What things can I do now to increase the value of my dental practice?
Preparing your dental practice for sale is much like selling any other business. When you increase income and decrease expenses, the value goes up. Conversely, if you have high overhead relative to your collections, the value of your practice decreases. High overhead might be attributable to
- Staff costs that exceed the dental industry average. For a general dentist, that would be approximately 28%. High staff costs don’t just happen overnight. They happen when you continually give pay increases without corresponding increase to your collections. In heavy PPO practice, this trend has been common over the past few years due to a loss in Delta Premier and general lowering of contracted rates.
- Facility costs (rent/maintenance) that exceed 10% of collections. We’ve found that practices with the highest value don’t correlate to practices with the nicest offices. And remember, you may only get 25 cents on the dollar, or less, of the value of a buildout/remodel when selling your practice. Hence, we don’t advice doing one within 5-7 years of selling your dental practice.
- General spending in other areas that don’t affect your collections.
With that in mind, if selling is on the horizon, there are things that you can do now to prepare your dental practice for sale. Anything to streamline the health of your dental practice and your financial statement should be done as soon as possible. Buyers and banks like to see seasoning, or an amount of time to prove effectiveness. For example, you can’t just fire your staff one day and then expect to benefit from the savings the next. Banks usually use 3-year averages, so it takes time to make meaning adjustments.
As mentioned, increasing collections is an obvious start in increasing dental-practice value. Chances are though that if you are considering selling your dental practice, you might be out of gas and not excited about taking on more advertising, attending more study clubs or learning specialized skills. You may have even seen collections start to trail off. If this is the case, I would recommend selling immediately. The last thing you want is a “falling knife” scenario where collections are trending downward, and no one can predict how far down they will go. But if you’ve got some fumes left in the tank, then work to get those collections up. Upward trending collections allow banks and buyers to put more weight on the most recent year, and this can be a good thing—like the COVID rebound most dentists experienced in 2021.
Next, take a look at your expenses. Trim everything you can. Do you really need Netflix, Hulu and AppleTV+ in the office? Can you find a cheaper and comparable lab? There is always something. The largest portion of dental office expenses is in payroll. You’ll want to be careful here, especially in the current labor market. Finding good and devoted staff is tough. You may find that you actually need to hire staff, such as increasing hygiene days by hiring another dental hygienist or even looking for a hygienist with extended function to free you up to do more specialty work. Leveraging staff for higher collections is always a good thing.
Lastly, consider tiding the place up. As mentioned above, I wouldn’t recommend a full remodel, but if the walls are chipped and dirty, paint them, if the floors and carpet are scuffed and worn, fix or replace them. Is your cabinetry a strange color from the 70’s? If so, consider a cost-effective way to update them by refinishing the doors, for example. As we know, these office cosmetic touches may not sway the banks since they rarely ever see a practice, but they will influence and motivate buyers. The more dental practice buyers you get writing offers, the higher the price will potentially go. So don’t hesitate to take action now. Just like regular brushing and flossing, hard work and effort will pay off in the future.