Selling Your Practice: Assessing Value
Look at your practice from all angles to maximize profit
The dental practice is usually the dentist’s most valuable asset. Dentists are counting on the sale of their practices to fund their retirement. As with the sale of any large asset, preparation is the key to receiving the maximum value during a sale. Many factors—major and minor—can degrade the perceived value of a practice in the eyes of potential buyers. Fortunately, clinicians with the appropriate amount of planning can address these factors and add a great deal of value to their practices.
Nothing caps off an outstanding career in dentistry better than a problem-free practice transition, in which doctor-owners walk away with the asking price (or more) for their practices, enabling them to start the next phase of their lives as planned. Building on the seven key principles highlighted in the May issue of Inside Dentistry, the six additional steps presented here take dentists to the next level when preparing for the successful sale of their practices.
Improve Practice Appearance
Appearance matters when selling a practice. Few buyers want to buy a practice “fixer upper” that requires extensive repairs or renovations. Give your practice a makeover it if needs it. A coat of fresh paint, new carpet, and updated furnishings will help make the practice create the best impression for potential buyers.
Audit Patient Records
Practices need to perform a detailed chart analysis to determine how many patients are active and inactive. Inactive patients—those not seen in 18 to 48 months—will not count toward the practice’s value. The practice should make every attempt to reactivate as many of them as possible. Obviously, the more active patients a practice has, the more valuable it will be in the eyes of potential buyers. Many practices today have up to 20% of their patients overdue, which means that one fifth of the patient base is in danger of becoming inactive, resulting in a significant loss of practice value.
Inventory All Dental and Office Equipment
Many doctors are not aware of every piece of equipment they have in their practice. By identifying all equipment—those items in use and those in storage—owners can gain an accurate idea of the practice’s possessions. Most dentists are very surprised at how much equipment they actually have and how little it is actually worth, but it is an important consideration when determining the practice’s overall value.
Build a Long-Term Team
The longer the staff has been with the practice, the higher the value. This also gives some idea of how long the staff might remain with the practice after the sale. Despite the change of ownership, many staff members often decide to stay on. Although there is no set philosophy on when to inform staff about an impending sale, it may be best to keep the sale confidential at the outset. At a certain point during the sales process, however, the clinician should be prepared to inform the team about selling the practice. After all, a practice sale creates a flurry of unusual activity—from phone calls to visits from potential buyers—that are highly visible to the staff.
Systemize Accounts Receivable
The goal for practices is to collect 99% of all fees. In the current economy, many patients are taking longer to pay their bills. The longer a bill remains uncollected, the more difficult it becomes to collect the entire fee. Practices should implement stronger financial procedures, including:
• establishing and communicating a clear financial policy covering fees, payment options, and collection procedures.
• collecting all insurance copayments upfront.
• submitting all insurance forms every day.
• following up with all patients who owe the practice money.
Dentists who are considering selling their practices in the next few years should clean up accounts receivable as much as possible, because delinquent accounts can have a disproportionate effect on practice value.
Evaluate the Practice’s
Lease or Mortgage
If the practice has a short-term lease, the new owner may be required to relocate the office within a year or two of purchase. In that scenario, practice value goes down to allow for the moving expenses. A longer-term or renewable lease will have a positive impact on practice value.
If the dentist owns the building where the office is located, that can complicate the sale of the practice. My suggestion is to look at the sale as two separate sales—one for the practice and one for the real estate. It is critical to use the right transitions experts to ensure that real estate and practice sale both go smoothly.
There are many other considerations in the sale of a practice, including tax factors, practice reputation, associateships, partnerships, and more. The strongest suggestion I can make is for dentists to bring on board the right advisor as early as possible. Increasing production, streamlining systems, and having expert advice are all critical factors in a successful practice sale.
About the Author
Roger P. Levin, DDS, is a third-generation general dentist and the chairman and chief executive officer of Levin Group, Inc. To learn how to run a more profitable, efficient, and satisfying practice, visit the Levin Group Resource Center at www.levingroup.com/gp—a free online resource with tips, videos and other valuable information. You can also connect with Levin Group on Facebook and Twitter (@Levin_Group) to learn strategies and share ideas.