Determining the true value of a dental practice involves a plethora of considerations. There are two main approaches: the “academic” and “real world.” The academic approach is made up of scientific formulas, which can be translated to a written appraisal and used in court. This approach is best when it coincides with knowledge obtained through “real world” experience. Unlike real estate, there isn’t a multiple listing service or central database of dental practices. When determining what the marketplace will bear for a practice’s sales price, we combine scientific formulas with our dental practice experience to determine what a particular dental practice is worth.
Why is this the case? The truth is that dental practice values fluctuate greatly depending on a multitude of factors. First, it’s important to understand that practices are not identical commodities and a number of differentiating factors must be quantified to accurately uncover the true value. One factor to consider is whether the low overhead of a highly profitable practice can be duplicated by a buyer. Or, perhaps a selling dentist is able to successfully run a practice with a less-than-traditional number of staff.
In addition to expenses, buyers should also carefully examine the production and collections of the seller. If the seller produces $1,000,000 per year, it cannot be guaranteed the buyer will automatically have a fair chance of achieving the same numbers. There could be many reasons why a buyer could experience a loss of patients once becoming the new owner such as:
- Seller’s production might be unrealistic for some buyers to duplicate.
- Seller performs procedures that most of his or her credentialed colleagues don’t perform.
- Seller has strong selling skills and have every treatment plan accepted.
Fortunately, the numbers do not decrease or stay flat for buyers, in fact, is it possible to increase production. Many dental buyers these days are younger than sellers, perform a wider range of procedures, are more tech savvy, and better at marketing themselves and a practice.
Other factors to consider when determining value are location, equipment, staff, reputation, patient mix, growth trend, parking and more. Identifying each factor’s effect on value requires dental practice experience. Understand that the likelihood of production and profitability continuing for the buyer takes precedence over the current numbers when evaluating a dental practice.
As always, feel free to contact a dental specialist at BerganKDV with questions.
