the value, it’s highly probable that you’re gonna have a hard time selling that practice. but look, most practice owners, the first the first question I always ask when we send the valuation and we hop on the Zoom call to review it, is what did you think? When you saw the number, was it lower than you expected, higher than you expected? Was it did it come in right where you were expecting? And I would say ninety percent say, it was a little bit lower than I was hoping.

Matt: Yeah, I was gonna say it’s gotta be lower.

Brannon Moncrief: Yeah, yeah. So that’s the that that’s the common answer. And I always say, well, if you told me it was higher than you expected to be the first time a client’s ever said that to me, that’s why you don’t want to be surprised, right? So if you wait until the day you’re ready to sell to call me and I do the valuation, it kind of is what it is. And you know, when you sell 75 practices a year over the course of you know, 15 years, I I know what the market is, right? It’s

Matt: Yeah.

Brannon Moncrief: gonna trade within 10% of where I price it. now, look, some brokers might say, let’s price it way up here, and then we’ll leave room for negotiation. Don’t do that. Like that, that’s how you kill value. It will end up selling for less than what it would have if you had priced it appropriately from day one. What you normally do is you miss the market, the listing goes cold, and it’s very difficult to re-engage those buyers once you drop the price to a more reasonable level. so you want to price to practice at what it’s gonna sell at and leave little to no room for negotiation. Leaving little no room for negotiation also protects the goodwill between the parties because if it’s a really rough negotiation from the onset of the relationship, you’re getting started off on the wrong foot and the process is probably gonna be very contentious throughout.

Matt: So much good stuff there. And it’s making me realize how much psychology is involved in this. Like as you’re going through this, like what I think is the the the actual like psychological term is like the endowment effect. Like we overvalue the thing that we own far more than what the market like your home. I there was a fame I don’t know if it’s famous, famous for nerds. there was a study done about like mugs, like you know, the the someone valuing a mug. In this study, once they bought it, versus the the person going to buy it. So yeah, that that’s not a shock. I I I love that you highlighted that of all the blood, sweat, and tears and history and memories that the seller has in that practice that is valuable to them, but means nothing to the buyer. And that’s a, I’m sure, an important bridge to gap there as you’re as you’re going through this process.

Brannon Moncrief: Yeah, a hundred percent. I that’s where that emotion comes in again, right? I mean, look, it’s your baby, right? It’s your life’s work and you you should be proud of it. But you just also have to understand that there’s somebody else on the other side of the table, and what they value is likely a little bit different than what you value, and they’re at a very different place in their life than where you’re at in your life, and they’re gonna have different motivations, different goals and different ideas about. you know, what your business is worth and they can only afford to pay, you know, what it is actually worth. Otherwise they’re setting themselves up for a a rocky road ahead.

Matt: Yeah. I can’t help but think, Brannon, this this comes up a lot in my house with my two little kids. I’ll see the floor, all the stuff on the floor, and I’ll but it’s all their toys or whatever. I’ll like, hey guys, what’s up with it? Move this crap. And my daughter yells at me every time. Dad, this is not crap. These are these are my toys. These are special. I’m like, that’s that just I kind of the same thing. okay. Let’s start with the deal itself. So, letter of intent and kind of as you’re at that level, first of all Letter of intent. I think this gets confused a lot. How binding when you’re when you’re at that stage, LOI is signed. What does that entail and how binding is it?

