What’s My Practice Worth? Answer these 10 Questions to Find Out

We get called a lot on this topic every week: What’s My Practice Worth?  If DMC was to list it on DentalPlace.ca and run an open house, what would the offers come in at?  Well, given that we have been helping dentists sell / buy practices for the past 10 years, we’ve gotten to know what they’ll end up selling for in today’s Seller’s Market.  And to answer the question specifically for you, here’s what you need to tell us:

1. What’s Your Production?  Now you need to be careful here.  Tell us what you Bill vs. Collect.  If there’s a discrepancy between the two, why? Do you have a co-pay issue?  And don’t include lab revenues as this is also an expense to the patient (unless you have a CEREC in house).  What’s the trend in production (up or down over the past 2-3 years) and why?
2. How Many Active Patients Do You Have?  There’s a lot of discussion over what this is.  Some appraisals and real estate salespeople say it’s someone who comes to your office in the past 2 years and this makes the number artificially inflated.  I want to know: (1) how many unique patients came in for some kind of treatment in the past year, (2) how many came in for dentistry vs. hygiene, (3) how does this compare to previous years, and (4) how many unique patients have a tendency over the past 3 years to keep coming to the practice?  And are these assignment (worth a little less) vs. non-assignment (worth a little more) patients?  Makes a difference!
3. What Kind of Equipment Do You Have? Digital Pan, Digial X-Rays, New Statim, New Autoclave, CEREC or equivalent, Schick Sensors, etc.  all add to the desirability of your office.
4. How’s Your Location, Lease and Premises? Major City is better.  Ground Floor is better.  Free Parking is better.  Great signage opportunities are better.  Do you have a good long-term lease (at least 10 years with perhaps a few 5 year renewal options?).  If you have a demolition clause, escalating rent, high rent, only a few years left in the lease, weird landlord restrictions, then it could all spell a lower purchase price when you sell.   How Many Square Feet Do You Have? Some dentists squeeze 5 ops + reception area + lab + steri area + washroom + private consult room in just 1000 square feet!  Obviously a good use of space, albeit a little tight.  If you have about 1,000-2,000 square feet, you’ll have a more desirable practice for growth (something a buyer is interested in).  If you have 600 square feet, your growth potential is limited to maximizing use of the 1-2 ops that you’re squeezing in there.
5. Is Your Team on Proper Contracts?  This could be a biggie – just like your lease – in that it could drag down an otherwise good purchase price.  Long-term associates not on contract (without restrictive covenants) can be a big hurdle to a purchaser.  Also, long-term staff without contracts can be a big financial liability for a purchaser.  That’s why it’s best to speak with us at DMC to help put your team members on contract ASAP – sometimes it takes up to 2 years to fully implement.  You’ll need us to come in, speak with your team members, introduce contracts (with inducements where appropriate for them to sign) in order to eliminate this liability.
6. How’s Your Corporation?  You should check with your lawyers and accountants to make sure that you qualify for the Lifetime Capital Gains Exemption.  If you do qualify for the Lifetime Capital Gains Exemption, you could save (and your spouse, children or parents owning non-voting common shares can do the same) over $220k per person in capital gains taxes!  Ask us how…
7. What is your Cash Flow or EBITDA (Earnings Before Interest, Depreciation and Amortization)?  This is a biggie.  You’ll often hear that purchasers, banks and dental service organizations are offering 3,4,5,6 or 7+ times your EBITDA.  That’s basically a multiple of your cash flow, or how much cash a buyer can expect to take in once they take over.  This is before they pay any loans, interest on loans, taxes or amortization / depreciation (which is a non-cash item that shows up in your financial statements).  If your EBITDA is roughly 40% of your production / collections, you’re in normal shape.  If your EBITDA is 50%+ of your production / collections, that means you’re running a tight ship (low rent, average salaries, not going crazy on sundries, etc.).  If your EBITDA is lower (like $150k on $1-million of production / collection), that means you’re leaking a lot of money on variable overhead costs; perhaps you’re paying too much in rent, salaries, marketing, etc.  You need to bring your EBITDA level to an acceptable level if you want to have a good vs. great offer!  We can quickly examine your current financial statements to determine where your EBITDA is likely at.
8. What’s Your Hygiene Program Like?  Buyers like to see a nice thriving hygiene program that makes up at least 30% of overall production, but hopefully 40-50%.  This is where dentists get a chance to meet their patients, talk to them, check on things, review x-rays and talk to patients about treatments they may need.
9. Where are the opportunities for buyers?  Are you referring everything out or keeping it in?  Do you do any marketing?  How’s the signage?  Is there new residential or retail developments opening up near you?  All of these things are important for buyers because they need to see how they can add value and increase production within 18 months of taking over your practice.  Is there an opportunity for the buyer to physically grow the practice – by equipping another op, converting unused or inefficient space into another op, taking over space next door, or relocating the practice to a better location (ground floor?).
10. Are You Considering Using a Broke-Er for Your Appraisal or Finding You a Buyer? Don’t!  They’re not needed anymore.  Obsolete.  DMC prepares, markets (including running open houses) your practice and helps you find buyers and actually does the legal work to get the deal done.  Plus we only charge fixed fees when we close (NO COMMISSIONS!).  Broke-Ers Make You Broke-Er.  They’re Not Good For Your Wealth, so Stay Away.  If you need a comprehensive (not boilerplate) and INDEPENDENT (not conflicted) appraisal, then contact Matt Bladowski of Dental Strategy.  His appraisals are the best in the sense that they have gotten our clients the best prices (so much so that we don’t market using anyone else’s appraisals), plus they’re great marketing documents because of how comprehensive they are.  Don’t take my word for it: go to DentalPlace.ca, sign in to your account and download a sample appraisal.  You’ve got once chance to get the appraisal right, so use Matt!

Given all of the above, if you have a dental practice that meets a lot of the criteria above will ALWAYS sell for more than a practice that doesn’t.   If you have the answers to these questions and would like a ball-park figure of what your practice would sell for (keeping in mind that October and March are the best times to market a dental practice!, give me a call at 647.680.9530 or email me at michael@dentistlawyers.ca.