Posted on Sep 24, 2012
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Posted on Sep 24, 2012
By Greg Jones of Doctor’s Choice
Getting close to retirement? Here are a few tips that will help make your dental practice more desirable, and more importantly, more valuable.
The most common problem we see in selling a dental practice is that doctors start working less and taking more vacations towards the end of their career. Dental practice values are typically based on your last three years of collections. Don’t let your last few years working hurt your practice value. It’s tempting, but stay focused and keep chugging along at 100%! If you don’t do any of the other tips below, make sure you at least do this and maintain your practice.
This tip applies to everyone, whether you are starting out or close to retirement – get your overhead down! Overpaid staff members can kill net income. You may have a front desk or office manager that is making way too much. Reach out to few friends that practice in nearby areas to get an idea of what is a fair wage. Supplies and lab have gotten very competitive. If your lab fees are in the ball park of 6% or 7%, and your supplies in the range of 6% to 8% of your collections then I would not bother fooling with this. Saving a little money by sending all your lab to China is NOT the thing to do.
Landlords drool when a dentist is interested in leasing from them. Why? It’s well known that doctors don’t like to relocate, and many stay in the same space for 15+ years. On top of that, dentists have the lowest default rate of any business (less than 2% nationally – 2012). After 15 years, you have already paid for their investment in their building with your money. We see dentists that have been in the same space for 10 years and have never renegotiated their lease! Rent is the most negotiable expense in your business. Make the landlord think you have other options down the street. Besides what you pay to the landlord, there may be other things you could approach them about, such as renovations. Does your space need new carpet or flooring? What about lighting or ceiling tiles with stains? These are all things that your landlord could cover. Approach your landlord when your lease is about 12 months from expiring. You can also hire a Dental Transition professional to do this for you.
Another thing to keep in mind is that banks generally require buyers to have at least a five year lease remaining, and may not lend the money if that is not the case. Getting a five year lease with multiple five year options should be no problem.
Should you buy updated equipment? You may be perfectly happy with your 1970 ADEC chairs, but I hate to break it to you, BUYERS are not. Having an outdated office is the number one turn off to buyers in my opinion. My advice – buy some updated equipment if you need it. At the absolute least, I recommend that docotors selling a dental practice get digital radiography. If you are not going to sell your practice for a few years you will benefit from it, get a tax write off, and get your money back through selling your dental practice. Your practice may have good cash flow great but it may not be appealing. We see it every day where a practice is profitable but because it is “ugly,” buyers don’t pull the trigger. Buying some updated equipment will make your practice more valuable and more desirable.
You and your staff are in the office almost every day and yet you probably don’t walk through the front door. My advice is to have a trusted friend do a walkthrough of your office and point out anything that looks out of place or needs updating. You can then decide if it would be a good investment and worthwhile to get these items fixed or replaced. Remember, your landlord may pay for it. Don’t get more than three opinions, however, or you will be updating your whole office!