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Volume 38: Two areas to focus upon that could negatively impact the value of your practice.

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1) First, is there a risk of a hygiene practice soliciting your dental hygienist to join their practice with your patients?

I am writing this article, not to give you legal advice, but to draw your attention to the risk. We are in the process of our first sale agreement whereby the vendor is responsible for having his hygienists sign a reasonable restrictive covenant and / or non-competition regarding non-solicitation of his patients. Think of this as the “writing on the wall”.

Barry Spiegel LL.M. and David Rosenthal LL.B. have written excellent articles in the Professional Advisory in #28, #31, #32 and especially #33 regarding this issue. I suggest you read these articles and take whatever steps you see necessary. If you have not retained these booklets, e-mail me or David Rosenthal to send them to you.

2) Second, the impact of the slowing economy.

Depending on your community, your patients’ economic situation and the quality of your patient base, the economic downturn can have an impact on your practice value. If you have a good balanced practice, i.e., reasonable billings per patient and controlled costs, it is possible that the downturn will have little or no impact on the value of your practice.

 If you are anticipating that your billings and patient base are going to have a true downturn, e.g., an Oshawa practice, then you should expect a reduction in the value of your practice. Now is the time to try to resurrect some of the patients that fell off the wagon in the past three or four years, and for whatever reason, haven’t been in your practice. 
 

Most practices that are not in a vulnerable community should only experience a five per cent drop in billings. This is where a strong front desk or booking person comes into their own. You will recall that in Volume #36 I was talking about having a star on the front desk. Now is time you need a star to keep the billings up and your chairs filled.

The reality today is that patients and profits make value. If billings are down, can you reflect a similar reduction in costs? The worst impact is that billings go down and costs go up. Reality may be that if you are not experiencing increased billings maybe there is no wage increase for the staff.

If you are experiencing unfilled time slots in the hygiene department I would expect that a reduction in overall hygiene days would be a solution, as I see very few dental hygienists being paid on a percentage of their billings.

We are not yet seeing any reduction in value for practices being sold. At this time purchasers are still happy to pay a fair market value to get a practice. The risks involved in starting a practice from scratch are still greater than the possible reduction in production in the practice they purchase. We have been approached by a few dentists to put their practices on the market to solidify the equity in their practice and they would stay on for a longer than normal transition.

At this time I am not aware of any further reduction in the 16.5 per cent professional corporate tax rate. If there is a reduction in taxes this should increase the value of the practice to offset some of the reduction in profit, or at least modify the effect of any reduction in profit. We will include in future issues of The Professional Advisory any changes in the corporate tax rate. Practices that have emphasized strong relationships between the patients and the dental team should better weather any downturn in the economy. Practices with a high patient base relative to the production numbers will outperform those practices with a limited patient base that have high billings per patient. In fact now is the time to do some of those procedures that you never had time to do in the past.

Remember:

a) Good basic dentistry is the bread and butter of most practices. Cosmetic dentistry, implants, full mouth reconstructions are great skills to have but may be the first to be dropped in hard times.

b) A downturn in the economy will not impact all practices the same way. Be one of the winners.

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

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