Brannon Moncrief: So a letter of intent by its very nature is typically non-binding. The only binding provision of a letter of intent is typically any type of exclusivity period, right? Meaning that you’re only gonna talk to that buyer for a certain period of time before you start to entertain other interest from the market. Yeah. So once you complete the valuation, the next phase is obviously to take the business to market. And if you’re taking it to the DSO market, that marketplace is relatively finite, right? We know. Every single DSO and private equity firm that’s buying practices in your geography. So there might only be, you know, 35 buyers within that universe, and it’s going to be put in front of all of them immediately. You’re going to have immediate interest, you’re going to have immediate interaction with the buyers. And then offers are typically going to be in hand within six weeks of going to market. You’re going to know if you have a deal relatively quickly. Where the private buyer universe is relatively infinite, and we’ve got to find the right private buyer. That values your business and is looking for what you have. And that involves constant and ongoing onboarding of buyers, like vetting buyers, getting them pre-qualified, understanding what type of practice they’re looking for. And then they hit the bench and they’re sitting on the bench until you take a listing to market that fits what they’re looking for. And now it’s time for them to get off the bench and get in the game. Right. So you want to make sure that one, you’re working with a broker. If you’re talking about going the DSO route that has closed hundreds of DSO deals and knows that universe, right? They have intimate relationships with all the buyers, they know what they’re looking for, and they have a direct line of contact. So immediately when your practice hits the market, you have interest from all the credible buyers out there. Same thing in the private buyer world. You’re gonna want to work with a broker that is doing significant volume and has a bench of buyers that have been vetted. And are pre qualified and are ready to rock and roll, or has the ability to create a market around your practice very, very quickly via spending money, right? Like we’ll do, you know, geofence Google paper click ads, we’ll do direct mail to promote a listing. I mean, we’ll easily spend five, 10 grand, you know, just to make sure that we get maximum exposure for our clients’ practices so that we move the asset relatively quickly and it doesn’t become stale. And and move towards being a considered you know a cold listing where you lose momentum. So once you have a written offer in place, the letter of intent, non-binding other than exclusivity provision, but you’re gonna agree on all the high-level details of the deal, right? What is the valuation? How is it going to be paid, right? What’s the structure of the deal? What are the contingencies? And that typically is due diligence, financing, lease or real estate contract if you own the real estate and you’re selling the building. Once you ink a letter of intent, honestly, that’s where the hard work begins, right?

Matt: Yeah.

Brannon Moncrief: Like finding a buyer is not hard. Finding the right buyer is more difficult. But where we really earn our money is from the time we sign that letter of intent to the closing table. And that’s where a lot of the negotiation occurs. We’re talking about diligence, where the buyer is going to have an advisor. So whether it’s a DSO buyer that’s going to hire a CPA firm to do a quality of earnings and gut check the EBITDA, or if we’re talking about a private buyer that’s going to hire a buy-side consultant or a CPA to take a hard look at the numbers and verify the information that we have given them as true and accurate, you’re going to go through a diligence process either way, and it could last from anywhere from 30 to 90 days. And it’s not fun. That’s probably the least fun part of the process, right? You’re gonna have to share, you know, a ton of information about your practice and you’re gonna be questioned about it. And we offload a lot of that responsibility.

Matt: This is the emotional piece. This is the emotional piece, I’m sure, that comes up a lot at this point. Like the questioning of

Brannon Moncrief: Yeah, I mean,

Matt: it.

Brannon Moncrief: it’s a huge inconvenience, right? And a lot of times the seller’s like, why are you asking all these questions? Like, I’m an honest person. Everything’s above board. But look, whether it’s a DSO buyer or private buyer, they’re about to spend a bunch of money to buy an asset that’s value is predicated upon the recurring revenue component and its profitability. They’re going to want to make sure they know what they’re buying. And the good thing about working with us, we do a lot of diligence with our clients before we ever take an asset to market. I feel like a lot of brokers, it’s like, you know, fill out this one page questionnaire and send me your 2025 PL and we’ll put it on market and we’ll see what happens. Not how we work. Like

Matt: Yeah. Yeah.

Brannon Moncrief: we’re gonna make sure that we plug all the rabbit holes and ask all the questions before we go to market so that we’ve one price to practice appropriately, and then two, as diligence starts to happen, we’ve already asked all the questions. Because you can imagine if a buyer comes to us and has 20 questions. And we don’t know the answer to any of them. I’m like, hey, I gotta go to my seller. They’re like, have you done any diligence? Like, how do you know what you’re selling? How did you price this practice? Like, you don’t really know the asset that you’re representing. Why am I even talking to you? And

Matt: Yeah.

