How Much is Your Dental Practice Worth?

December 1, 2016
Joe Hannan

If you’re thinking of buying or selling a dental practice in the near future, and you’re thinking of going it alone, you might want to think again.

If you’re thinking of buying or selling a dental practice in the near future, and you’re thinking of going it alone, you might want to think again.

That was the message at the continuing education session, titled “Role of the Transition Team,” which took place on Wednesday at the Greater New York Dental Meeting. The session was hosted by a trio of experts: Alan Celemns, MBA, Gregopry R. Tapfar, ESQ., and Domenick Lobifaro, CPA.

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Navigating the complexities of the transaction require guidance and expertise, both of which will be provided by a transition team. There are no second chances in this major, life-altering decision, Clemens said. “You’ve got to do it right the first time.”

Clemens first reviewed the current difficulties dentists are facing in the market, such as longer hours, less retirement preparation, declining profits, and greater insurance competition. Though dentists are doing better these days, many are still recovering from the economic downturn. The same is true of patients.

“You’re competing against the car payment that has to be made,” he said. “People are hurting.”

Taking all of that into consideration, he said, an effective sale of your dental practice is more critical than ever, in terms of establishing financial security for retirement or your estate. However, there are potential pitfalls along the way that your transition team will be equipped to handle.

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For example, do you own your practice’s real estate, or do you rent? Clemens said that he has seen leases complicate or even thwart potential sales, noting that landlords today are more cutthroat than they used to be. A broker on a transition team provides a potential seller with a buffer to manage difficult interactions like this one.

“Work with people who give you more than what you pay for,” he said. “Work with people who care.”

Clemens also provided an overview of how a transition team will go about valuating your practice. Step one, he said, is familiarizing himself with the owner, and it behooves the owner to disclose as much information as possible to the transition team in order to provide a complete financial picture of the practice.

Other factors that the team will evaluate include the types of patients, the type of dentistry, the quality of work, the work that is referred out, and the reputation of the practice. He cautioned that no two valuations are alike, however.

“There is no boiler plate here,” he said.

Here are some other factors a transition team will look at for your practice:

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1. Demographics: Location, location, location. This will certainly factor into your practice’s valuation, Clemens said. Other demographic factors will include stability of the neighborhood, effectiveness of the practice’s recall system, and number of active patients.

2. Facilities: Appearances aren’t everything, but they certainly don’t hurt, either. A transition team will also look at the flexibility of a space, meaning, could a potential buyer expand his or her practice if they wanted to? Available parking is also a factor.

3. Financial: Does your current practice offer credit to patients? Also, what insurance modalities are offered? Other financial factors considered by the team include the fee structure and treatment mix.

4. Critical Benchmarks: You can’t buy a business unless you get information,” Clemens said. “I want to know how much this doctor is producing an hour,” he said. The other critical benchmarks a transition team will want to see include average total monthly production, average adjustment, average total receipts, average patient visits, average hours worked, and average production for hygienists. These numbers, Clemens said, are especially important for a transition team because the team can use them to show a potential buyer not just what the practice is worth, but also what specific changes a buyer could make to increase profitability.