November 18, 2019
6 Factors to Consider When Selling Your Dental Practice
It’s easy to talk in hypotheticals when thinking of selling your dental practice, especially since you should start the process as early as five years out, but there are a lot of considerations you’ll want to get on your radar sooner rather than later. Having a prospectus in place will help you assess the fair market value of your practice before entertaining offers. Here are some factors you’ll want to consider to know what changes need to be made to appeal to potential buyers.
In addition to office equipment, furnishings, instruments and supplies, the going concern value of a dental practice that is presented during the prospectus process includes demographics of its practice and patients. This includes patient records, such as active versus inactive patients, the average number of new patients per month, and the number of new patients during the most recent 12-month period.
In relation to demographics, the location of your practice must complement the patients in the area. You’ll want to consider average income level, age, economic growth or decline, location of the competition, and even traffic surrounding the practice. If these factors are not appealing to potential buyers, it might be time to consider a relocation before putting your practice on the market.
The process of valuating a dental practice before selling is not only necessary for the banks and buyers, but also valuable for assembling a prospectus. A proper valuation will include an appraisal, which will help the seller determine which transition option is best.
The financials that are involved in a sale include top and bottom-line numbers, most recent tax returns, a three-year weighted average of collections and production broken down by provider and procedure type, past three years of profit-and-loss statements, investments, list of insurance plans, current balance sheet, accounts receivable aging report, and a copy of the current lease, as well as return on investment.
While purchasing new equipment before selling your dental practice will add to the value of a prospectus, you won’t get a return on your investment dollar for dollar. Regarding hard assets, consider what you could get them insured for and the resell value, among other financial factors. Upgrading equipment, such as computers, office equipment and furnishings, and instruments and supplies, can help make the practice more attractive to potential buyers.
There’s more to a prospectus than hard assets, which are easy to quantify. However, the majority of a practice’s value — as much as 80% — comes from non-categorized assets for tax purposes, which include the doctor’s status within the community, practice name, location, staff loyalty and longevity, and brand awareness and marketing, all of which mean you pay fewer taxes at closing.
Contact the experts at Professional Transition Strategies to create a prospectus at no cost or obligation to you to get you started on the road to transition success.