June 27, 2017
How Can I Make My Dental Practice More Valuable?
If you are considering selling or transitioning your dental practice, increasing the value of your practice is — or should be — a priority. It can be difficult to know how to find the time to make changes in your dental practice. However, it is very important you take the time to get your practice and facility in the best financial and operational shape possible. Since it is a buyer’s market, only the best practices will sell, and the great ones will sell at a premium. Here is an overview of how to get started.
Start with a practice appraisal
The first step in increasing the value of your practice is in understanding the value of your practice, which comes from a practice appraisal. There are many factors used in calculating the value of your practice. At Professional Transition Strategies (PTS), we use the most effective method of calculating your practice’s worth by looking at both attributes and challenges and how they have impacted the success of the practice. Some of the factors used include:
- The practice’s location, visibility and population of city or town.
- Type of medicine or dentistry, revenue sources and active patient base.
- Growth potential.
- Patient attraction and retention rates.
- Reason for sale of practice.
- Projected patient and revenue retention after the sale.
- Condition and age of medical and dental equipment based on wear and tear, as well as technological advancement.
- Office decor and condition.
- Long-term trends of the practice’s revenue and profit margin.
It is important to note there are two ways to classify assets: hard assets and goodwill. Hard assets are things like equipment, supplies and furniture, whereas goodwill refers to a doctor’s status within a community, the practice name, location staff loyalty and longevity, and brand awareness and marketing.
The more the seller allocates toward goodwill rather than hard assets, the fewer taxes they pay whenever a transaction closes. For example, a $500K sale with a 50% goodwill allocation will pay $113 in taxes; however, if you have 80% allocated to goodwill, you only pay $70K in taxes.
Once you understand the value of your practice, you can look for ways to increase the value before you plan to sell. There are many ways to increase the value of your practice, but we have found the following to be the most successful.
Offer different treatments
For instance, if you are not currently doing implant work, orthodontic treatment or extractions, start offering those services.
Increase top-line revenue
If you don’t want to start expanding your services, increase your top-line revenue. This can typically occur through different marketing methods, such as paid advertising, guerrilla marketing and associates you can network with. Make sure to show a track record over multiple years.
Lower your expenses
Lower your expenses, as long as it does not come at the cost of your top-line revenue or your patients. Please note this is typically the most difficult strategy.
Upgrade your facility
Keep in mind you won’t get dollar for dollar through this method. Therefore, only go this route if you plan on practicing longer and are not merely redecorating to sell your practice.
Acquire or merge
Acquire or merge with another practice for economies of scale. This strategy will allow you to grow exponentially whenever there are more than four practices in combination.