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Articles

The Professional Advisory

  1. Is it Time to Move?
  2. Staging A Dental Practice
  3. The High Cost of Dying
  4. Deal-Busters
  5. Patients - Attract and Retain
  6. Should I Stay or Should I Go?
  7. Is There a Buyer for Every Practice?
  8. Good, Better, Best - The Market has Spoken
  9. Smooth-Sale-ing
  10. Buying Time
  11. Patients, Patience, Patients
  12. A Real Patient
  13. Why Do a Practice Valuation? I'm not Selling
  14. Irrational Exuberance or The New Normal?
  15. Do dental equipment and dental technology affect a practice value?
  16. Finding and Being a Mentor
  17. Bigger is Better
  18. Daves Top Ten List for Buyers (Vendors should read this too!)
  19. How Well Do You Know Your Practice?
  20. Dave
  21. What will happen to dental practice Values in the next 10 years?
  22. Your Premises Lease is an Important Asset
  23. What are Associates Thinking?
  24. There is Life Outside the GTA
  25. When Is the Right Time to Sell My Dental Practice?
  26. Mergers are a Viable Option
  27. Is Your Associate an Asset or a Liability?
  28. Has your Practice Facility Kept Up With Your Billings?
  29. The 100 per cent of Gross Myth
  30. The Past, The Present and The Future
  31. Caveat Emptor
  32. Overpaid Long Term Staff
  33. Selling your Practice in Stages
  34. A Potential Pitfall of Selling Shares
  35. Value in Your Practice Through Balance
  36. Only Trusted Staff Can Defraud You
  37. To Own or Not to Own Practice Real Estate? That is the Question.
  38. Coping With A Large Patient Base
  39. Successful Dental Practice Transitions
  40. Taking Care of Business
  41. The Investing Dentist Phenomenon
  42. Two areas to focus upon that could negatively impact the value of your practice
  43. Organize your Debt in Order to Sell your Practice
  44. Having a Better Team
  45. How Do I Prepare My Practice For Sale
  46. How Do I Prepare My Practice For Sale? Part 3
  47. How Do I Prepare My Practice For Sale? Part 2
  48. How Do I Prepare My Practice For Sale? Part 1
  49. Advice to My Son or Daughter Graduating from Dental School
  50. Transition - What to Expect
  51. Discussion on Digital X-Rays
  52. Partnerships and Shotguns
  53. Strategic Planning - How to Get Started
  54. Calling All Vendors - Practices have Gone Up in Value
  55. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
  56. Matrimonial Practice Valuations
  57. Purchaser's Guide to Affording a Practice
  58. Location Improvements Throughout Your Career
  59. Small Practice Valuations
  60. Partnerships – The Best and The Worst
  61. Changing Location When the Opportunity Comes Along
  62. Visual Presentation of Your Practice
  63. Presentation of Charts
  64. Your Premises Lease Can Be Your Worst Enemy
  65. How to Select an Appraiser for Your Practice
  66. How Are Your Billing Ratios?
  67. It Pays to Invest in Your Tangible Assets
  68. The Importance of Separate Financial Statements
  69. Five Time Frame Levels to Sell a Practice
  70. 12 Suggestions to Safeguard Computer Data
  71. How to Buy a Visible Practice
  72. Why is there a shortage of good practices today?
  73. The Importance of Equipment in the Purchase of a Practice
  74. The Balanced Practice
  75. Will My Practice Be Saleable in The Future?
  76. Buyer Be Aware
  77. Excess Profit - The Second Key
  78. Patients and Profits are the Keys
  79. Plan Ahead

Volume 21: Small Practice Valuations

Download the PDF version now!

We are often asked to value small and low billing practices. After the doctor’s remuneration is accounted for, it may initially appear as if the practice is not profitable. Since we are looking for excess earning capacity, over and above remuneration for doing the dentistry, we have to take a different approach.

Most practices would like to have more patients. We, therefore, value the practice as if it were being sold and moved to another dentist in the area who would already have leaseholds and rent. They would purchase the practice and absorb the smaller practice into their own. We remove the rent from the financial statements and we do not allocate any value to leasehold improvements. The purchaser would look at the financial results as reasonable for his/her purchase. This becomes a win-win scenario.

Typically the “moving” practice would be structured as follows:

  1. Lower value leaseholds. If it is a new facility and there is a high leasehold improvement value then this alternative may not be available unless the purchaser brings his/her existing practice to the vendor’s location. In this scenario the sold practice facility would have to be large enough to support the incoming practice as well as its own.
  2. Short time remaining on the lease. If the practice in question has a long lease that may be difficult to re-rent then it may not be realistic to think of the practice as a “mover”. Ideally, if there is three months to one year left on the lease, this would give the purchaser time to move the practice out of its current location.
  3. Transition time with the vendor. If the vendor is willing to associate back in the practice at the new location for a minimum of one year, this would enhance the value of his/her practice. If the vendor is not or is unwilling to work in the new location then the purchaser would expect to lose more patients in the transition thus making the practice less valuable to the purchaser.
  4. Matching requirements of the purchaser and what the vendor has to offer. The more efficient the merger is for the purchaser the more value he/she would gain. For example, the purchased practice has one new dental chair and the purchaser has one old chair; this is a win-win situation. If the purchased practice has old equipment this could be of limited importance to the purchaser with no need of the vendor’s equipment. The purchaser can donate the unused assets and receive a charitable donation receipt for tax purposes.
  5. Proximity. If the practices are less than two kilometres apart the transfer of patients to the new location would be very favourable. Practices can be further apart but this would mean that the vendor should stay on for a longer time frame such as two to five years to help retain the patients.
  6. Staff transition. The relocation of staff is always a concern. An efficient and reliable receptionist is important for continuity with the patients. The chairside assistant is essential for the vendor, as he/she will need a chairside even with the move. Ideally, the hygienist, if any, would be required in the new location as well. If termination is necessary, one must weigh the net proceeds of the sale to the vendor, when selling to that purchaser.

We have had great results with moving smaller practices into larger more modern facilities and both the Vendor and the Purchaser win.

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