Posted on Nov 14, 2011
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Posted on Nov 14, 2011
By Patrick Johnston, McLerran & Associates
When we are helping our clients sell a dental practice, questions often arise after several buyers have looked at the practice information, maybe even visited the practice, but decided not to make an offer. While this can be frustrating for our sellers, we encourage them to remember that it can take time and effort to find a willing and able buyer for their practice.
Our dental practice brokers preferred strategy to maximize practice value and reduce the stress and time required to sell a dental practice involves addressing common issues that buyers have before the practice is placed on the market.
In this two-part blog, we will review the practice attributes that today’s buyers are paying close attention to – their “Hot Buttons”- as well as our recommendations on how to address those Hot Button issues ahead of time so that the decision to sell a dental practice results in a smooth and successful transition.
Hot Button #1:
Asking Price. Today’s buyers are sophisticated and very well informed about the market value of dental practices in their area. If the practice is initially priced well above its true market value, it will take much longer to sell. Even if you find a buyer who is willing to offer more than the market value, overpriced practices will ultimately end up selling near their true market value once the buyer’s advisors and practice lenders begin to weigh in on the practice purchase price.
Solution: Set an asking price for the practice within the normal range of market values in the area. This is accomplished by conducting a thorough analysis of comparable sales in the local market. Be sure to engage an experienced, local dental practice broker to accomplish this task.
Hot Button #2:
Practice Location. We find that the majority of buyers are looking to purchase a practice primarily in urban and suburban areas. Therefore, it usually takes longer to sell a dental practice in a rural area. In addition, most buyers prefer a retail-type space with good visibility, although an attractive professional building location is also a viable option.
Solution: Utilize a long-term, strategic analysis of your current location. If the area is “going downhill” or the building in which the practice is located does not have the type and volume of tenants it once did, consider the costs vs. benefits of relocating your practice to a better area or a different type of building. If you are 7 to 10 years away from transitioning your practice, the benefits and potential gain in practice value can often justify the investment required to relocate.
NOTE: If your practice is in a rural area, the other “Hot Buttons” discussed in this article become even more important to buyers.
Hot Button #3:
Equipment and Aesthetic Appearance/Cleanliness. Because most buyers have been practicing for fewer than 5 years, they would prefer to utilize newer equipment and digital technologies in their practices. The practices that have digital radiography and chair-side computers tend to sell quicker and at a higher price than their counterparts.
Also, first impressions are important, so practices that do not have a positive “curb appeal” when buyers walk in the door for the first time can lose value and take longer to sell.
Solution: Just as with your location analysis, it is imperative to have a long-term plan for keeping your equipment and facility up to date. The more time you have until the practice sale, the easier it will be to garner a sufficient return on investment from purchasing new equipment. We recommend that you upgrade your equipment three to five years prior to selling your dental practice.
In regard to aesthetics, we again recommend updating your office décor and finishes three to five years before the sale to initiate a positive response from potential buyers. Hiring an interior designer or remodeling the practice can enhance practice value and marketability.
Hot Button #4:
Practice Cash Flow. Most young dental practitioners looking to buy dental practices that generate sufficient net cash flow (after operating expenses) to cover their personal living expense needs, which can be substantial considering that many potential buyers have student loan debt in excess of $200,000. Additionally, the ability for a buyer to obtain financing for the dental practice purchase is heavily tied to the historical cash flow of the practice.
Solution: Cash flow is related to both expense control and revenue enhancement. Start by ensuring that your major expense categories (staff payroll, dental supplies, and lab fees) are within industry norms. Next, make sure that you are doing everything possible to enhance practice revenue, increase case acceptance, attract new patients, and retain your existing patient base.
We will examine three additional Buyer Hot Buttons in Part 2 of When Selling A Dental Practice Know The Buyer Hot Button Issues