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Volume 52: Has your Practice Facility Kept Up With Your Billings?

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Back in November 2005 I wrote about this same topic and the rules have not changed.  You may have started out with two operatories and grown to three or four but you may be in the same location.  Neighborhoods change, have you? If your practice is now worth a million dollars does your practice look like a million dollars?  One can get used to the same four walls but you should step back and critically look at your practice as others would see it.  A valuation would do the same as if new eyes were looking at your practice.

Major renovations should generally take place after 20 years to modernize your practice’s appearance.  This does not mean just changing the colour of the paint.  Today the reception area and the waiting room tend to be combined into a more open concept layout.  No more sliding glass panels. A good indicator that suggests a change would be a positive step is the percentage rent you are paying.  Rent is normally five to seven per cent of gross.  If you are down at three per cent perhaps you should have more space or should move to a different, newer location. Another clue that a new facility would be a positive move is that your patients have migrated away from your current location.

Sometimes a move might be initiated by the opportunity of a nice new building with an available ground floor location or the space next door becomes available and you could expand and still control your costs. Lack of operatory room is also a good sign that you need more space.  A rule of thumb is that you should have an operatory for every $300,000 in billings, with a minimum of two operatories.   If your gross billings are $1,300,000 then you should have a minimum of five operatories.

Without moving or expanding, you will be trying to sell your practice in its original location that is 30 to 40 years old.  This is not what purchasers are looking for. The trick is to move soon enough to be able to write off the leasehold changes against your income by the time you sell your practice.  The office space should still look good and contemporary for the purchaser and you will have paid it off.  When you sell shares you would not have any recapture for tax purposes. Certainly, it is an additional capital investment to move but in the long run you will find it stimulating and rewarding. Now is the time to have larger operatories, a staff room, a private office and a more visible, appealing practice for your patients. Moving is also an opportunity to invest in your practice.  A good rule of thumb is that the tangible assets of the practice should have a value of about 25 per cent of your gross billings.

Typically, if the practice is not contemporary in its appearance then it gets merged into a larger practice and you move with the practice for a year or two to transfer the patients to the new practice. Thinking forward five to ten years is like having your practice “staged” as vendors do when selling their homes today.  I would guess that the opposite is also true if your practice has gone down in its production – then there is little need for you to move.  Save your money and concentrate on enhancing you practice by attracting new patients.  If the ethnicity of your community has changed and the neighborhood prefers a different nationality you may have to think of moving to a neighborhood that would feel more comfortable with you.  Sometimes this can be accomplished by purchasing a practice in a desirable location rather than setting up a new practice facility.

One thing I have found is that a new or different facility is upbeat.  Recently a practice that we had for sale, which was in one of those old second floor locations that would be hard to sell, we moved to an existing vacated practice at a cost of about $20,000 to move.  He received an additional $80,000 over his value in his old location.  Originally the vendor wanted to sell and leave shortly thereafter but with the new location he sold and will be staying on for two years.  It gave him a new zest for dentistry.  

Graham Tuck, H.B.A., C.A. is the broker of record for Professional Practice Sales Ltd., which specializes in the valuation and sales of dental practices.  He can be reached at   (905) 472-6000 or 1-888-777-8825 or e-mail at:grtuck@ppsales.com

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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