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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 65: Do dental equipment and dental technology affect a practice value?

Download the PDF version now!

In our business as dental practice valuators, most of our practice valuations are for dentist’s who are not planning to sell their practices for at least five years, but want to make their practice more valuable for the future. We are constantly asked about whether or not the adoption of new equipment and or technology can increase the value of a practice.

The short answer is; Yes, under favorable conditions, the adoption of new dental equipment or technology can increase a practice’s value beyond the value of that specific piece of equipment. This fact actually creates goodwill in the practice, which is the goal of dental practice owners. From a practice valuation standpoint, the reason that a practice value may change is due to the possibility that the equipment or technology somehow affected practice cash flows and earnings.

When researching this article, one of the dentists I spoke with said that the successful adoption of technology into his office let him do in two hours what it formerly took him an entire day. He called this success, his offices “Techwill”.

In a typical dental practice valuation, the typical value of equipment (excluding leasehold improvements, and supplies) relative to a practice’s total value is approximately 10-15 per cent. Therefore relative to the entire practice, equipment and its contribution to a practice’s performance is sometimes overlooked. There is a significant investment in equipment that is functional in nature – compressor, cabinets, chairs, X-rays, handpieces etc. – which are required to operate a general practice. And then there is the other category which may include new or high technology. The acquisition of the functional equipment is necessary to keep a practice operational and it needs a proper budget allocation for eventual updates. But it is the adoption of technology that needs to be well planned, because if the investment fails, there is a cost to your practice. I believe that your goals should be to remain current with technological advancements and to determine if they fit your practice, as well as the possibility of a return on the investment.

While there are advantages to the adoption of new equipment and technologies, there are occasions where having too much, the wrong type, or unused equipment will detract from the value of a practice due to depreciation inefficiencies. In addition, if the technology is overly specific, there may be a limited number of buyers who will place value on that technology. Also, just because an asset doesn’t add value, it may enhance your clinical satisfaction, and make you happier to go to work, which is priceless.

The most important factors to equipment and technology decision making should be: 1. Does it have a clinical advantage? And 2. Does it have a benefit for my patients? Once that is determined, and you are confident in the technology, the financial portion of the evaluation of the asset can begin.

Here are some examples of very generic purely, mathematical models of how a piece of technology can affect practice value. Let’s takes a practice that we valued in 2014. The practice was valued at just over $900,000, and had all factors in balance - good production, good patients, good profits and good location. If we simply made the following adjustments to the input factor in our valuation template here is what we found:

Example 1
If this practice had a four year old Intraoral Digital Radiography system valued at $15,000 and produced savings of approximately $8,000 per year in film and time costs, the value of that practice would have increased $23,000, or $8,000 in goodwill.

Example 2
If this practice had a four year old Digital Panoramic system, valued at $30,000, and its revenue less loss revenues from FMX, was $4,000, the value of that practice would have increased by $39,000 or $9,000 in goodwill.

Example 3
If this practice had a four year old CD/CAM system valued at $65,000, and produced $30,000 in lab savings per year, the value of the practice would have increased by $102,000 or $37,000 goodwill.

Example 4
If this practice had a four year old CAD/CAM system valued at $65,000, and it was unused, the value of the practice would have increased by $47,000, a decline of $18,000 of goodwill. These examples are very simplistic, as maybe other factors changes in the practice that may not have been exact, however, if cash flows can be improved, practice values can be increased.

These examples are not the only examples of equipment enhancements, as there may also be equipment that I have missed, including cone beam Panoramic X-rays, soft tissue lasers, office expansions to add capacity, cost savings due to time savings, etc. In addition, I have not considered the tax or financing considerations of these decisions, as those matters should be dealt with by your accountant.

In addition along with the possible practice enhancers, because we are in a more competitive dental environment, there may be an advantage to consider technology. In some cases, it may also help attract or retain patients due to the perception of being a technologically current practice.

In summary, your equipment and new technology plan should receive as much attention as your marketing, practice management, and clinical areas of your practice. The goal is to create an equipment plan that has budget to replace and update functional assets, and a budget or strategy to review the costs versus benefits to your practice to possibly take advantage of the currently available technology. I hope that down the road some if this new technology will help you to create your own practice “Techwill”.

Colin Ross MBA, is a Partner 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: colin.ross@ppsales.com 

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