No matter what future plans you have for your practice, the chances are you never know what’s around the corner. Opportunities can come out of nowhere. You may decide to move to a bigger, fancier location, take a space in a new shopping precinct, have a potential buyer knock on your door, make a tree or sea change with your family. Regardless of your current thinking, the ongoing value of your practice should always be front of mind.
Every step forward should be a step taken in the right direction to increase its value and sales worthiness. Whether you decide to sell it or not remains a question for later times perhaps, but you don’t want to start from zero whenever you do. The fact is, dental practices can sell for two times the multiple or even up to five or six times the multiple-and the major difference between the evaluation is based on preparedness.
Just because you have a successful practice doesn’t mean it is a great investment, maybe it doesn’t have potential for growth, maybe it has hit the cap. The investor will conduct thorough investigations and screenings to check for profitability; they will see things that you fail to see.
I am always asking my clients – What is it you don’t see?
Here is everything you need to read about boosting practice value and your levels of preparedness.
Calculate Your EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization is calculated to measure a dental practice’s profitability before the deduction of factors considered unimportant and irrelevant in a purchaser’s decision making process. All in all, it is the net income a business is making and is used to estimate whether a business really is profitable.
You probably already calculate this, but calculating it with the intentions of evaluation will put greater light on whether the EBITDA is in the right direction to serve your long term goals. Also ask yourself if at the current EBITDA you can get a desirable price for your practice. If not, what numbers do you need to reach to get there?
Have a Growth Plan
Growth plan is extremely important to make sure you and your staff members have a direction and a goal to move towards. An increase in the net income is a component of growth, but it is not growth in itself. You need to have a clear vision of what you expect from your dental practice in the long run and what are you doing to contribute to its growth in that direction?
A growth plan is also important for a profitable sell. Most investors will assess a practice’s potential for growth, and by having the information handy, you not only make the process time-efficient, but also the potential for meeting your demand price.
Key Man Dependency- Your Role in the Practice
Whether you are selling to a corporate or a private seller, they want to know how dependent the success of your practice is on you. Do you bring in most of your patients? What if you are not around? Do you have locums in place that help meet the bottom line even in your absence? Investors will ask you to get your medical done to ensure you don’t have any health concerns that could restrict your time at the practice. Even if you sell, a corporate investor will want you to hang around for a good few years until the practice becomes a stand-alone entity.
So everything looks great at the practice. You have an amazing referral system, clients on repeat and the numbers on your financial statements rocketing. Everything but the equipment looks amazing. If there is need for a lot of renovation and upgrade then do expect the price to slope down a few notches.
Same is the case with the premises. Can the current space accommodate growth without having to break down the walls? Will it go from 4 chairs to 6 chairs without major remodelling? No? The investors will take notice. These are some of the things you should consider when scaling your business; that eventually you may decide to sell and your premises need to accommodate that kind of growth.
Selling your practice can be exciting and profitable, but it will also be an emotional roller coaster that most owners do not prepare themselves for. Know that the practice is about to change hands and authorities; and while you may still be an integral part of it with great value placed on your opinions, you are no longer the decision-maker. The practice moves on from being your baby to you asking mommy and daddy if you could get a new toy.
You should also prepare your associates and staff members for the change. Do not let it be a last minute surprise, it could be very demotivating. Explain to them the reasons for doing it and they would be more than understanding, accommodating and assistive during the process.
Private Versus Corporate
‘Whoever pays the highest price right?’ Maybe not. It is of course a very personal decision but one major factor that may affect the decision is your role in the practice. Would you still like to continue working or would you rather move on to the next chapter of your life? With a private investor you would very likely just hand over the keys and move on with your merry life, a corporate on the other hand would want you to remain involved. So the day to day operations would still be either handled by you or the person you set in-charge instead of the head office.
Another major factor that an investor would look at is preferred provider status. Most corporates don’t look as closely at the preferred provider status as private investors. If there is a heavy reliance on them, then it might become a value detractor.
Before You See a Broker
So you have decided it is time to sell? Before you even get to the phone, you should assess all the above factors and get the documents ready. You don’t want to hold a conversation with broken pieces of information. You want to get your financials in order and make your entities clean. Also speak to your advisors including your accountants and lawyers. Don’t rely on your family and friends to guide you through but get professional help.
Be flexible in your approach. Don’t go with a stiff mind set about how you want things to rollover. Flexibility allows for room to take their due course and adjust any changes of mind in the future. Say you end up selling to a corporate and tell them you will work no longer than two years but end up enjoying it. You want to have the space to make adjustments for the offers presented to you.
So there you have it! All the necessary considerations and drivers of value that you need to factor in. Make a mental note of being more conscious of them in every little decision you make for the practice’s future.
P.S. Whenever you’re ready …. here are 4 ways I can help you grow your dental practice:
- Grab a free chapter from my book “Retention – How to Plug the #1 Profit Leak in Your Dental Practice”
The book is the definitive guide to patient retention and how to use internal marketing to grow your practice – Click Here
2. Join the Savvy Dentist community and connect with dentists who are scaling their practice too
It’s our Facebook group where clever dentists learn to become commercially smart so that they have more patients, more profit and less stress. – Click Here
3. Attend a Practice Max Intensive live event
4. Work with me and my team privately
If you’d like to work directly with me and my team to take your profit from 6 figures to 7 figures …. just send me a message with the word “Private”… tell me a little about your practice and what you would like to work on together, and I’ll get you all the details! – Click here