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Rural Practice Sales: A Tough Nut to Crack

Rural Practice Sales: A Tough Nut to Crack

Selling a profitable dental practice in a high demand metro area takes effort but is not a difficult task if the seller asks a reasonable price. However, in more rural areas, transitioning a practice to new ownership becomes significantly more difficult. There are several factors that contribute to this dilemma, including reduced demand for rural practices, limited supply of qualified buyers, a limited supply of patients, and urbanization of population throughout the country. There are also many advantages to owning a rural practice, and the key for any rural transition is to effectively convey those benefits to potential buyers and market the practice for an appropriate amount of time.
The pool of potential buyers in the dental market is severely limited. Unless the practice is a Federally Qualified Health Center, the purchaser of a dental practice in Louisiana must have a license to practice dentistry in this state. There are currently around 2,600 licensed dentists in Louisiana, many of whom already own practices or are approaching retirement age and are no longer in the market. Additionally, many young dentists who are looking to acquire practices have geographic restraints on their search. I’ve had many conversations with young dentists wherein I explained the financial benefits of buying a practice, only to have them refuse the opportunity because they (or their spouse) considered it an undesirable location.

Competition for young dentists is also high, with many national groups and DSOs offering high salaries with no management responsibilities, as well as sign on and retention bonuses.   These offers appeal to new dental graduates, whose average educational debt was around $305,000 for the class of 2020.   Even though lenders are willing to finance practice acquisitions, many new professionals balk at the idea of incurring more debt.

Supply and demand are also important on the patient side of the equation.    There are only 4.6 million people in Louisiana, which works out to around 1,750 patients per dentist under ideal circumstances.  Unfortunately, the population is not evenly distributed in our state and a lot of our citizens cannot afford a dentist.  Almost 18% of Louisianians live in poverty, and this jumps to around 21% for rural areas.  Once we adjust the numbers for poverty, that leaves about 1,450 patients per dentist under ideal circumstances.  

Urbanization of our nation’s population also affects rural dental practices.  Though Louisiana grew 2.7% overall between 2010 and 2020, 45 Parishes lost population in the same period. The parishes that grew were in Southern Louisiana near metro areas, leaving rural practices competing for even fewer potential patients.
Luckily, owning a rural practice has many advantages over urban practices. Primarily, there is less competition from other dentists in rural areas. There may be a lot of people in Metairie compared to Pineville, but there are also significantly more dentists in Metairie. Even though one area has considerably more people, the population to dentist ratio in the two areas is roughly the same due to the abundance of dentists in Metairie.
Patient retention is also better in rural practices.  All practices have a slow leak of patients due to death, relocation, or the search for an in-network provider.  With fewer options to choose from and longer commutes to the dentist’s office, rural patients tend to stick with their dentist for longer terms than urban patients.
In addition to reduced competition, several office expenses are lower in rural practices. Less competition reduces marketing expenses, and facility expenses (rent or mortgage) are significantly lower than urban areas. Lower cost of living in rural areas reduces staff payroll, which is the largest single expense in a dental office.
Quality of life and cost of living for the practitioner is also a consideration that purchasers often overlook. Housing costs and crime rates are significantly lower in rural areas, and children’s public school options in rural Parishes are often better than their urban equivalents.
Another consideration for practice owners, both urban and rural, is office technology. No dentist licensed in the last 15 years had any experience with film radiographs in dental school. It is too much to ask a young professional to relocate to a rural area and also adapt to outdated technology. However, new equipment and technology purchases do not increase your practice’s value by the amount you spend on them. Since there is no dollar for dollar increase in the practice value, equipment upgrades should be made now, while the practitioner has the chance to use the new equipment before a sale.
Finally, the key component to transitioning a rural practice is time. The supply of licensed dentists willing to move to rural areas in Louisiana is so small that it takes a significant amount of time to find one. Consequently, rural practitioners should plan on at least 18-36 months of marketing before a buyer can be found. My recommendation for the owner of a rural practice approaching retirement would be to list it for sale at least 2 years before a projected retirement date. I’ve sold rural practices in less than 6 months before, but over 80% of my rural listings take more than a year to sell.
Preston Lovelace, JD, MS is the president of ADS Lovelace and Associates, Inc., which has been endorsed by the LDA for practice transition services He has been evaluating and transitioning dental practices in Louisiana for 17 years. He is an attorney admitted to practice in Louisiana. All LDA members are eligible for a free consultation lasting up to two hours as well as discounts on transition and valuation services. He may be reached at 225-614-7700 or PLovelace@gmail.com

Written by: Preston Lovelace, JD., MS.

Lovelace and Associates