Dental practice valuation is a highly complex blend of art and science. Ultimately, though, any practice is worth whatever a buyer is willing to pay for it. If you want to maximize the selling price, there are a few things you can do to make your practice more attractive to potential buyers.
The majority of dentists are happy with an accounts receivable cycle as long as 45 days. Still, if yours is significantly lower, it can prove that your practice has a healthy cash flow. Upgrading your revenue management technology and procedures can help.
While the real estate idea of “location, location, location” does not fully apply when selling a dental practice, there is no denying that location matters to prospective buyers. In particular, buyers are interested in the demographics and population trends of the area, as those affect the patient base. For example, a buyer interested in complex restorations would likely prefer an affluent area with an older demographic, while someone who specializes in pediatric dentistry will want to be in a neighborhood with lots of young families.
You don’t need to move your practice in order to sell it, but you will get the best price by focusing on buyers whose primary interests match the demographics of the area. Of course, if your practice attracts patients who are willing to travel a long way for your services, that can be a selling point on its own.
Everyone has a different philosophy and approach to treatment, and you certainly don’t need to change yours. However, if you are looking for the maximum selling price, you should be sure to discuss these topics early on with each potential buyer. Every buyer is hoping for a strong, existing patient base, as well as to focus on the areas of dentistry that most interest him or her. It might be that a buyer can see a new direction for your practice in the form of additional services or new technology, but if your approaches are wildly different, some of your existing patients might leave after the sale. Buyers are aware of this risk, and will likely not offer top dollar for practices that do not naturally mesh with their ideas.
Dental practices generally have a wide variety of tangible assets, such as equipment and furniture, but intangible assets can add tremendous value to the practice. Brand equity and intellectual property are typically the most important. Brand equity includes, but is not limited to, such factors as reputation, perception of service, and loyalty from both patients and employees. Protecting the brand can be a very important element in the sales process, and a top brand can bring a significantly higher price.
Intellectual property includes anything that you developed that is unique to your practice, such as codified policies and procedures, treatment methodologies, and ways of managing the business side of your practice. The more successful your practice is, the more your unique intellectual property is likely to be worth at the time of sale.
It would seem obvious that sophisticated dental technology automatically raises the selling price of a dental practice, but this is rarely the case. At the time of sale, technology is really only worth the demonstrated financial impact that it has on the practice. In other words, you may get a premium for a piece of technology that demonstrably improved processes and, in turn, revenue. But simply running out right before the sale to buy new software will not get you much return on your investment.
There are a couple of reasons for this. First, there is a plethora of dental technology on the market, and most dentists like to equip their offices with the technologies they like best. Second, used equipment has a very low cash value. Finally, the buyer may be entirely unfamiliar with that shiny new program you installed, and unimpressed with your claims of what the salesperson told you it could do. Being able to point to results is key.
Ultimately, the best way to obtain the maximum price for your dental practice is to start long before you are ready to sell. Build the best practice you can, constantly refine and improve your processes, and create a strong brand. When you are ready to sell, focus on buyers who are looking for what you have to sell, and whose philosophies mesh well with your own.
Ascent Dental Solutions is a full-service agency dedicated to helping dentists build their practices and map out their careers. It is the brainchild of Dr. Kevin Coughlin, who earned his doctorate at Tufts University School of Dental Medicine and currently serves as a faculty member there. While Dr. Coughlin continues to practice dentistry as the principal owner of the 14-location Baystate Dental PC, he has a strong passion for helping fellow dentists maximize their success. If you are interested in learning how to take your dental practice to the next level, please contact Ascent Dental Solutions today at (800) 983-4126 to learn how Dr. Coughlin can help.