By Susan Spear
From the Summer 2016 Journal of the Colorado Dental Association
What makes a dental practice sellable in today’s marketplace? A good place to start is to understand and quantify your assets both tangible and intangible. Tangible assets or “hard” assets are the equipment, instrumentation, supplies, computers, software, office lease and leasehold improvements such as cabinetry, office furnishing and décor. Intangible assets or “goodwill” are those assets that include management and operational practices, quality staff, owner’s commitment to help with transitioning patients, location of the practice where the buyer wants to practice, and other assets such as the practice name and reputation. Every asset is important to the value of your practice.
Here are five assets that can help make your practice more sellable and attract more buyers:
- It does help to stay current with management technology. Your technology has to include quality patient management software and upgraded computer systems. It isn’t necessary yet to be paperless, but moving to that process is definitely becoming more attractive to new buyers. In today’s dentistry, computer management systems are basic and should be of the latest version upgrade. The computer platforms should also reflect HIPAA and the newest regulation requirements. Buyers want to be able to use computer software systems that are user friendly, managed well by the staff, and offer reports that effectively profile the practice.2. The way your dental office looks does matter. You don’t have to structurally remodel to attract a buyer. Start with fresh paint that reflects current decorating trends. Consider updating the office with new or at least clean flooring. Remove personal decorating items that only appeal to a small group of people. Upgrade treatment rooms and sterilization areas with good cabinets that look clean and appealing. If you can, replace the counter tops that show their age and use (that bleach stain shows!). Pay attention to overhead lights, monitors, small equipment on counters, the base of your dental chairs, etc., to ensure they are clean and operating correctly. Clean away clutter and mess around both the business and clinical office spaces. Sounds simple, but dentists are notorious for looking past their physical environment and storing much more than they need in their office space. Buyers have a mindset of “can I work here everyday?” If the office is so dated that they cannot see the vision of their future practice, they will choose a practice with less cash flow than yours to have a nicer space.
3. You want to upgrade your treatment technology to meet today’s standards. Upgrading your technology doesn’t mean you have to go out and buy the latest 3D imaging unit or CAD/CAM system if you have no need for the service they provide. In fact, be careful about placing equipment and technology in your practice that you don’t use. Purchasing expensive or unnecessary equipment can be costly and you will have to retire any debt you might incur from such a purchase when you sell. The number one technology to incorporate now is digital radiography. Digital radiography is becoming the standard and not the exception. This wasn’t so true even five years ago, but many new buyers have little or no experience with traditional film x-rays. Today’s buyers tend to back off from practices where they have to upgrade to digital x-ray systems right away.
4. Cash is king! It is important to operate a quality dental practice that reflects the best income from the services you provide. Manage your overhead and the accounts receivable to stay within or below industry norms. The net earnings matter. Your production numbers are not what value is based on. The income value is based on what you collect and how much falls out the bottom. If your production is $550,000 a year but with insurance write offs and discounts you only collect $400,000, then recognize that the value is based on the $400,000 not on the $550,000. It is also very important to make sure your financials are up-to-date and valid. The buyer wants to see real numbers on what comes into the practice and what goes out – income and expenses. To take this a step further, most lenders want to see a breakdown using profit and loss statements along with tax returns. Of course there will be some adjustments or add backs to your reports for tax purposes, but the cleaner the financial reports, the better. Buyers are very cash based and with debt service; they need to justify their purchase.
5. Plan your business exit strategy instead of leaving it up to fate. Your goodwill and reputation is more valuable than you think. Knowing how to structure your exit is every bit as important as updating the assets mentioned above. Exit planning or succession planning should happen as soon as you begin considering transitioning your practice. Hire an advisor you can trust with your thoughts, vision, concerns, financials and entire business. Your advisor must have the experience and knowledge to help ensure your transition is handled properly from the planning process to the day you celebrate your closing. Choose an expert who is a licensed business broker/intermediary, experienced in dental sales and transitions. And don’t forget to ask for references!
About the Author: Susan Spear is a licensed broker and the owner of SAS Transitions, Inc., Dental Practice Brokers. Contact her at 303-973-2147 or susan@sastransitions.com.