Volume 67: Why Do a Practice Valuation? I’m not Selling

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We get this response from many dentists when discussing their practice and future plans. While it is a fact that you don’t need a valuation until you sell, there are many reasons that having a practice valuation that is regularly updated may prove to be a valuable part of your long term business planning. In addition, it may help to make your practice more valuable when you do decide to sell.

While it is the truth that most of our valuations are in response to a specific need, which may include selling, divorce, partnership splits, insurance or estate planning, we have many clients who are still 5-10 years away from selling, yet have a practice valuation, and they have it updated every year or two. Why would they waste their time and money, when it seems unnecessary?

First of all let’s look at the economics of a valuation. There is the initial valuation fee, which varies based on the size and location of the practice. Once this initial valuation has been performed, future updates (every 1 or 2 years), are typically performed at a fraction of the initial price, since the field work has been completed. It is common that since practices are generally stable, a valuation update within 1-2 years may not require a field visit, it may simply be comprised of adding new financial information, making equipment changes, and updating staff.

Secondly a practice valuation provides these dentists with valuable market and practice information that can be used to assist with the development and improvement of their dental practice. In a typical valuation, valuators will gather and analyze literally hundreds of pieces of information. This information includes a comprehensive financial analysis, premises lease analysis, location and practice demographics, a patients chart audit, procedure analysis, staff analysis, and equipment valuation. This data is then compared against other practices and the industry as a whole, and a market value is reached. Further if a valuation is then updated a year or two later, the data can be compared against the previous valuation to see how the practice changed and how the market has evolved.

In addition, when you conduct a practice valuation, you should hopefully develop a partnership with the practice valuators that will ensure that you have your pulse on the market and are made aware of market changes, innovations, and opportunities. The advice could include the implementation of a strategy to prepare your practice for sale, advice on transitioning, and ensuring your tax and legal structure are in place (we don’t give tax or legal advice), but work in conjunction with your accountant and lawyer to develop a comprehensive transition plan. Some of the market information that we may help you with include; market direction, changing location demographics, and emerging opportunities.

We have several examples of the benefits of a regularly updated valuation. Several years ago, we sold a practice that had been valued by our firm and updated regularly for the past 10 years. The practice sold at a nice premium, and all potential purchasers were pleasantly surprised that despite being over 30 years old, there was new equipment, updated technology (digital radiography, digital panoramic x- ray), and recently renovated premises. The selling dentist (who was almost 70 years old), credits our company’s founder, Graham Tuck, for pushing him to continue to invest in technology and to keep his practice current. This factor, along with the balanced financial metrics that we encouraged our seller to maintain, made a marked difference in the interest shown in the practice and the ultimate amount that was achieved.

We have another example where a prior valuation may have assisted. The practice in question had plenty of patients, but because the dentist had been planning for retirement, the production and more importantly the recall program had suffered. In response to this decline the dentist retained a consultant to improve the recall program. Unfortunately when this practice was valued and sold, the positive impact of the consultant had not really impacted the practice, and the steady decline in production created a negative perception that the practice was in trouble - as opposed to the dentist slowing down. If a valuation was performed earlier, the consultant could have been brought in earlier to refine the recall program. The results would have been slow steady growth instead of an unnecessary decline and the positive results would have been clear and proven.

A valuation performed by a reputable firm will take you to places you have never been in your practice. You will be enlightened by the results, some of which you may not want to know. However you should know about what is going on outside the operatory of your practice, just as much or more as what goes on inside the operatory.

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