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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 79: Is It Time to Move?

Download the PDF version now!

Recently we have been consulting with a couple of clients that have been faced with the decision of moving their practice late in their careers. This article is primarily directed to dentists faced with this decision who are contemplating a sale within five years. If you have more time, then other factors will guide your decision.

One of the biggest contributors to value in a dental practice is its location. Naturally a poor location is also one of the biggest detriments to achieving the full potential value of the practice. The other factor that is increasingly becoming a big impediment to value is a “bad” lease. A bad lease is one that will not give you and the future owner of your practice unfettered access to the premises for at least 10 years. Unfettered means no demolition clause, reasonable assignment clause, and reasonable renewal language. Also, if there is a re-location clause, it must be at the landlord’s expense and to a location that is similar in exposure and access as the current premises. If you don’t have these attributes in your lease you have some tough decisions to make. If you don’t know, you should find out!

The first and least expensive option is to retain a lawyer or lease negotiator and try to fix the problems in the lease. This is usually attempted at renewal time. Landlords are quite reluctant to remove or amend clauses that give them flexibility, but it is worth a try.

If that fails, then you must decide whether you stay in your current premises or consider moving to a nearby location. Moving a dental office is a very expensive and time consuming undertaking. An average four operatory office would cost $250,000 to $300,000 to build out plus any new equipment that was required. Therefore, the first consideration is, can I stay and what happens to my practice value if I do.  Every circumstance is different, so I will generalize in order to be brief. The decision to stay is based upon the notion that if you move, you would not recover the cost to move in the event of a sale in the near future. To determine this you must know what your practice is worth now, in the current location, with the bad lease, and then project what it would be worth in a new location with a good lease but after spending hundreds of thousands of dollars to move. If you stay, you will run the risk of being asked to leave at some point in the future. If you have a modest practice billing $400,000 or less, this may be your best choice. A practice like that is considered a good “bolt-on” acquisition for a local dentist who may have excess capacity in his/her premises. I wrote about mergers being a viable option in issue 54 of the Professional Advisory (Please send me an e-mail if you’d like a copy). Further, the costs involved to relocate a smaller practice are disproportionately expensive so it would very likely be better to stay, take the risk, and merge when the time comes.

On the other hand, if you had a bigger practice, like the two that we have been working with, the decision to move becomes easier. In one case, the practice was located in a high-end indoor mall on the retail concourse level.  The landlord did not want to renew the lease, so bumped up the rent significantly and would not offer more than a three year term. The landlord proposed moving to an adjoining business tower. Our clients rent would drop by 75 per cent! We analyzed the current and new patient data. We determined that it was a traditional non-assignment office that got 90 per cent of its new patients by referral from existing patients. The existing patients were loyal, compliant, long term patients that we hypothesized, would not mind the extra 100 yard walk indoors to the new office. The old office was dated and had no natural light. The new office is fresh, modern and has natural light in each operatory. The investment this client made will be completely recovered in the event of a sale due to the long term lease and dramatic improvement in cash-flow.

In the other case, the client has a very strong solo practice with exceptional business metrics. He has been in a location that has had a demolition clause in the lease for many years. We valued the practice several years ago and reduced the value due to the demolition clause as most buyers would move it out of that location. His lease is now up for renewal and there is a suitable office to move to in the next building. We analyzed the cost-benefit of moving and determined that by removing the dark cloud of the demolition clause, creating a new fresh office with some modern technology, and doing all this a couple of years before he sells will yield very positive results. The investment will increase the value by more than enough to offset the cost.

As I mentioned every situation is unique. There are people that can help you analyze your specific circumstance to help you make intelligent decisions at a critical time in your professional life. Draw on the experience of your lawyer, accountant and broker to advise you.

David Lind is a Principal and Broker of Record 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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