Volume 21: Small Practice Valuations

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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.

The Professional Advisory

  1. One Year Later

  2. Dealing with Unsolicited Offers

  3. Covid-19 Practice Sales Update

  4. When is the Right Time to Sell Your Practice and Why?

  5. Partnership Pitfalls

  6. The Real Cost of a Dental Practice Set-up

  7. Smaller Practice Realities

  8. Dental Market Update - 2019

  9. Creating Your Own Most Valuable Practice (MVP)

  10. Small Practice Economics

  11. The Market is Very Efficient

  12. How Can Dental Practice Values be Rising and Declining?

  13. Hygiene as a Value Driver

  14. The Value of a Good Team

  15. Is it Time to Move?

  16. Staging A Dental Practice

  17. The High Cost of Dying

  18. Deal-Busters

  19. Patients - Attract and Retain

  20. Should I Stay or Should I Go?

  21. Is There a Buyer for Every Practice?

  22. Good, Better, Best - The Market has Spoken

  23. Smooth-Sale-ing

  24. Buying Time

  25. Patients, Patience, Patients

  26. A Real Patient

  27. Why Do a Practice Valuation? I'm not Selling

  28. Irrational Exuberance or The New Normal?

  29. Do dental equipment and dental technology affect a practice value?

  30. Finding and Being a Mentor

  31. Bigger is Better

  32. Dave's Top Ten List for Buyers (Vendors should read this too!)

  33. How Well Do You Know Your Practice?

  34. Dave's Top Ten List for Vendors

  35. What will happen to dental practice Values in the next 10 years?

  36. Your Premises Lease is an Important Asset

  37. What are Associates Thinking?

  38. There is Life Outside the GTA

  39. When Is the Right Time to Sell My Dental Practice?

  40. Mergers are a Viable Option

  41. Is Your Associate an Asset or a Liability?

  42. Has your Practice Facility Kept Up With Your Billings?

  43. The 100 per cent of Gross Myth

  44. The Past, The Present and The Future

  45. Caveat Emptor

  46. Overpaid Long Term Staff

  47. Selling your Practice in Stages

  48. A Potential Pitfall of Selling Shares

  49. Value in Your Practice Through Balance

  50. Only Trusted Staff Can Defraud You

  51. To Own or Not to Own Practice Real Estate? That is the Question.

  52. Coping With A Large Patient Base

  53. Successful Dental Practice Transitions

  54. Taking Care of Business

  55. The Investing Dentist Phenomenon

  56. Two areas to focus upon that could negatively impact the value of your practice

  57. Organize your Debt in Order to Sell your Practice

  58. Having a Better Team

  59. How Do I Prepare My Practice For Sale

  60. How Do I Prepare My Practice For Sale? Part 3

  61. How Do I Prepare My Practice For Sale? Part 2

  62. How Do I Prepare My Practice For Sale? Part 1

  63. Advice to My Son or Daughter Graduating from Dental School

  64. Transition - What to Expect

  65. Discussion on Digital X-Rays

  66. Partnerships and Shotguns

  67. Strategic Planning - How to Get Started

  68. Calling All Vendors - Practices have Gone Up in Value

  69. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates

  70. Matrimonial Practice Valuations

  71. Purchaser's Guide to Affording a Practice

  72. Location Improvements Throughout Your Career

  73. Small Practice Valuations

  74. Partnerships – The Best and The Worst

  75. Changing Location When the Opportunity Comes Along

  76. Visual Presentation of Your Practice

  77. Presentation of Charts

  78. Your Premises Lease Can Be Your Worst Enemy

  79. How to Select an Appraiser for Your Practice

  80. How Are Your Billing Ratios?

  81. It Pays to Invest in Your Tangible Assets

  82. The Importance of Separate Financial Statements

  83. Five Time Frame Levels to Sell a Practice

  84. 12 Suggestions to Safeguard Computer Data

  85. How to Buy a Visible Practice

  86. Why is there a shortage of good practices today?

  87. The Importance of Equipment in the Purchase of a Practice

  88. The Balanced Practice

  89. Will My Practice Be Saleable in The Future?

  90. Buyer Be Aware

  91. Excess Profit - The Second Key

  92. Patients and Profits are the Keys

  93. Plan Ahead