Brannon Moncrief: They start to lose faith in the process. So you want to make sure that your broker does as much diligence as possible during the valuation process pre-market. It’s going to make the diligence process go so much more smoothly. The buyer and their advisor are gonna have so much more confidence in the broker, you, and the practice. so you go through the diligence process, you go through the legal process. Not fun navigating legal agreements, but you gotta do it, right? so we wanna make sure that both sides have experienced dental attorneys, right? Somebody that has navigated these processes day in, day out. but there’s gonna be some back and forth. And some negotiation of the finer points of the deal within the legal agreements. And I think it’s important to note there thousands of these deals have occurred prior to the sale of your practice, right? There is something called market, right? And your deal terms have to fit within market. You’re not going to be able to pull one over on somebody. And if you do, by the way, there’s a high probability they fail and they come back and sue you. Because they felt like they got taken advantage of during the process.

Matt: And precedent has been established via past thousands of of contracts.

Brannon Moncrief: Precedent has been established far before your deal. As

Matt: Yeah.

Brannon Moncrief: The seller, what you want is the deal terms to end up within precedent, but on the favorable side for the seller. And if you come at negotiations, especially from a legal agreements perspective, that you want to win on every point and you want to be unreasonable and try to do a deal outside of market precedent, what you are going to elicit out of the buyer is typically a fight or flight response.

Matt: Hmm.

Brannon Moncrief: They’re either going to tell you to pound sand and they’re going to hit the road. They’re gonna back out of the deal, or they’re gonna fight, and they’re gonna fight far harder than they would have you just gone in with reasonable deal terms that were favorable from the seller side. So you need to understand that if you’re overly emotional or unreasonable in the way you navigate the negotiation of the deal, in specific the legal agreements, it is going to make the deal so contentious. You’re gonna destroy the goodwill between the parties. You’re not gonna ultimately win at the end of the day. You’re likely gonna end up with a lesser outcome than you would have if you were less emotional and more reasonable in how you approached the negotiation.

Matt: Yeah, this seems to be a theme in this discussion, and I really like it, Brannon. I think it’s so practical in helping people understand that this is not a I win, you lose competition type situation. It’s we’re in this together, and I think that mindset a lot a lot of this stuff you’re going through is just critical shifts of mindset and approach and and the emotional piece, which I think is so important. so a couple things. Do you prefer from your standpoint and perspective, would you prefer that the buyer has representation via a consultant, their own probably not their own there couldn’t be their own broker necessarily, but CPA or or something like that, their own representation. Do you prefer that?

Brannon Moncrief: Hundred percent. So we’re we’re big on, although we represent the seller, we are big on helping build a team around the buyer and make sure that they have like quality, experienced advisors. Now, part of that’s done because I want them to be successful and I want them to understand what they’re buying. And we approach every conversation with the buyer that it’s like, hey, you know, buy the practice if it makes sense. If not, no big deal. I’ll I’ll sell it to somebody else. There’s plenty of buyers out there. Only buy this if it works for you. Right. If it’s a good fit. But do your diligence and understand what you’re buying. Also selfishly, I want them to have really good advisors and a strong team around them. Because if they don’t, if they hire their brother-in-law who’s a divorce attorney,

Matt: It’s always the brother in law.

Brannon Moncrief: yeah, or the or the CPA, you know, who has never seen a dental practice before, the likelihood is they’re going to get really, really bad advice.

Matt: Yeah.

Brannon Moncrief: And those advisors are likely going to make the process. Again, far more contentious than it needs to be because they’re learning on your dime. They don’t know what they’re doing. And they’re going to wreak havoc on the deal because they don’t understand market precedent. They don’t

Matt: Yeah.

Brannon Moncrief: understand the dynamics of these transitions and these types of businesses. So we want to make sure that they have a strong team around them. It’s going to make the deal go so much more smoothly. And the buyer is also going to just be so much more confident that, hey, I’ve I’ve got these people, they’ve got my back. You know, no stone’s gonna go unturned. And because of how much diligence we do on the front end, I’m like, hey, open book, do whatever type of diligence you want to do within reason, right? you’re not gonna find anything that I haven’t already found. And by the way, if by some odd chance you do, let’s talk about it. And

Matt: Yeah.

