Posted on Jun 24, 2013
Image Credit: © Dreamstime.com
Posted on Jun 24, 2013
Buying a dental practice is significantly different from buying a medical practice. It’s an unexpected fact, but a medical practice in the same area with the same generation equipment and similar revenue will often sell for much less than a nearby dental practice. Why is that the case? The simple answer is: competition for patients.
In the dental business, finding, cultivating and retaining patients is a much more competitive endeavor. And it’s competitive in subtle ways. So, when considering a dental practice purchase, first enlist the support of an NAPB dental practice broker. They can guide you, and more importantly, then you are working with someone who has a long history of brokering successful dental practice transitions. A broker can help you navigate both the visible and less visible considerations when buying a dental practice.
On average, sellers are usually offering practices at a price that’s about fifty to seventy-five percent of the last twelve months’ gross revenue. This statistic assumes that the practice is healthy and profitable. This excludes sales where there is a more urgent need to sell (such as when a dentist is facing health problems, limited capacity, or even death).
Again, there are as many variables as there are practices. From sale-to-sale, the structure of the sale can range from an estate sale, where the departing dentist sells off parts of the practice (equipment, patient lists, etc.) to total sale of the entire practice (building, equipment, staff, the works). There are also agreements in between. For example, sometimes a younger dentist comes on as an associate and then buys the practice after working there for a few years. Having an NAPB dental practice broker with experience with all these wide-ranging scenarios can help you measure the visible components with the less visible components.
I want to focus on the less visible aspects of valuing a dental practice. Visit the location and trust your intuition. Sometimes, what may appear to be a dilapidated practice may actually be a real “diamond in the rough.” While the equipment may not be sparkly and new or the furniture is outdated, the patient roster spans generations. In this instance, you can always update the equipment and furniture. Your dental practice broker can provide a dental practice valuation to provide you with accurate numbers. However, many times a practice like this one is a great buy. I would argue that the existing patient relationships offer the greatest guarantee of the most financial return.
Because of the nature of this intangible value, I also find it is advisable to work with your dental practice broker to get a letter of recommendation from the seller. As part of the deal, have the seller agree to introduce you and endorse you to their current patient roster.
This is your livelihood; therefore do your homework. Work with a dental transition broker and examine the hard facts about the practice. And then weigh those less visible components when you are making the dental practice purchase.
Consult with a local dental practice broker today as you embark on this exciting next step.