Plan Early to Increase Your Practice's Sale Value

June 12, 2017
Ed Rabinowitz

Though selling your practice may be a long way away, PMA Practice Transitions president Matthew Scherer says putting of plans can hurt the value of your practice. To ease the transition and maintain or even increase the value of your practice, Scherer recommends developing a business or succession plan early on. At least several years prior to retirement is optimal, he said. Learn more about cash flow, managing overhead and examining fees below.

Scherer is an advocate for dentists examining their fee schedule on an annual basis, but many do not.

If you want to maximize the sale price of your dental practice, the time to start planning for that is now, or at least three to five years prior to retirement. That will provide enough time and flexibility to get the most for your practice.

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Whether you’re looking to retire in two years or 10, that time will come when you will look to hand the reins of your dental practice to someone else. Well, not just hand them over, but transition by way of selling.

When that time comes, you will want to get as much as you can for your practice. So, it makes sense to start planning now, because it is never too early to plan.

But even as you plan, don’t take your foot off the gas.

“Most dentists, when they get around the age where they want to retire, they slow the practice down,” says Matthew Scherer, president of PMA Practice Transitions. “And when they cut back, a lot of the time their revenue, their collections, will go down. But their overhead stays the same. So what they end up doing is their practice becomes less profitable.”

But by developing a business or succession plan early on, you can maintain or even increase the value of your practice.

CASH FLOW IS KING

Scherer’s philosophy is to sit down with dentists at least three to five years prior to retirement, at no cost, and discuss their plans for the practice. When do they want to retire? What does retirement look like? What are revenues today, and where do you see them in a few years?

But most importantly, keep the gas pedal down.

“If you were seeing patients four days a week and now you’re only seeing them 2 1/2 days a week, where are those patients going?” Scherer asked. “They’re probably going to the dentist down the street who’s open more hours. And now a potential buyer has to fight to try and re-acquire those patients.”

Potential buyers want to see steady or rising revenue, as do banks. That’s why Scherer recommends sitting down at least three to five years in advance, because banks or buyers want to see practice tax returns for the current and prior three years. By starting early, there is time to right the ship if necessary.

“You have your gross collections, your expenses, and what you bring home — your net,” Scherer says. “The higher the net, the better it looks to a bank and a buyer.”

EXAMINE YOUR FEES

Scherer is an advocate for dentists examining their fee schedule on an annual basis, something too few do. They see it as a double-edged sword, fearful that if they raise their prices, their patients might leave. But if a dentist examined the average fee for his or her area, the results may prove pretty interesting.

For example, suppose your fees are $40 cheaper than other dentists within a seven- to 10-mile radius. That means you can raise your fees by $20 across the board. If a patient complains about the increase, let them shop around.

“They’re going to find that you’re actually $20 cheaper than everybody else,” Scherer says. “Most older dentists haven’t raised their fees in years, and they’re probably way under what the fee schedule should be.”

If research shows that your fees are right in line with the average for your area, it still makes sense to consider raising them — especially if you haven’t in several years. And if some patients balk?

“If they’re going to squabble over a $10 fee adjustment, then I might be better off losing those patients, raising my fees and still do more, even though I lost a percentage of patients,” Scherer advises.

MANAGE OVERHEAD

Often, dentists selling their practice will be reticent to reduce staff salaries because many of them have been with the practice for years, if not decades. They feel a sense of loyalty —but Scherer suggests that loyalty might be misplaced.

“Do you think your front desk person wouldn’t leave the practice if she was offered 50 cents more per hour down the street?” he says. “She’d probably be gone tomorrow. [Lowering salaries] doesn’t mean you’re not loyal to them. But you have a business to run, not a charity.”

Another reason to start planning early is to weigh whether it makes business and economic sense to invest in new dental technology. That does not necessarily mean going out and purchasing a Cerec. You may not do enough crowns to justify it, and a new dentist purchasing the practice may not want it.

But digital X-ray is practically the standard of care today.

“And if you had digital X-ray, you could perhaps slow down but maintain revenue because now you’re more efficient at what you’re doing,” Scherer says. “And not having digital x-ray could decrease the value because it’s something additional the new owner will need to buy.”

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