Four Vital Points to Review Before Buying a Dental Practice

One of the most important career decisions many dentists will make is how to invest in their practice. Selling a dental practice is an important matter, and buyers seeking practices that fit their buying criteria want answers with measurable value.

Serious potential buyers need concrete facts and details to review before making a purchase. Representation by a third party ensures proper procedures and standards for buyers and sellers. While the process itself is somewhat straightforward, each practice contains a set of variables unique to its business model.

We have put together a checklist of four vital points that most buyers will expect sellers to provide to advance the sales process.

  1. Three to Four Years of Tax Returns

This financial data gives buyers sufficient information to measure the performance of the practice.  Additionally, a handle on stability and sustainability may be obtained via said analysis.  By gathering several years of data, trends can be monitored and stability can be evaluated.

  1. Aged Accounts Receivables

Next to the balance of cash in your bank account, this is the most vital asset on your books. The ageing of receivables also provides insight into the practice’s administrative efficiency.

  1. Dental Practice Valuation

A qualified valuation analyst usually prepares the appraisal of a dental practice, and a business analyst or a professional accountant prepares the report. Analysts set valuation procedures in place to indicate the potential value of the practice.

  1. Cash Flow Model

The cash flow model determines the viability of a practice sale. This projection forecasts sales and the costs of running a dental practice for a five to 10 years period.

The analysis of a practice includes growth rate and all fixed and variable operating costs between five and 10 years after the acquisition. A proper analysis does not include “forward thinking”; instead, it is based strictly on a conservative history of the practice. While high hopes and positive thinking are wonderful traits, a legitimate evaluation only includes empirical data. Additionally, we recommend placing an emphasis on the first five years of the report.

In our next post, we will review specific details to optimize the cash flow model, while providing information to supplement this piece on preparing to sell a dental practice.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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


Ready to Sell? A Dental Practice Transition Checklist

You’re winding down and spending more days focused on family and leisure than the day-to-day functions of your dental practice. It’s a common occurrence for many doctors as they near retirement. However, make sure you’re not retiring before you actually sell your dental practice.

The challenge when you start to “act retired” before retirement is that the state of the business may suffer. Therefore, it’s important to keep up your daily rhythm and pace as you get ready to list your practice. This is critical at any point in the life of a practice, but it’s especially true when you are preparing for a dental practice transition.

Review the following checklist before you sell your dental practice:

  • Inspect Income and Expenses: Take a good hard look at the actuals. Are you carrying unnecessary overhead? If so, do yourself (and your future buyer a favor), and trim that fat. Engage in a bit of competitive shopping to make sure you’re paying fair industry prices for expenses like lab work and employee salaries.
  • Keep Up the Good Work: As we discussed in the opening, many dentists have a tendency to slow down as they near retirement and get ready to sell their dental practice. This is not the time to do so. It’s vital to keep the practice healthy and profitable because your dental practice appraisal will primarily take into account the last three years of your business. It’d be a shame to slow down and have the dental practice valuation not reflect the years of hard work up unto this point.
  • Investigate a New Lease: Doctors make ideal tenants because they typically establish a practice and stay in the building for a decade (or longer). Revisit the terms of your lease and make sure you getting the most for your money. Due to the long-term nature of your business, you may be able to negotiate discounts based on longer terms, a consistent payment history, and the benefit to the building owner of having your practice in the building.
  • Decorate: Many dentists cringe when there’s talk of décor and the look-and-feel of the office. Despite what your perception may be, it’s an area where a bit of investment can provide a tremendous payoff. A buyer who walks into a visually-appealing space is likely to consider it worth more than if they walk into an outdated, dark foyer. Again, you’d be amazed what a bit of freshening up can do for your patients, staff, and potential buyers alike. If it’s not your area of expertise, hire a consultant to help you or perhaps negotiate a trade with a dental patient who has experience with interior design.
  • Stay High Tech: Current equipment and technology is important when moving towards a dental practice transition. You may be perfectly happy with your X-ray machine from 1976, but a buyer is going to have a very different outlook. At the very least, I recommend that you upgrade to digital radiography. You can write off the investment. I also suspect you will find it much easier to use, and it will improve the value of your practice when you are ready for your dental practice transition.

Selling a dental practice is a significant decision. Consult with an NAPB dental practice broker to ensure that you are well-positioned when you are ready to sell your dental practice.

NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

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