Brannon Moncrief: if it’s material, I’m gonna talk to my client about it and we’ll try to, you know, come together on it and and see what makes the most sense. If there needs to be Some type of adjustment to the deal terms.

Matt: Yeah, that that’s such a good point. I can totally see that. Like having just professionals on both sides being able to make this a a a collaborative, kind of cohesive process versus like you said, the brother in law or the buddy or the the AI chatbot they’re using. You know, I’m sure you’re seeing that more. But yeah, yeah, we

Brannon Moncrief: starting to see that. Yeah. We’re starting to see people run, you know, our valuations, purchase agreements, all

Matt: Yep. Yep.

Brannon Moncrief: kinds of stuff through AI. And look, AI’s got a long way to go, let’s put it that way. And AI also doesn’t necessarily know what market precedent is. It often gives, you know, bad advice and it certainly doesn’t understand the emotional component that

Matt: Yep.

Brannon Moncrief: that we’ve talked a lot about today.

Matt: Yeah, totally. we know we see very similar things on our side. So people don’t realize source material for a lot of this AI is like Reddit. It’s YouTube, you know, it’s it’s unverified. This is why you can produce a lot of slop with AI. So, but it totally makes sense why you’re you’re saying again, just professionals on both sides, and why selfishly you’d want the buyer to have. have them in their corner as well. Totally makes sense. You mentioned the asset purchase agreement just now. and then you mentioned it in this article that you referenced as you called it the most important document. as we kind of get kind of wrapping this up as like getting closer to like the deal being closed, what what has to be in that? Why is it so critical? What what should Dentist be thinking about when it comes to that?

Brannon Moncrief: The asset purchase agreement is the the agreement that basically globally controls the transaction and is legally binding upon the parties. And it’s gonna touch on every aspect of the transaction. So obviously it’s going to incorporate all the terms from the letter of intent, but you’re gonna talk about things like how are accounts receivable gonna be handled, you know, how are credit balances gonna be handled, how is rework gonna be handled. It’s going to talk about the seller’s, you know, non-compete, non-solicitation. It is going to hit on every major and minor legal point of the deal so that if there is a future disagreement, that is the overriding document that you will go back to that you will reference to dictate how each component of the sale is to be handled. so it is an incredibly important document. Hopefully Post sale is a document that you never have to look at again. But if and when there is a disagreement, that is the document that is going to serve as the precedent and going to be the legally binding contract that you know is going to show up in court if there’s ever a disagreement. once we get through diligence, once we get through the asset purchase agreement, once we get through financing, and by the way, on a private buyer deal. We are gonna help the buyer secure financing. It’s very important that they work with dental specific lenders. And we have deep relationships with all of those bankers. That’s my former background. About half my team is former dental lenders. So we know that world very, very well. So we’re gonna help the buyer secure financing. Once all of those things are done and closing is eminent, that’s when we have to start working on the minutia associated with transitioning the business to do business under a new owner. And man, I wish there was a a switch on the wall that we could just flip and it was super easy that one day you own it, the next day they own it. But the reality is there’s a lot that needs to be done. Like transferring vendor accounts, you know, setting up new credit card processing machines, new bank accounts, informing the staff. Like when are you going to tell the staff and what are you going to tell the staff? Informing the patients. When are you going to tell the patients and what are you going to tell the patients? We’re involved in coaching both buyer and seller through that process as to when it’s appropriate to check each of those boxes and how to handle it. But the reality is not all of it is going to be tied up with a nice bow by closing, right? There are some things that need to be worked out post sale. And oftentimes where we’ve seen these deals go sideways, especially if the negotiation has been super contentious throughout the deal Is once the deal closes, buyer and seller might be working together for a while.

Matt: Yeah.

