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What’s My Practice Worth?
I constantly get this question asked from dentists all over the country. My first response to them is “It depends”. National publications state that dental practices sell for 60% of last year’s gross. In reality that is not an accurate statistic.
There are many factors that can impact your practice’s value. Where you live and how you practice will have the greatest impact on your value. We’ll look at several key factors that can affect a dental practice’s value.
- Area Demographics:
This factor has the most significant impact on a dental practice’s value. Where you practice dentistry really counts! For example, if you live in LA County, it’s conceivable your practice may command a value of 100% of last year’s gross revenue. Conversely, if you practice in rural mid-America, you may see a practice value in the 50% range of last year’s gross revenue. If you are in the Northeast corridor, you can expect practice values in the 60% to 67% range. Why the disparity? It’s all about supply and demand. It’s becoming increasingly difficult for dentists practicing in small and rural towns to attract anyone as an associate, let alone to purchase a practice. Hence, a lower practice value. In large metropolitan areas where many of our current graduates want to practice there is a greater demand for a dental practice and so the practice values rise.
- Physical Plant
Another key factor in determining the value of your practice is the condition and size of your physical plant. If you have older equipment and have not renovated your office for years you can expect a lower value. If you only have two operatories with no room for expansion, do not expect top dollar. Many of today’s purchasers are accustomed to being educated using state of the art equipment and technology, so they feel that practicing dentistry with older equipment and no technology is not feasible. So, if you are considering a practice transition in the next five years, you may want to take stock to see if it makes sense to reinvest in your own practice to potentially increase its market value.
- Economic Variables
In our experience, fee for service practices (include indemnity insurance) command a higher fair market value than practices dependent on PPO’s and HMO’s. Another economic variable that will impact your value is the clinical production profile. For example, practices that refer many services to specialists may command a higher value given the upside potential in retaining more clinical production.
Fee schedules may impact you value as well. We find that fee schedules below the 50th percentile show greater promise to increase revenue quickly versus practices perhaps in the 90th percentile. Practices with high fee profiles can be a challenge for a young dentist with limited experience to acquire, since it may be a challenge to command the same fee profile after the Seller retires.
- Patient Base
As stated in previous columns, the size of your patient base has a major impact on the success of any practice transition, and therefore can have an impact on your practice’s value. Practices with a small patient base (500 to 700 patients) and low number of new patients (3-5) per month will command a lower market multiple than practices that have a strong patient base (1,200 to 1,700 patients) and healthy new patient inflow (15-20)
Patient retention is also a factor that can enhance practice value. Practices with a strong recare program can command a higher value since it is assumed that patients in retention will continue to visit the practice, thus assuring a good revenue stream.
- Age of Patient Base
If you have been in practice for 25 to 30 years, chances are you have treated several generations of patients. This may impact your practice’s value, if an analysis of your zip codes reveals that a significant percentage of your patients are traveling a good distance for treatment. When you retire, these patients once loyal to their “ dentist” will opt for a practitioner in their area once you retire, so you can expect a lower value.
- Location of Facility
If you are practicing in a home office, your market value may be very low and consequently will command a lower fair market value. Home offices are hard to sell since demand is quite limited for this practice type.
- Practice Overhead
Practices with a low overhead (e.g. 50%) will command a higher value than practices with high overhead (e.g. 70%). Simply put, if one buys a practice or becomes a partner in a high overhead practice, the chances of everyone earning a decent income are greatly compromised as well as the purchaser’s “ buy in” or practice acquisition debt. Staff overhead (e.g. 30-35%) can become an issue if you have a highly compensated staff so, usually you’ll see lower value.
Summary:
It’s not all about your tax returns as much as it is the impact of these and many other factors that will influence what your dental practice is really worth.
If you would like to receive a complimentary market analysis, Click Here.
Questions regarding the value of your practice? Email Dr. Snyder at Drsnyder@thedentistsnetwork.net.
Interested in having Dr. Snyder speak to your dental society or study club? Click Here.
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Selling and the Art of Listening
In my opinion, “case presentation” is a just a fancy way to say sales pitch. Hopefully this bold statement won’t cause you to think I’m underestimating what goes on in your office. I know that as dentists you don’t like the word “sales” to show up very often, but I’ll apologize now before you read too far into this article.
The world’s economy is driven by the ability of individuals to sell products and services at a profit to other individuals–then reinvesting the profits back into the market as they become buyers of some other product or service. Sales, not money, makes the world go around.
In his massive Handbook on marketing, Dr. Paul H. Nystrom draws a distinction between “selling” and “salesmanship.” “Salesmanship is the skill or art of presentation of goods so as to convert neutral or even negative attitudes towards them into positive wants or demand. Salesmanship,” he continues, “is the plus factor in selling that induces more transactions and produces more sales than would otherwise occur.”
In addition to knowing the features and benefits of his or her product, the salesperson of goods or services is faced with the problem of learning how to sell in such a way that the prospect will want to buy.
The moral qualities needed in selling dentistry or any other product, are the qualities of any good citizen. These qualities are simply and completely covered by the Golden Rule. A dentist that understands sales knows that he or she will be very unhappy, if treatment is sold that the patient doesn’t really need or may not be happy with. Such a dentist knows that peace of mind and long-term reputation, require strong, positive, personal qualities.
Honesty is a must. It gives case presentation a sincere quality, and creates a bond of sympathy between patient and dentist and usually it changes a patient’s lack of interest. Patients will always prefer to be treated by a dentist who is sincerely enthusiastic about his or her services and craft, and the dentist’s sincerity gives the patient confidence in both the service and the practice.
A very important component of sincere but effective case presentation is listening for what the patient is really saying. A basketball player might say, “Yeah, I can hit that foul shot,” but he might say it with his eyes cast down and with uncomfortable body language. What that player might really be expressing is absolute lack of confidence or even fear in his lack of ability. Great dental salespeople have to have a tremendous capacity for focusing on what’s really bothering the patient. Dentists who do all the talking during a case presentation not only bore the patient, but also generally lose the sale. You should be listening at least 50 percent of the time. You can improve your listening skills by observing your patient’s body language, not jumping to conclusions, and concentrating on what your patient is really saying. One trick many sales people use to focus their listening skills is to take notes when the patient is communicating. It makes quite an impression on the patient and makes it easier for the presenter to keep his or her mouth shut.
Remember: body language makes up 55% of all communication. The tone and pace of a patient’s communication makes up 38% of their communication and finally, words make up only 7% of a patient’s communication.
If a patient tells you, “I’m just trying to do what’s most affordable right now,” do you immediately tell him how your diagnosis is the most affordable way to take care of his dental problem? A smart treatment presenter won’t. He or she will ask more questions and keep probing for the real issue. For example: “I understand why that is important. Can you tell me more about your concern”? Ask for as much information as possible so you can better position your treatment plan and show that you understand your patient’s needs.
A story is told on this point by Robert E. Moore in his book published last year: “The Human Side of Selling.” A salesman was trying to sell a stove to an elderly lady. He described the construction features at great length, talked about B.T.U.’s, thermostats and automatic damper control. Then the customer interrupted him with this wonderfully human question: “Tell me, mister, will it keep an old lady warm?”
This simple but profound story perfectly illustrates the point of this article. Learn to really listen and you’ll be surprised at what an improvement it makes in your case presentation and selling success.
Interested in increasing your production by improving your team’s case presentation? Click Here
Questions regarding a marketing plan for your practice? Email Joel at joel@thedentistsnetwork.net
Interested in having Joel speak to your dental society or study club? Click Here
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