Volume 85: Creating Your Own Most Valuable Practice (MVP)
Many of us have unrealistic expectations about how much our possessions are worth. Houses, cars and toys are examples of things we all know fall into this category. But, what about your practice?
Rarely does a day go by that I don’t talk to someone about how much his/her practice is worth. The majority of dentists think his/her practice is worth more than it is. Why is this? Part of it can be attributed to the fact that in most parts of Canada, we have experienced fairly rapid growth in the value of dental practices. I also believe that the “endowment effect” can be a factor since people, at times, tend to ascribe more value to things simply because they own them including their dental practices. This may create a dangerous situation for sellers and buyers of dental practices as there is occasionally a disconnect between the sellers’ expectations and the buyers’ willingness to meet the expectations.
Rather than debate how much your practice is worth, it is more productive to look at the factors that create real value in a dental practice. Then, spend time enhancing or incorporating these factors into your practice to create value that buyers will see, appreciate, and happily pay for.
Let’s start by comparing practices on extreme ends of the spectrum: practices that enjoy high demand versus those with the lowest demand. Practices in highest demand are larger practices in a good location with a large patient base and modest billings per patient. They will have a good lease with no demolition clause, an up-to-date facility but not “over the top”, and a very strong profit margin. These practices will sell for the highest multiples which can be expressed as a multiple of gross or earnings or a combination of the two. They will likely receive multiple offers and the seller will be able to stay and practice as an associate on whatever terms they wish.
In contrast, practices which have much lower demand tend to be smaller practices in low visibility locations, with fewer patients and high billings per patient. Often, they may have a less desirable lease and tired facility with older equipment. The current owners may be quite happy in their practices and may make decent livings, however, these practices will not appeal to many buyers. When a buyer adds in the cost of paying back the loan to buy the practice and upgrading the facility, it is unlikely that the practice will provide the buyer with a good living. There is a common sentiment that “there is a buyer out there for everything” – I assure you that there are some practices that do not sell at any price.
So, how do you make sure your practice falls into the first category? First, acknowledge that not everyone has the skills to own a big dental practice (or wants to own a large practice). It is a lot of work and you have to have the right professional and interpersonal skills to manage it. Some honest personal reflection may help in determining where you fit.
Recently, we were engaged to assist a dentist who owns two practices with a combined 8,000 patients. His words when describing his treatment philosophy were “we are really pretty conservative, some of these people have been coming here for 40 years, we don’t over bill and treat them like family...the practices just seem to grow on their own.” He is obviously very humble and I’m sure his calm demeanor is a big reason in helping his practice “grow on its own”.
Aside from creating value as outlined above, what are the great intangibles in dentistry? Why do patients refer their friends and family to this doctor and not to the many other dentists in town? This dentist does not even have a website or any social media accounts but, despite this, the practices just keep growing! Sadly, there are no courses you can take to learn these intangible factors. However, you can glean insight from this particular dentist’s words, those of your colleagues and others you admire in dentistry. The key to building rapport with patients is how they are treated by you and everyone they interact with in your office. It is this rapport that evolves into trust which, in turn, creates referrals.
These intangibles are very easy to see when we prepare our valuations. The patient files are thick (if they’re still paper), thank you notes are plentiful, staff are paid fairly and stay around a long time, the principal dentist is happy and smiles a lot, there is no free whitening offered, the facility is clean and up to date, and the billings per patient are modest. Not everyone can have 8,000 patients, but by focusing on the factors mentioned above, you will begin the journey of creating your own MVP (Most Valuable Practice).
David Lind is a Principal and Broker of Record in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: email@example.com
The Professional Advisory
- Understanding Practice Valuations
- What To Expect When Selling Your Practice
- The Chart Sale
- One Year Later
- Dealing with Unsolicited Offers
- Covid-19 Practice Sales Update
- When is the Right Time to Sell Your Practice and Why?
- Partnership Pitfalls
- The Real Cost of a Dental Practice Set-up
- Smaller Practice Realities
- Dental Market Update - 2019
- Creating Your Own Most Valuable Practice (MVP)
- Small Practice Economics
- The Market is Very Efficient
- How Can Dental Practice Values be Rising and Declining?
- Hygiene as a Value Driver
- The Value of a Good Team
- Is it Time to Move?
- Staging A Dental Practice
- The High Cost of Dying
- Patients - Attract and Retain
- Should I Stay or Should I Go?
- Is There a Buyer for Every Practice?
- Good, Better, Best - The Market has Spoken
- Buying Time
- Patients, Patience, Patients
- A Real Patient
- Why Do a Practice Valuation? I'm not Selling
- Irrational Exuberance or The New Normal?
- Do dental equipment and dental technology affect a practice value?
- Finding and Being a Mentor
- Bigger is Better
- Dave's Top Ten List for Buyers (Vendors should read this too!)
- How Well Do You Know Your Practice?
- Dave's Top Ten List for Vendors
- What will happen to dental practice Values in the next 10 years?
- Your Premises Lease is an Important Asset
- What are Associates Thinking?
- There is Life Outside the GTA
- When Is the Right Time to Sell My Dental Practice?
- Mergers are a Viable Option
- Is Your Associate an Asset or a Liability?
- Has your Practice Facility Kept Up With Your Billings?
- The 100 per cent of Gross Myth
- The Past, The Present and The Future
- Caveat Emptor
- Overpaid Long Term Staff
- Selling your Practice in Stages
- A Potential Pitfall of Selling Shares
- Value in Your Practice Through Balance
- Only Trusted Staff Can Defraud You
- To Own or Not to Own Practice Real Estate? That is the Question.
- Coping With A Large Patient Base
- Successful Dental Practice Transitions
- Taking Care of Business
- The Investing Dentist Phenomenon
- Two areas to focus upon that could negatively impact the value of your practice
- Organize your Debt in Order to Sell your Practice
- Having a Better Team
- How Do I Prepare My Practice For Sale
- How Do I Prepare My Practice For Sale? Part 3
- How Do I Prepare My Practice For Sale? Part 2
- How Do I Prepare My Practice For Sale? Part 1
- Advice to My Son or Daughter Graduating from Dental School
- Transition - What to Expect
- Discussion on Digital X-Rays
- Partnerships and Shotguns
- Strategic Planning - How to Get Started
- Calling All Vendors - Practices have Gone Up in Value
- Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
- Matrimonial Practice Valuations
- Purchaser's Guide to Affording a Practice
- Location Improvements Throughout Your Career
- Small Practice Valuations
- Partnerships – The Best and The Worst
- Changing Location When the Opportunity Comes Along
- Visual Presentation of Your Practice
- Presentation of Charts
- Your Premises Lease Can Be Your Worst Enemy
- How to Select an Appraiser for Your Practice
- How Are Your Billing Ratios?
- It Pays to Invest in Your Tangible Assets
- The Importance of Separate Financial Statements
- Five Time Frame Levels to Sell a Practice
- 12 Suggestions to Safeguard Computer Data
- How to Buy a Visible Practice
- Why is there a shortage of good practices today?
- The Importance of Equipment in the Purchase of a Practice
- The Balanced Practice
- Will My Practice Be Saleable in The Future?
- Buyer Be Aware
- Excess Profit - The Second Key
- Patients and Profits are the Keys
- Plan Ahead