Brannon Moncrief: Or they at least need to communicate because there’s some loose ends that need to be wrapped up in the two or three months post-sale. So oftentimes things fall apart because there’s poor behavior or poor communication between the parties post-sale, often caused by how contentious the negotiation was between the parties during the process. Sometimes not caused by the doctor, by the way. Sometimes caused by the advisors, particularly the attorneys, right? So you need to make sure that also you control your advisors and slap their hand if they’re getting too contentious and too aggressive in how they’re navigating those communications and negotiations during the deal. One of the big things to touch on when we’re talking about private deals, accounts receivable and credit balances. Make sure that you clean up your receivables before you take your practice to market. Clean out all your over 90-day receivables, right? You want it to look as clean as possible so you’re not indicating to the marketplace that you might have a collection problem. Also, those receivables are either going to be sold at the point of sale or you’re going to retain them, and then the buyer is going to receive them and remit them to you post-sale. That’s one of the easiest ways that buyer and seller get sideways. If you don’t sell the receivables, and by the way, I would suggest you do sell the receivables to the buyer. It’s just so much cleaner because Day after close, every dollar of income that comes into that practice belongs to the buyer. If you don’t sell the receivables, then the buyer is collecting your money and remitting it to you. But if things aren’t done properly at the front desk, right? New owner’s not standing at the front desk when a patient writes a check. If the office manager or the person that handles receivables is not handling it properly, high probability some of your money ends up in the buyer’s bank account. And now everybody’s pissed off at each other as a result. Even

Matt: Yeah.

Brannon Moncrief: though it it there was nothing nefarious going on there, right? So things like that come up. Also, credit balances. So credit balances are essentially negative accounts receivable balances. That’s either overpayments, money that you owe patients, right? Or often caused by ledger errors. So at close, you typically have to cut a check to the buyer for the amount of credit balances on your books because that’s a liability the buyer is assuming. Well, you don’t want to be writing checks for credit balances that are ten years old. You probably don’t want to be writing a check for credit balances that are caused by ledger errors. So getting that cleaned up, you know, prior to a sale is critically important. Oftentimes it’s a shock to the seller where they’re like, wait, wait a minute. I’ve got to write a check for seventy thousand dollars to the buyer because of my credit balances. Well, most of those are ledger errors. Well it I told you to clean this up six months ago. Now it’s two days before close. We don’t have enough time to clean it up. Like You’re gonna have to stroke a check. So

Matt: Yeah.

Brannon Moncrief: The cleaner your AR, the cleaner your credit balances, the better off you’re gonna be. When we get into talking about like all these little components, there’s a lot involved in selling a practice and doing it right.

Matt: Yeah.

Brannon Moncrief: At one point in time, we actually sat down and we mapped it. It was 87 steps to a successful practice sale. And our job as your broker is to kind of break that down into digestible pieces. To where you and the buyer have no more than two or three things that you’re working on at any given time, you can leverage your advisors to help with some of it. At the time we tell your staff, you can start leveraging your staff to help with some of it. But it’s to make it manageable because if you looked at it from a 10,000 foot perspective, it’s daunting if

Matt: Yeah.

Brannon Moncrief: You actually understand the steps involved and the cadence that you need to move through this process to get a deal done right to where it’s not an absolute train wreck, you know, post-sale for the buyer and seller.

Matt: 87 steps. I mean, that’s that’s longer than some of these social media influencers’ morning routines. That’s that’s a lot. So that’s

Brannon Moncrief: It’s a lot.

Matt: A lot. this is great, Brannon. So let me just kind of bring it home with the timeline piece of it. I think that’s critical, the overview of the timeline. So we’re saying three to five years out, you should be getting more serious about these conversations. And to your point having evaluation done. Is that fair to say?

Brannon Moncrief: Hundred percent.

Matt: So have the evaluation done, start understanding the levers, start cleaning up the books, start really dialing in. I I like that you’re you we’ve highlighted all this because you mentioned something at the very beginning around that we see, and I’m sure you’ve seen this a lot: waiting the the massive risk of waiting too long, and as opposed to dialing up in your final three to five years to really power to the finish and maximize enterprise value and get the most out of this. If you wait too long, the opposite happens. And again, you get that senioritis and you fade and and could cost you a ton of money. So you’re saying three to five years out, getting really serious, get evaluation done, start in earnest those conversations. going to market. I don’t know if we covered that. Like once you’ve done that, what is a going to market timeline generally?

