In order to effectively prepare your practice for sale, it is important to know what buyers want and what they will be looking for in a practice.
As practice brokers, owners of dental practices often ask us “When should I start preparing my practice for sale?” One of the most enlightening projects for a dental practice owner is to have the value of their practice appraised.
In the process of gathering information for the valuation, practice owners learn a lot about their own practice. The valuation will reveal the strengths and weaknesses of the practice, which will be identified by the practice appraiser. The appraiser knows the industry standards for dental practices and can inform the practice owner on how his/her practice compares to other practices in the area. In order to have enough time to identify and improve on the weaknesses of a practice so that the changes have a positive effect, it is best to conduct the practice valuation three to five years prior to the time the practice is out on the market to sell.
The major areas that most informed buyers are concerned with are practice income and expense. Net income is the driving force behind practice value. The more profitable a practice, the more net income there is to capitalize and, therefore, a higher value. Just as in real estate, location is very important. Buyers want locations with a lot of activity and good exposure. They want to know about occupancy costs and terms of the office facility lease, as well as who owns the building. If the practice owner also owns the building, buyers want to know if they can purchase the building. The age of the dental equipment is also of interest. Owners do not need to have brand new dental chairs, but they should be functional and comfortable for patients. Re-upholstering older chairs is a good investment. It should be noted that new equipment will probably not increase the value of the practice significantly unless it makes the practice more efficient and, therefore, more profitable. However, it will make the practice more desirable and marketable and will be advantageous when buyers compare practices for sale against one another.
One of the most critical areas that buyers are interested in is the staff at the practice, and whether the practice is under- or over-staffed. It is not easy for a buyer to go into a practice and start dismissing staff if a practice is over-staffed. It is a very visible change to patients and is not usually good for morale unless the staff person who is dismissed has been a disruptive force. The staff is a critical element in the practice transition process. Buyers will want to know the likelihood of the staff staying with the practice after the sale or if some or all will be leaving at the close of the sale.
Another concern of buyers is their compatibility to the seller. Buyers want to know if they will be able to duplicate the revenue that the practice has historically generated. That is, does the buyer do essentially the same procedures as the seller? If the seller does a lot of specialty procedures that the buyer does not, then the buyer may struggle. On the other hand, if the buyer does the procedures that the seller does along with procedures that the seller does not, the buyer may be able to increase revenue without much increase in new patient flow.
These are just some of the many details that are considered by practice buyers. Once the decision to sell has been made, sellers need to be careful of not getting a “short timers” attitude. It is important to maintain the practice numbers, especially the recall/hygiene program. Sellers should continue to practice as they ordinarily would, even though they are planning for a future practice sale.