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Medical Practice Sales, Appraisal and Financing

Medical Practice Sales, Appraisal and Financing

Are Revenues Increasing or Decreasing?
One of the first attributes of a dental practice which buyers and lenders will consider is the "revenue trend." Is it going up or down? While general business volatility is common, declining revenues will likely have a negative effect on marketability and financeability. Buyers can become trigger-shy, questioning whether the practice will continue to decline after closing. In contrast, a practice which is actively increasing revenues generates excitement on the part of the buyer. This can boost the real and perceived value of the practice, making funding approval easier to facilitate at a more robust valuation.

Practices with flat or slightly decreasing revenues are still quite sellable, provided that they are priced reasonably relative to other opportunities. Realistic and fair pricing will prevent buyers from being turned off immediately and avoid the possibility of the practice stagnating on the market. This approach can also make for a smooth and expedient transaction process. Furthermore, it will help to reduce the time required for due-diligence and negotiations, and decrease the possibility of a deal falling through.

Updated Dental Equipment and Facility
While the practice financials are often considered to be the most important factor, the condition of the facility and equipment can be equally important to a dental practice buyer. Imagine a buyer who has found a practice in a desirable location with a robust earnings stream. Upon visiting the practice, the buyer walks into a modern and comfortable setting with upgraded operatories. This can be the icing on the cake for many buyers. There is no better motivator for a buyer than finding an opportunity where the road has already been paved for continued success and growth. In addition, buyers and bankers will have a greater level of comfort knowing that deferred maintenance will not be a significant drain on future cash flow.

While updating the office may be the ideal scenario, it is not a required step in selling a dental practice. Sellers may need to re-calibrate their expectations based on the premium their practice will fetch and the time to achieve a successful transaction. Naturally, a true "turn-key" situation can be the most attractive situation for the overwhelmed new buyer.

Stable and Competent Staff
Another critical area of focus is the stability and quality of the staff. A well trained and effective staff can help a dentist buyer to "hit the ground running." This will go a long way to ensure a high patient retention rate. Stable and effective staffing is a key foundation for a strong new patient flow and increasing revenues. However, staff management is one area where many dentists struggle. High staff turnover, or even the absence of staff, i.e. "I do all my own hygiene because I can't afford to pay a hygienist," does not always bode well for potential buyers. This may not kill the deal, but it can cause a buyer to make a "low-ball" offer. The new buyer will likely be overwhelmed as it is, so the less "hats" they have to wear at the inception, the better.

What to do next
How do you increase revenues, update the facility, and retain stable and competent staff? While not all steps are required or may be achievable within a short time-frame, it is crucial to begin the process early and being taking small steps progressively as the exit window approach. Pre-sale planning is especially important in dental markets where a multitude of opportunities are available to potential buyers. Here are some thoughts on where to begin:

  • Improve the recall system and efficiency
  • Begin a well-planned referral marketing campaign
  • Develop a plan to update your facility and equipment
  • Develop a plan to proactively train and retain staff (critical for practice stability)
  • Consider obtaining a dental practice appraisal to establish a basis for a fair market value

Charles Kim, is a dental practice broker at Transition Consultants, a healthcare practice merger and acquisition firm. Mr. Kim provides transaction advisory and dental practice valuation services to dentists and dental groups nationwide. He can be contacted at 800-416-2055 (x224).

 

Written by Transition Consultants

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