Volume 6: The Balanced Practice

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Although profit and patients are the main driving forces for determining a practice’s value, they aren’t the whole story. It is very difficult to take a good older practice with old equipment and old leaseholds – even one with low, low overheads – and come up with a value that truly reflects the high income generated by the practice. The bottom line is that it’s important for a $500,000 practice to look like a $500,000 practice.

A balanced practice is one in which the value of the assets (equipment and leaseholds) is a material portion of the total value, somewhere in the 30% to 60% range. If your practice is not balanced, you can’t expect to achieve top dollar when you go to sell it.

Investing in your practice as you proceed through your career is the easy way to keep your practice up to date. For example, pre-Harvey Chemoclave 5000 sterilizers are undoubtedly a deterrent when selling of your practice. State-of-theart today requires a Statim or Tuttnauer high speed sterilizer. Without current equipment, the value of your practice will be affected.

After 20 to 25 years, a total remodeling of the practice is generally required. For example, the old “hole in the wall” for the receptionist is not where it’s at today. Today the reception area projects into the patient seating area. Of course, colour, texture and flow are also part of the visual impact of the practice. Many practices are making the new Triangle Sterilization Centre the centre of attention in the office. The centre is certainly expensive and smaller practices cannot easily afford one. However, these smaller practices are not trying to have a value of $500,000 or $750,000. A $300,000 practice would not be expected to have such a centre.

New practices have the opposite problem: they are all assets with limited patients and profit. Again, this is an unbalanced practice. A purchaser would look at the potential growth of both patients and billings when assessing the future viability of such a location. It is hard to sell “potential”: it’s not concrete and depends on the purchaser’s ability to draw new patients through advertising and word of mouth.

Purchasers look first at the facility, then at the profitability. First impressions are extremely important. Recent graduates, however, are looking at patients and profit: if they are there, one can easily change the facility, though there is a cost to do so.

In northern Ontario practices, this is even more important as it is easier to open a practice without purchasing assets if the area is under-serviced. I can recall a northern cottage-country practice that did not sell until the vendor put in a used contemporary operatory.

To realize the full value of your practice when the time comes to sell, ensure it is balanced. While profits and patients are important, many purchasers want to see assets before they’ll agree to buy.

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