McLerran & Associates Dental Practice Brokers Texas Austin Houston

The Dental Practice Appraisal – A Powerful Tool in the Transition Process

By Brannon Moncrief of McLerran & Associates

While there are several “rules of thumb” that dental practice brokers typically use to help their clients gain a general understanding of the fair market value of their practices, a formal dental practice appraisal can serve as a valuable tool in planning for a practice transition and negotiating with potential buyers. In this blog we will exam the different appraisal methodologies that are utilized in determining the market value of a dental practice.

According to the IRS, which is the primary theoretician in the business valuation world, a proper dental practice appraisal should consider three approaches: Income, Asset, and Market. The conclusion or calculation of value for the business does not necessarily need to include all three approaches – but each approach should be considered by the professional conducting the analysis.

The Three Approaches To A Proper Dental Practice Appraisal From Your Dental Practice Brokers

    1. The true monetary value of being a practice owner is derived from the additional personal income the doctor realizes above and beyond what he would be paid to produce the same amount of dentistry working as an associate. Therefore, The Income Approach examines the cash flow to the practice owner after paying all overhead expenses including doctor compensation (we include a doctor compensation rate of 30% of annual doctor production). Once the net cash flow amount has been determined, the appraiser then “capitalizes” that income based on a “capitalization rate”, which is built from a combination of treasury bond rates and specific industry risk rates (capitalization rates typically range from 20-35% in a dental practice appraisal). This approach to valuation is extremely valuable in analyzing the monetary benefit of owning a practice.

 

    1. The Asset Approach focuses on the appraised value of tangible assets (equipment, supplies, etc.) combined with intangible asset value (goodwill). This approach can be very useful when attempting to sell a dental practice where the owner has recently purchased a significant amount of new equipment or when the practice has been operating for only a short amount of time prior to a sale and the value of the goodwill is difficult to determine. Of the three approaches to a dental practice valuation, the Asset Approach typically has the least impact on the appraised value of an established dental practice for sale.

 

  1. The Market Approach is conducted by comparing the subject practice to comparable sales of dental practices with similar revenue levels and practice attributes. Ideally, the comparable sales will be fairly recent, although business databases such as the IBA (Institute of Business Appraisers) Market Database have shown that dental practice valuations have remained fairly steady over time. Experienced dental practice brokers should also have their own database of completed sales to use in the analysis. The Market Approach typically has a substantial impact on the appraised practice value and is the most frequently utilized method for determining an asking price for a dental practice.

At National Association of Practice Brokers, we feel that it is crucial for practice owners to understand the factors that influence value and complete a dental practice appraisal well in advance of a practice transition. Not only does this knowledge allow practice owners to effectively plan for their financial and professional future, it can also provide them with the ability to make changes to enhance value and avoid mistakes that negatively impact value leading up to a practice sale.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
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D&M Practice Sales And Leasing Dental Practice Brokers California

Selling a Dental Practice Article

By Paul A. Maimone, MBA, D&M Practice Sales

There are many reasons to sell a dental practice: retirement, a desire to slow down or move to a new area, health challenges are among the most common. This blog addresses where to start when you begin to consider a dental practice transition.

Planning: If possible, you should start planning the departure from your practice 3-5 years before you transition. Discuss your goals with your CPA, Legal Counsel and a Dental Practice Broker Transition Specialist.

Improvements – A fresh coat of paint on the walls, re- upholstery of your dental chairs, removing clutter, and a thorough cleaning will give your practice a fresh look, and will make it more saleable. More drastic measures such as replacing dental units, x-ray units and other equipment should be considered if your equipment is old and worn. Make sure whatever equipment you do have is in good working order.

Ready, set, go – Be absolutely sure that you are ready to sell. No indecisions at this point. Take into consideration this is a very emotional time.

Dental Practice Valuation – Get your practice valued by a Dental Practice Transition Specialist. This is imperative! They know the market; you don’t. If you don’t get a valuation, you take the chance of trying to sell your practice at too high a price where it probably will become stale on the vine, or at too low a price leaving some of your hard earned $$’s on the table.

