The dental industry, like many sectors in the healthcare field, is facing a significant labor shortage that is reshaping practice operations and impacting practice sales. Post-pandemic disruptions, changing workforce dynamics, and increasing demands for dental care have left many practices struggling to find and retain skilled staff. This shortage not only hampers daily operations but also affects the overall value of dental practices, complicating the sale process.

As buyers and sellers navigate these challenges, we help them understand how the labor shortage influences practice valuations, patient retention, and buyer interest. Owners who find ways to mitigate these issues help maintain the attractiveness of a practice for potential buyers.

The Current State of the Labor Shortage in Dentistry

The dental workforce has been significantly affected by the pandemic, and the labor squeeze continues. Many owners have experienced the stress of hygienists, dental assistants, and front-office staff leaving the profession or demanding higher wages. According to a recent study by the Journal of Dental Hygiene, nearly 1 in 12 hygienists were forced out of the profession during the pandemic, and other estimates suggest that the number could be even higher. This shortage has left many practices understaffed, placing additional pressure on dentists to perform duties that would typically fall to other team members.

The labor shortage isn’t just a temporary challenge; it reflects deeper issues within the industry, such as burnout, wage stagnation, and a lack of qualified new workers entering the field. Practices located in rural or less desirable areas are particularly affected, finding it harder to attract skilled professionals. For dentists considering selling their practices, these staffing issues can significantly affect practice value and the overall sale process.

How Labor Shortages Affect Practice Value

When a dental practice goes on the market, its value is determined by a combination of factors, including revenue, patient base, equipment, and goodwill. One of the less obvious but crucial aspects of goodwill is the staff. A well-trained, stable staff provides continuity, enhances patient experience, and contributes to the overall smooth operation of the practice. Conversely, a high turnover rate or chronic understaffing can damage this goodwill, making the practice less attractive to potential buyers.

  1. Operational Efficiency: Staffing shortages often reduce a practice’s ability to maintain its current patient load and service levels. If hygienists and assistants are scarce, the dentist may be forced to take on additional duties, reducing their available time for complex procedures. This reduction in efficiency can lower the practice’s revenue, which in turn negatively impacts its valuation.
  2. Patient Retention and Satisfaction: Patients develop relationships with staff members, particularly hygienists and front-office personnel. A revolving door of employees can disrupt these relationships, leading to a decrease in patient retention. Buyers are aware of the importance of patient loyalty and may view a high turnover rate as a red flag, potentially lowering their offer or even walking away from the deal.
  3. Goodwill Depreciation: In most practice sales, goodwill accounts for 75-80% of the practice’s value. Goodwill encompasses the practice’s reputation, patient base, and staff relationships. When a practice struggles with staffing, its goodwill can diminish significantly, leading to a lower sale price.

How Labor Shortages Affect the Sale Process

Labor shortages can reduce the value of a dental practice and complicate the sale process in several ways. Buyers are increasingly cautious about acquiring practices with staffing issues and often request more detailed due diligence on employee turnover rates, payroll costs, and recruitment efforts. If a practice is severely understaffed, buyers might negotiate for a lower price or even delay the sale until staffing problems are resolved.

Additionally, labor shortages can extend the transition period after the sale, especially if the seller is expected to remain involved to help with operations. Without sufficient staff, the new owner may need additional support from the seller to stabilize the practice, further prolonging the transition and introducing potential complications.

Retaining key staff members, such as hygienists and office managers, is often a priority for buyers, but in a tight labor market, this can be challenging. Sellers must maintain strong relationships with their staff and provide incentives to ensure they remain during the transition

Solutions to Mitigate Staffing Challenges

While the labor shortage poses significant challenges, there are steps that sellers can take to mitigate its impact and ensure a smoother, more profitable sale:

  1. Invest in Staff Retention: Sellers should focus on retaining their current employees by offering competitive wages, benefits, and a positive work environment. Staff retention programs, such as performance bonuses, flexible schedules, and continuing education opportunities, can help improve morale and reduce turnover.
  2. Cross-Train Employees: Cross-training staff can improve operational flexibility and reduce the impact of turnover. If a key employee leaves, having others on the team who can step into their role ensures that the practice continues to run smoothly, preserving its value during the sale process.
  3. Leverage Temporary Staffing Agencies: If permanent hires are difficult to find, temporary staffing agencies specializing in dental professionals can help fill gaps. While not a permanent solution, this approach can provide relief during the sale process and stabilize the practice’s operations.
  4. Maintain Clear Communication with Buyers: Transparency is crucial during the sale process. Sellers should be upfront about any staffing issues and outline the steps they have taken to address them. Providing buyers with a plan to manage or resolve staffing shortages can increase their confidence in the transaction.

Sell Into Strength By Managing All The Pieces

The labor shortage in the dental industry is a pressing issue that affects both the day-to-day operations of practices and their long-term value. For dentists preparing to sell, understanding how these staffing challenges impact practice valuation and the sale process is essential. By focusing on staff retention, operational efficiency, and clear communication with potential buyers, sellers can navigate these challenges and achieve a successful, profitable practice sale despite the labor shortage.

At DDSmatch, we’re happy to discuss all the factors that go into a dental practice valuation. While profitability drives value, factors like staffing can push a final deal higher or lower. Feel free to reach out and we’ll consider the opportunities for your future!