Brannon Moncrief: So let’s say you get the valuation done three to five years in advance, right? And then we give you some consultative guidance, we stay in touch along the way. And then at the point you’re ready to go to market, we need to update that that valuation, right? So it might take 30 to 45 days to update the valuation, build the marketing deck, and launch the listing. And then you’re likely talking, let’s let’s compartmentalize it, private buyer. You’re likely talking somewhere, could be three to six months to find the right private buyer, enter into a letter of intent. And then you’re talking about another two to three months to close. So typically private buyer, on average, our process is about six months, right? Because most of our listings move pretty quickly, go

Matt: Yeah.

Brannon Moncrief: under a letter of intent with the f within the first two or three months. And then we got two or three months to make it to the close. In the DSO world, because that buyer pool is very finite and right out the gate when the practice hits the market, it goes in front of all the legitimate buyers available in that ecosystem, you know, you’re gonna have an offer in hand within six weeks. You’re gonna know if you have a deal likely within eight weeks. And then you’re talking two or three months to close. So that process is a little bit more predictable because the buyer pool is finite. Max, I’d say five months start to finish when we’re talking about the DSO process. Whereas private buyer a little bit more unpredictable because the buyer pool is infinite and you’ve got to make sure that you find the right person for the right asset at the right time probably somewhere in the six to nine month range if we’re talking private buyer.

Matt: Got it. Got it. That makes sense. So three to five years. And then once that process starts in earnest, we’re talking anywhere from as short as three months, but could be up to nine or maybe longer. Maybe it goes a year, depending on the situation. So okay, that’s that’s good to know. And then post sale and all that timeline, it’s just gonna vary to your right, whether you’re going DSO, work back, or private buyer. Do you see a standard on the private market? You said DSOs are going, the standard is becoming more of like a closer to a five year work back. Are you do you have, even if it’s just kind of anecdotal what you’re seeing, do you have a feel for on the private side post sale, how often it’s I’m gone and the buyer wants them gone and they they do like a quick transition versus they stay for a period of time for the transition? Do you have a feel of that?

Brannon Moncrief: If we’re talking about like an outright sale to a private buyer, so some of it’s gonna depend. Are we talking about a larger multi-doctor practice where you’re selling to one of your associates and then you’re gonna become the associate and you’re gonna stay on for some period of time? You know, that that could vary, right? When we’re talking about, you know, it’s a practice that we’re taking to the open market, we’re doing an outright sale, you’re typically looking at a very short-term transition. Most of our clients by default call us the day they’re ready to be done and therefore they’re looking for a quick exit. That does align with the marketplace in the sense that the standard used to be that private buyers wanted the seller to stick around for a year. A couple of hygiene cycles, you know, protect the goodwill, introduce them to the patients. But there’s been enough horror stories from their colleagues

Matt: Yep.

Brannon Moncrief: Of buying a practice from a senior doc that stayed on for a year and kind of undermined the the the deal post sale, where emotionally they weren’t ready to let go. And they were consistently kind of undermining the new owner’s authority, whether it be with the patients or with the staff. Therefore, the market has moved towards private buyers preferring a situation where the seller’s gonna step out in relatively short order. so you’re normally talking about a walkaway sale or a very short-term transition, max 90 days. And the seller may not even be present in the office, but at least available for consultation with the buyer. There are instances where you know, buyer and seller get along beautifully and sellers’ preferences to stay on six months to a year, sometimes longer. What I will tell you though is if your plan is to stay on post-sale for a prolonged period of time and you’re not going the DSO route, like DSO wants you there as long as you’re willing to stay. Hey, if you want to be there 10 years, great. Private buyer, your continued employment post-sale is not grandfathered in. So There’s no way to guarantee that you’re gonna be able to stay on six months, a year, two years post sale. If there’s not enough production to support two doctors, or if your personalities don’t jive, you’re gonna be out the door sooner rather than later. So you just need to be prepared for that. If your game plan is to stay on long term in a private sale, maybe you wanna wait until you’re a little bit closer to wanting to hit the exit before you go to market.