What’s included in the Sale – A detailed inventory list of equipment should be made and included in the Purchase Agreement documentation and Bill of Sale. You should also determine if you wish to include the Account Receivables in the sale. It is much easier to include them, but generally you will have to sell them at a discount. Should you not include them, make sure the Purchase Agreement allows you access to the patient billing information to collect your Receivables. Identify, list and include in the Purchase Agreement any and all Account Payables/On Going Contracts that you wish the Buyer to assume. These include such things as yellow page ads, credit card machines, copying machines, and computer leases.

What the Buyer Wants to See – Potential Buyers will wish to see certain practice information in order to determine their degree of interest. A Practice Profile or ProForma should be prepared and provided to the Buyer. Include: Gross Collections/Net Income and the Overhead %; Equipment Inventory and Condition; Status of Accounts Receivable (A/R’s) including amount, age and if included in the sale: Lease status; Current provider contracts; Patient characteristics; Business hours; Referred out procedures; Breakdown of practice production; Assumed Payables/On Going Contracts. If you wish to keep this information confidential, require the buyer to sign a non-disclosure agreement.

Telling Your Staff – Generally speaking, it is advisable not to alarm the staff with a possible sale until a solid buyer has been secured and all of the purchase contingencies have been met.

Hire a Pro – There are several professional disciplines available to the Seller, who can make the process less risky and more manageable. They include: Dental Practice Brokers, CPAs/Accountants, Practice Consultants, and Dental Attorneys. An NAPB Dental Practice Broker can guide you through the intricacies and streamline the transition process.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

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NAPB CT, ME.MA, NY, RI. VT, NH Dental Practice Broker - The Almonte Fallago Group

Maximizing Patient Retention during Dental Practice Transition

By Peter Almonte, JD, The Almonte Fallago Group

The manner in which a dental practice transition is handled can cause the buyer financial hardship, or create an environment for the buyer’s success. Here are our tips from your Dental Practice Brokers to ensure a smooth transition of the seller’s patients to the buyer.

1. Introduction to the staff, preferably 3 weeks before the closing.

2. A letter to patients announcing the dental practice transition and enthusiastically recommending the buyer, preferably before the closing.

3. Announcements in the local newspaper for three successive weeks after closing. An article about the dental transition in a local newspaper is also helpful.

4. Allow the buyer to shadow the selling dentist in the practice for a week before the closing to observe the seller and the dental practice for sale in operation.

5. A letter to specialty and referring dentists announcing the transition and encouraging them to work with the buyer.

6. Send a letter to active patients after closing advising them of any added procedures, increased office hours, etc. and a letter to inactive patients welcoming them back to the practice; the buyer will be pleased when some of the inactive patients return to the practice.

8. Review patient charts with the buyer for 30 days after closing. The seller can offer input on patients’ treatment, phobias, family news; this will help the buyer become acquainted with his new patients.

9. Telephone patients who will be coming in the first couple of weeks after the closing, especially if seller’s letter is mailed on the date of or after the closing.

10. Obtain permission to use the seller’s name on buyer’s stationary for 12 to 24 months after closing.

11. Have the receptionist answer the telephone using both the seller and buyer’s name for a period of time after closing.

12. The buyer should meet with staff separate and apart from seller and reinforce that their jobs are secure. Consider meeting them socially as well. The current staff can be the buyer’s biggest supporters and boosters with patients.

13. Request that the seller be available for consultation after closing for a limited period of time with respect to any staff, patient, or management issues at no additional cost. If the seller’s spouse works in the practice, determine what role the spouse will play in the dental transition. Also, determine if the seller will remain as an associate and treat patients after the closing.

As your dental practice broker we recommend implementing some of the above activities before the closing, provided the Purchase and Sale Agreement is signed, the buyer’s deposit is nonrefundable, and buyer’s financing is approved and in place. If the seller and buyer coordinate a dental practice transition plan, the buyer should expect to retain 95% of seller’s patients.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

> MORE