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How Do I VALUE Your Dental Practice?

By September 8, 2020December 15th, 2021Buying a Practice, Selling A Practice

Location + Metrics + Opportunities.  Give me those 3 things, and I’ll give you a range of what your practice could sell for at that particular moment.

How do I know?  Because at DMC LLP, we have been preparing, marketing and sell dental practices for a number of years on our listing website,  So let’s get into it, shall we?  P.S., in this blog HERE, I talk about how I SELL a dental practice, which is different (I talk about the process for a buyer/seller and the context).

Let’s talk about Location:

  • Where is your dental practice located?  Obviously, if it’s at a busy intersection of a growing town or city, that’ll be more attractive than “in the boonies” (as we used to say).
  • Ground floor?
  • Strip plaza?
  • Professional medical building?
  • Free parking?
  • Good signage?
  • Residential developments nearby?

The idea is that practice in prime real estate locations (nowadays, that’s strip plazas with good signage and free parking near  residential neighbourhoods with up and coming developments) will be most attractive.

Let’s talk about Metrics:

  • In terms of the physical space: how many square feet?  Operatories?  Total Rent?  Years left on the lease?  Renewal Terms?  Is the land and building owned by the selling dentist (better for a buyer to purchase than lease out space)?  Does the lease have an early termination right in favour of the landlord or the dentist (e.g. in case of death or disability or sale, or perhaps in the case of demolition)?  Is there a relocation clause in the lease?
  • In terms of the practice’s resources: how many days is the practice open per week?
  • In terms of the financials: what’s the practice billing vs. collecting?  What are Accounts Receivables At?  What is the CASH FLOW or EBITDA (earnings before interest taxes depreciation and amortization) at?
  • In terms of the team: how many team members do you have?  Are they on contracts?  Does those contracts limit your or a buyer’s ability to terminate them and pay them only what the Employment Standards Act, 2000 provides for (vs. common law, which is much worse)?
  • In terms of the patients: good diverse group of patients (in terms of ethnicities, languages spoken, backgrounds, income levels)?  How many patients came last year?  In the last 2 years? How many patients are active and have a tendency to come each year?
  • In terms of treatments: what percentage of production is hygiene (a healthy figure is at least 30-40%)?  What % of production is preventative vs. restorative vs. surgical vs. specialties?  What treatments are being referred out, how many and how often?  Does the practice place or only restore implants?  What kind of endos are being done?  What kind of ortho is being offered (traditional brackets vs. clear aligner technology)?

Let’s talk about Opportunities:

  • In terms of the physical space, is there an opportunity to expand?  Perhaps equip the 4th operatory and use it.  Or take over adjacent space (rent it out) or build up on another floor (if you own the building)?
  • In terms of practice days / hours, is there an opportunity to be open longer or on more days?
  • In terms of dental treatments, are there a good number and type of cases being referred out that can be kept in house?
  • In terms of marketing, is there an opportunity to target new residential developments or existing ones with new treatments (implants, invisalsign, etc.), hours / days, etc.?  If the practice hasn’t historically accepted assignment, perhaps it can do so now?  If the practice hasn’t been asking for referrals, perhaps it can do so now?

So let’s look at a few examples of how I value a dental practice, shall we?

EXAMPLE: GTA Practice Worth $1.5-million

  • GTA Practice
  • Ground Floor
  • Strip Plaza
  • 1500 square feet
  • 4 operatories
  • Free parking
  • Good signage
  • 1,500 active patients (of diverse ages and socio-economic backgrounds)
  • Accepts assignment
  • 40% hygiene production
  • Grosses: $1-million
  • Open 4 days a week
  • EBITDA before professional compensation: $400k
  • EBITDA after professional compensation: $250
  • Team are on contract
  • Good long-term lease with no nasty clauses
  • Treatment style: conservative, bread and butter restorative dentistry
  • Opportunities: run marketing campaigns, stay open more days, do extractions, place implants, offer invisalign, have a CEREC machine for certain lab work
  • Average Value of this dental practice post-Covid-19: $1.5 million.  How much could this practice have sold for BEFORE COVID-19?  At least $1.5-million-$1.75-million.   What about DURING COVID-19 (if the seller was desperate due to health / financial issues)?  Between $1.25-million and $1.5-million.

P.S. this is what a typical “good” practice looks like.  And this is a typical and acceptable sale price according to bankers, accountants and lawyers.

For the purposes of selling, if you want to have a “great” practice and get an even higher price, then you should have: (1) more available space to grow, (2) more patients and more non-assignment patients, (3) more hygiene production (50% would be ideal), (4) less days open (so a buyer can open more days), (5) do NO marketing, and (6) have better cash flow (you have this by producing more and controlling expenses – particularly rent, supplies and staffing).

And finally worth mentioning: are you prepared to save a lot of money by Skipping the Brok-er (sell directly through DMC LLP) AND also selling the shares of a dentistry professional corporation (instead of the assets of your practice)?  Now, to qualify for the lifetime capital gains exemption when you sell the shares of your dentistry professional corporation (and potentially save a few hundred thousand dollars in capital gains taxes), you need to: (1) sell the right shares, (2) hold those shares for at least 2 years (note: there’s an exception to this rule if you do not have a corporation) and (3) pass 2 asset tests (50% for 24 months and 90% for day of sale asset tests).  If you’ve got a confused look on your face right now, it’s because we’re dealing with heavy duty mumbo jumbo tax laws.  So you’d better read up on it by clicking HERE, HERE and HERE and HERE.  And then call or email DMC if you’re thinking about selling now or in the next 5 years so we can make sure you’re prepared for a great transition!

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.