Is your dental practice losing its value?

May 30, 2013

If you’re thinking about selling your practice in a few years and to enjoy your retirement, you’ll want to get as much out of the sale as possible. Here’s what you need to know to make that happen.

If you’re thinking about selling your practice in a few years and to enjoy your retirement, you’ll want to get as much out of the sale as possible. Here’s what you need to know to make that happen.

Our entire team at Professional Transitions is fortunate to have the opportunity to put a considerable number of practices through our rigorous review process on a consistent basis. Whether for outright sale or appraisal, our team reviews financial data for a large number of practices, nationwide, providing us the unique ability to see local, regional and national trends.

That, combined with our exclusive partnerships with the best of the industry nationwide, enables us to bring the highest level of expertise and experience to you.

Not long ago, members of our team were able to spend considerable time with these industry leaders. One topic of particular interest focused on how the transitions market has changed because of the recent economic difficulties.

Declining three-year revenues

It’s the case all over. Practice collections have been declining for many reasons.

To purchasers, this downward trend generally indicates a practice is dying on the vine. Because they are looking to spend as little money to get as much practice as possible, and because they have heard many times over that “three years of declining revenues indicates a practice in decline,” their immediate inclination is to significantly discount their offer-if not walk away all together.

Beyond that, once a deal has been made, it becomes increasingly difficult to convince credit analysts with lending institutions that a practice is truly viable going forward.

What does this mean for you? You have to be on top of your game with analytics, reports and practice management. If you’re not tracking details of your practice with practice management software, reviewing reports to track your practice statistics, you need to start.

When it comes to your transition, it’s that much more important to have an educated, experienced advisor. Even CPAs and attorneys (but particularly the local equipment rep) are not trained in this type of analysis.

As transitions experts, it has become particularly vital to us to peel back the leaves and find out what is truly going on in the practice. In doing this, we can find the right answers to a host of questions, thereby ensuring the highest possible price and level of financing.

Hygiene department overbooked? Check out this advice from Jameson Management in this Morning Huddle video:

Location, location, location

Unfortunately, this is one piece you really have little control over. When you started or acquired your practice, you acquired the location as well, whether that is the city or area, or specific building or rental space. This affects value.

Practices in rural areas or in dilapidated or out-of-date facilities are deemed less valuable in the current market. Purchasers want to pay as little as possible, and this is a point you cannot patch over.

What you can do is take advantage of the market yourself. Are you three to five years (or more) from a transition? Take a look at your facility and equipment, and consider an upgrade. Do you own your building? Fix it up to like-new standards, as much as possible. Are you leasing? Ensure your lease is assignable and the rate is well-negotiated.

This will make things easier not only on your bottom line, but on a potential purchaser’s as well. If you’re a few years out, and your equipment, furnishings or décor are out-of-date, consider a refresh or upgrade with new flooring or paint or even quality used equipment. Bring in a set of fresh eyes and ask them to look around and give some feedback. A little time and money goes a long way and can most certainly help.

General scarcity

With the shrinking of retirement funds over the last few years, the number of practitioners transitioning to retirement has declined. Realizing there is not enough remaining in their investments to sustain a desirable lifestyle for 20-30 years of retirement, the phenomenon of “I’ll just work one (or two or even five) more year(s)” has ruled the marketplace. As a result, there has been a persistent scarcity of strong practices on the market.

While some brokers may ‘list’ a large number of practices that they insist are for sale, this simply is not the case. A good number of practices that have sold recently have been because of the seller’s disability, death or relocation.

This current scarcity could be a boon to you if properly planned. If you have decided you may extend your career, particularly another one or two years, it may be worthwhile to look closely at your retirement egg and see where a sale may put you. Your practice may sell for a ‘premium’ right now, if priced and represented properly.

This could be an opportunity to seize, but it will take your team of advisors-CPA, financial manager and transition specialist-to cooperate in developing an overall strategy with you.

These are just a few of the many factors currently in the marketplace. Generally speaking, the market for practice sales is still strong, and financing is still readily available for purchasers with good credit history. Dental practices have been recession-proof over the long term as dentists provide services that cover not only cosmetic needs, but health care needs as well.

Owning a practice not only provides job security, but a business that has inherent control, lifestyle and economic benefits that do not come with working for someone else.

Greg lives in Bradenton, Florida and is a partner in Professional Transitions. Professional Transitions is a full-service firm providing comprehensive transition services for dentists from graduation to retirement.  Its central focus is to assist clients in realizing lifetime personal, professional and financial goals in win-win-win-win (seller-buyer-staff-patient) structured transitions.  Greg has been associated with Professional Transitions, Inc. and sister company ADS Florida, LLC since 2004.  He received his Bachelor's degree in Computer Engineering from the University of Central Florida and his MBA from Wake Forest University. Greg is also a financial analyst for the Pride Institute and Pride Transitions as well as the marketing chair for ADS nationwide. Greg has been a speaker throughout the West Coast of Florida and at several dental schools, nationally and has written for local, regional and national publications. Greg can be reached at greg@professionaltransitions.com or by calling 888-229-5764.