There are typically two phases a dentist goes through when thinking about the value of their own dental practice. The first comes early, when a dentist is concerned with take home income—that is, “How much can I earn right now?” The second comes later, when the doctor begins to think about transitioning the practice. Then the doctor is concerned with “What is my practice worth?” The fact is, however, many things that determine what the practice is worth are built in early in a doctor’s career. Here are some important things to consider early on that will pay off when you are ready to put your dental office for sale.
Your Value is in Your Brand
“Brand” is a hot buzzword right now, as social media influencers are concerned about their personal brands. This sort of talk can be annoying. But remember what a brand actually is. It began as a mark to identify livestock (and, later, goods in commercial markets) to denote ownership and deter theft. Presently, the term has broadened to encompass an overall experience of a customer that distinguishes an organization or product from its competitors. For a dentist, it can be your own name, but it’s really about the good name your practice has, and your reputation among your patients, and in the community.
A strong brand is important for a dental practice for the purpose of attracting and keeping patients. Without it, it’s unlikely a practice will have a strong patient base. And while you may look at your practice and see deep patient files, lots of new patients each month, high referral and case acceptance rates, and a full appointment book scheduled out for several weeks, what you really have to offer when you put your dental office for sale, is a strong brand. That is what the buyer is paying money for.
This is important to consider early in your practice because you want a strong brand that is not explicitly tied to your name. If you open an office as John Doe, DDS, built a solid reputation of goodwill in the community, and are known as a provider of excellent care and quality service, what will happen when John Doe is no longer part of the practice? Patients will find a new dentist (studies have shown that up to 40% of patients will leave under these circumstances). Buyers know this and may not be willing to pay as much for a practice that is too explicitly bound up with a single dentist’s identity.
While you want to be known as a good dentist, it’s more important for the life of your practice to survive some inevitable patient attrition after the practice transition. This can be easy to address early in one’s career, when one’s name is less well known. However, even for established dentists, rebranding to a more general practice name that leverages existing affinities in the community is not a risky move and can get your more when you transition your practice. For instance, in Farmington, Utah, a historic hotel built from stone was refurbished and operated as “Rock Hotel Dentistry” to build on existing goodwill in the town’s pioneer heritage. Consider local affinities you can leverage in building your own brand.
Be Properly Organized as a Business
In a large corporation, each department has a head. In a small business, too often the owner tries to do it all. The fact is, as a practicing dentist, you can’t. You simply don’t have the time. This is why it’s important to have a solid organization with clear lines of responsibility and a consistent monitoring program, or else you’ll find details being overlooked and balls being dropped.
How you organize may be unique to your circumstance. However, you need to have structures organized for every aspect of your clinical care, operations, accounting, marketing, and personnel. You, of course, remain CEO and are ultimately responsible for everything. But this doesn’t mean that you can’t leverage your staff’s skills or outsource things such as marketing and accounting.
On the point of accounting, it’s more important than ever to have a solid set of well-organized and detailed financial records. Buyers are not content with a simple report of production and collections. They now want to review earnings before interest, taxes, depreciation and amortization (EBITDA), gross margins, assets, the lease agreement, and patient base. As with every aspect of your organization, the more prepared you are (and the sooner you start), the more likely you are to get what your practice is worth when your put your dental office for sale.
Once you have a smoothly running operation, it’s important to regularly review each part to see where you can refine processes and update your business systems. In part, you want buyers to be impressed with your efficiency and organization. But, importantly, this can translate into higher profits for your and a more quantifiable increase in value for buyers. In a study by Deloitte, businesses that use state-of-the-art business and human resource systems can average cost savings of 22% per employee. That kind of cost savings can be passed along through the practice transition, making your practice more valuable.
On the same point, up-to-date systems for re-care and reactivation will ease the transition for the new dentist, an attractive selling point. You can do the same with automated systems for submitted claims and receiving payments from insurance providers. For more one this, read our recent article about how back-office automation can build value for your practice.
Leave Profits in the Business
A common practice among small business owners is to pay the employees, pay the bills, and take the rest home. This might seem like a good idea in the short term, however, what it’s really doing is obscuring how profitable your practice is for potential buyers.
A better practice is to pay yourself a salary just as you would an associate, typically about 30% of collectable production. This makes your take home pay a predictable recurring expense, with the remainder of your practice’s net income as profit. Your numbers will be more clear and concise, with the value of the practice more easily ascertained—the profitability will be easily quantified in your financial records, how you need it to be when it’s time to show them to potential buyers.
Also, this method makes a clearer distinction between you, personally, and your practice as a business organization. This is important because, first, you don’t want to have a murky and confusing set of books to open to potential buyers. But, more importantly, the protections that come from limited liability are lost when the owners commingle business and personal funds and expenses.
DDSmatch Southwest Can Help You Prepare Your Dental Office for Sale
If you are considering transitioning your practice in the next five years, DDSmatch Southwest offers a free, no-obligation Practice Transition Assessment. During this assessment, we find out your goals for your practice transition and offer professional, experienced advice on how to best prepare to sell your dental practice, including potential investments or improvements to increase value. We never advise a doctor to change for the sake of change, but only where we see areas that will add value in a sale.
Contact us today and arrange for your free Practice Transition Assessment.