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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 56: There is Life Outside the GTA

Download the PDF version now!

The dental practice sales market has been extremely robust for the last several years. There is more demand than supply which has put upward pressure on prices. It is not unusual in this market to receive multiple offers on practices and in some cases achieve a sale for far more than the appraised value. This is true for good practices, with good balanced metrics, and, most importantly, in a good location in or near the GTA (Greater Toronto Area). For illustrative purposes, I suggest “near” means within one to 1 t0 1.5 hours. For readers outside Ontario, the same can be said for most large urban centres, particularly in Alberta and British Columbia.

The reasons for this have been covered in other issues of the Professional Advisory but to summarize, in large urban centres:

·         There are too many dentists
·         Dentists are working longer by choice
·         Dental school admittance is based on academic achievement
·         Mature foreign-trained dentists, after obtaining their Canadian license, wish to buy a practice immediately
·         Investing dentists are buying multiple practices

If this is the case, would it not follow that practices a little further from the GTA, for instance, 2 - 4 hours away, would also enjoy the same kind of market but with slightly lower values? Unfortunately the answer is no, particularly in smaller, more remote centres that are not near the 401 corridor. The reasons can be summarized as follows:

·         Lack of geographic appeal. (already a shortage of dentists in many areas)
·         Dentists work longer because they have to, or their patients will not be treated
·         Dental school admittance requirements do not take into consideration the need for dentists
        in remote communities (as they once did many years ago)
·         Foreign trained dentists in general wish to locate in large urban centres
·         Investing dentists avoid remote communities due to the difficulty in getting associates

We have recently been involved in a sale in Northern Ontario that I will use for illustrative purposes with a comparable to a very similar practice we sold just west of the GTA.

 

Northern Ontario

West of GTA

Gross

$2,060,000

$2,078,000

Sale Price

$1,300,000

$2,030,000

Sale Price as a % of Gross

63

98

Active Patients

4,300

4,200

Asset Value

$298,000

$368,000

Adjusted after tax net Income

$577,000

$454,000

Coverage Ratio

2.36

4.77

 

 

 

 

In the example above you will notice that these two practices are very similar. The production on a per-patient basis of approximately $500 per year is very similar indicating that treatment acceptance is reasonable and the results should be reproducible by most dentists. The adjusted after-tax net income is the income available to the owner after paying all overhead expenses, paying the dentist producers (including the owner) 40 per cent of their gross collections, and after paying the corporate tax that is due on Dentistry Professional Corporation income at the rate of 15.5 per cent. In essence, this is profit from ownership and is the amount that the owner will use to pay for the practice. The $123,000 difference in net income is typical of the difference in profit between remote practices and urban practices. This is due to much higher overhead for things like rent, common area expenses, and staff in urban practices. We are left with the coverage ratio which shows us how long in years it will take the buyer to pay for the practice if he or she were to use all the net income and not have to pay any interest. This is obviously not practical but it does show that you could pay off a practice in a remote community twice as fast as you could near a major urban centre. Stated another way, if you took 10 year loans for the purchase of both practices you would have approximately twice as much net income left over (after paying yourself as a dentist) in the remote practice.

This is a compelling financial argument for considering a practice in a remote community. There are many other benefits in a remote community to be considered as well:

·         Patients have very high regard for dentists
·         Patients are extremely loyal
·         Hours of operation are more reasonable--typically 9 - 5, four days per week.
·         Your cost of living will be less
·         Far less crime
·         Commute to the office is usually measured in minutes not hours
·         More favourable work/life balance

I am aware that there is some awareness of this situation with organized dentistry. I believe the CDA has begun analyzing this as there will definitely be an increase in the shortage of dentists in remote communities in the future. I would urge dentists who are frustrated with the bidding wars that go on in the GTA, or dentists that just want to get out of the “rat-race” and live a more balanced life, to consider the remote communities across Canada as a very viable option.

David Lind is a Principal in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices.  He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at:david.lind@ppsales.com

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