The Professional Advisory
- Is it Time to Move?
- Staging A Dental Practice
- The High Cost of Dying
- Patients - Attract and Retain
- Should I Stay or Should I Go?
- Is There a Buyer for Every Practice?
- Good, Better, Best - The Market has Spoken
- Buying Time
- Patients, Patience, Patients
- A Real Patient
- Why Do a Practice Valuation? I'm not Selling
- Irrational Exuberance or The New Normal?
- Do dental equipment and dental technology affect a practice value?
- Finding and Being a Mentor
- Bigger is Better
- Daves Top Ten List for Buyers (Vendors should read this too!)
- How Well Do You Know Your Practice?
- What will happen to dental practice Values in the next 10 years?
- Your Premises Lease is an Important Asset
- What are Associates Thinking?
- There is Life Outside the GTA
- When Is the Right Time to Sell My Dental Practice?
- Mergers are a Viable Option
- Is Your Associate an Asset or a Liability?
- Has your Practice Facility Kept Up With Your Billings?
- The 100 per cent of Gross Myth
- The Past, The Present and The Future
- Caveat Emptor
- Overpaid Long Term Staff
- Selling your Practice in Stages
- A Potential Pitfall of Selling Shares
- Value in Your Practice Through Balance
- Only Trusted Staff Can Defraud You
- To Own or Not to Own Practice Real Estate? That is the Question.
- Coping With A Large Patient Base
- Successful Dental Practice Transitions
- Taking Care of Business
- The Investing Dentist Phenomenon
- Two areas to focus upon that could negatively impact the value of your practice
- Organize your Debt in Order to Sell your Practice
- Having a Better Team
- How Do I Prepare My Practice For Sale
- How Do I Prepare My Practice For Sale? Part 3
- How Do I Prepare My Practice For Sale? Part 2
- How Do I Prepare My Practice For Sale? Part 1
- Advice to My Son or Daughter Graduating from Dental School
- Transition - What to Expect
- Discussion on Digital X-Rays
- Partnerships and Shotguns
- Strategic Planning - How to Get Started
- Calling All Vendors - Practices have Gone Up in Value
- Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
- Matrimonial Practice Valuations
- Purchaser's Guide to Affording a Practice
- Location Improvements Throughout Your Career
- Small Practice Valuations
- Partnerships – The Best and The Worst
- Changing Location When the Opportunity Comes Along
- Visual Presentation of Your Practice
- Presentation of Charts
- Your Premises Lease Can Be Your Worst Enemy
- How to Select an Appraiser for Your Practice
- How Are Your Billing Ratios?
- It Pays to Invest in Your Tangible Assets
- The Importance of Separate Financial Statements
- Five Time Frame Levels to Sell a Practice
- 12 Suggestions to Safeguard Computer Data
- How to Buy a Visible Practice
- Why is there a shortage of good practices today?
- The Importance of Equipment in the Purchase of a Practice
- The Balanced Practice
- Will My Practice Be Saleable in The Future?
- Buyer Be Aware
- Excess Profit - The Second Key
- Patients and Profits are the Keys
- Plan Ahead
Volume 13: It Pays to Invest in Your Tangible Assets
We are often asked to value practices with old old equipment (25 to 35 years) but with a steady patient base of 500 to 1000 patients. The doctor does not see the equipment as old because he has aged with the equipment. Part of owning and managing a dental practice is keeping the practice appearance up to patients' expectations - reinvest in your practice! In a sale situation, seldom are purchasers excited to see equipment older than themselves.
A comfortable ratio of "goodwill", as a percentage of the sale price, is about 60%. If Goodwill is 70 or 75% of the total sale price this means that the equipment, leaseholds and supplies are only 25 to 30% of the value. The purchaser would be concerned about the additional cost of new equipment and leaseholds on top of the cost of the practice. Although the practice is making a good income, the value of the practice is going to be limited since there is a limit to the value of a chart; the equipment is not adding its fair share to the total value of the practice.
A good guideline is: the current market value of the equipment, leaseholds and supplies should be about 25% of the practices gross billing for the year. So, if billings are $600,000 then one would expect the fair market value of the tangible assets of the practice to be worth about $150,000.
Assets below this figure, say $80,000, would mean that since a reasonable value for the practice, at 75% of gross billings, would be $450,000, this leaves (450,000 - 80,000) $370,000 in Goodwill which predominately represents patients. At an average billing of $500.00 per chart that would indicate 1,200 charts. Therefore each chart is worth ($370,000 for Goodwill/ 1200 charts) $308.33 per chart. This is noticeably above average or to put it another way, the practice is going to be worth less than $450,000; it will be harder to sell, since the purchaser would be thinking of the additional costs, to improve the leaseholds and equipment, after he or she has purchased the practice.
Around 25% of gross billings, in a mature practice, indicates that the dentist has kept the practice equipment “up-to-date”. One can also go overboard in the other direction, too many assets for the level of production. This does not leave enough room for Goodwill thus limiting the value of a chart.
I recently recommended that a vendor take some of his major equipment with him as there was not enough net earning to carry the level of assets in the practice. New practices tend to fall in this area as the billings are too low to support even reasonable assets.
I prefer to see a "balanced practice" with contemporary assets, controlled costs, reasonable billings per patient and one that is clean and visually appealing. This makes an attractive proposition for a purchaser.