Matt: Yeah, it’s a really good point. I I like that nuance. okay, so Brannon, what’s what’s something a a doc out there listening? They’re thinking, yeah, it could be five years out or somewhere nearing that. What’s something they should be considering today as a a first step? ‘Cause it yeah yeah, as you said, this is daunting. It feels like a lot. what’s one thing a dentist should be thinking about today to to move him closer?

Brannon Moncrief: I I think first and foremost, build a strong team of advisors, right? Like obviously, if they’ve got dentist advisors as their financial advisor, they’re already one step ahead. But making sure that you’ve got a great CPA, establish a relationship with a dental attorney, and establish relationship with a sell side advisor, and start that valuation process, start at least the conversation, right? And that’s where we start every interaction with a new client is a 30-minute discovery call just to get to know each other. Like Who are you? How old are you? Kind of what’s your why, right? what gets you out of bed in the morning, what keeps you up at night? Talk to me a little bit about your practice, high-level details, like number of ops, number of docs, type of patient base, procedure mix, and revenue level. And then talk to me about your runway to exit. And then does it make sense to do a deep dive, to do evaluation, quantify what your business is worth, and start to memorialize a transition strategy that we can execute whether it’s in short order or over the next few years. And then if it makes sense, we’ll do the deep dive, do the evaluation, and take the conversation from there. So I always like to give out my cell phone number and Yeah.

Matt: I was just gonna say, how do we how do people find ya?

Brannon Moncrief: You can text me. that’s the best way to get a hold of me, is either text or email, and then we can find a convenient time to schedule a discovery call. My cell phone number is five one two six six zero eight five zero five. Email is Brannon, brannon@dentaltransitions.com. And Matt, as you mentioned, we’ve got a lot of articles, a lot of content on our website. That’s a great place to to start. Go to dentaltransitions.com. There’s some resources tabs on there. Talks a lot about, you know, DSOs versus private buyer deals and things of that nature, but a lot of conversations just like this.

Matt: Yeah, this is what I mean, this is why you’re here, Brannon. This is why we we collaborate so much with you guys because you the education mindset you have. And we just really value that and really appreciate that. And this episode has been jam-packed. I always say near the end of these shows, I I hope somebody I hope the listeners got one or two or three things out of this. I think this one in particular, far more than that. There are so many nuggets in here that people can take. So, and it’s always great when the person being interviewed put puts out their cell phone number. If that’s not a sign of confidence and and wanting to add value, I don’t know what is. So highly, highly encourage people to if you’re if you’re thinking about this, just wanted more education on it, you know, go into the McLaren’s website, reaching out to Brannon, really appreciate it. So yeah, go ahead.

Brannon Moncrief: One other thing to mention. Yeah, one other thing I I wanted to mention. We are having our first MA summit in Austin in October and would love to invite, you know, your audience, any dentist advisor clients out there would like to attend. it’s August 29th and 30th in Austin, Texas. And we’re gonna be unpacking all things practice transitions. So it’s gonna be a conversation like this, but a much, much deeper dive. If you’re within, I’d say five years of of looking to monetize your business. I would invite you to come, but it’s gonna be a good time. We’re gonna have a welcome reception, a full day of content, an after party at Antones in Austin, live music, Texas Barbecue, Margaritas. it’s gonna be it’s gonna be a lot of fun, man.

Matt: You had me at barbecued margaritas, Brana.

Brannon Moncrief: So any any dentist advisor clients, anybody that listens to the podcast that would like to come, please check it out. McLaren Summit.com. That’s where can learn more about the event. And if you heard me on the podcast, you can shoot me a text if you’d like to come to the summit. I’ll give you a a discount code for any of your audience members that want to come, Matt.

Matt: Awesome. That’s great, Brannon. Really appreciate it. And honestly appreciate all the education, wisdom, the you know, 25 years of of knowledge that you’re an experience that you’re sharing. Super valuable. So everyone, as always, thank you for listening, Brannon. Thank you for being here and sharing your words of wisdom. Till next time, everyone, take care. Bye-bye.

Keywords: dental practice sale, practice valuation, DSO market, private equity, exit strategy, practice transition, dental broker, practice valuation process, dental practice market trends, practice sale tips

Practice Transitions, Practice Value