When Selling A Dental Practice Know The Buyer Hot Button Issues – Part 2 of 2

By Patrick Johnston, McLerran & Associates

When planning to sell a dental practice, it is crucial for selling doctors to understand what practice attributes are most important to potential buyers so they can make any changes necessary to enhance practice value and marketability in advance of the sale. In Part 1 of When Selling A Dental Practice Know The Buyer Hot Button Issues, we identified four “Hot Button” issues that attract significant attention from buyers when evaluating practice acquisition opportunities. Part 2 of the article will focus on additional practice characteristics that, when they meet the buyer’s expectations, can help to increase your dental practice valuation and foster a timely and successful dental practice transition.

Your Dental Practice Brokers Buyer “Hot Buttons” Part II

Hot Button #5:
Type of Patient Base. When we sell a dental practice, our experience has been that the majority of buyers are looking to acquire a practice with a fee-for-service and/or PPO patient base. DMO patient bases are definitely waning in popularity, and a patient base with a significant Medicaid component may be viewed negatively by some buyers.

Solution: With the help of a practice management or insurance consultant, conduct an analysis of the insurance plans that you currently accept along with those that are prevalent in your market area to determine if it is worthwhile to drop some plans and possibly add others. If handled properly, these changes may help increase new patient flow, decrease practice overhead, and make your practice more valuable and marketable to potential buyers.

If Medicaid accounts for the majority of your patient base, you have likely already experienced a significant decrease in revenue and should consider developing a long-term strategic plan to build a fee-for-service and/or PPO patient base. A location/demographic analysis will be essential to identifying potential opportunities in your area.

Hot Button #6:
Patient Flow. Active patient count and new patient flow are extremely important to buyers in evaluating the health and goodwill of a dental practice for sale. We have often heard that, on average, patients switch dentists every seven years. Therefore, an easy way to determine if your patient base is growing or declining is to divide your number of active patients (seen in the past 24 months) by seven and compare the result to the number of new patients you have seen in the past year. If the number of active patients leaving your practice each year is larger than the number of annual new patients, then your patient base is shrinking and may be cause for concern.

Solution: Conduct a periodic analysis of your active and new patient counts to evaluate the health of your practice and identify trends that may need to be corrected. Enhancing the patient experience and maintaining an effective recall system can ensure maximize patient retention, while implementing an internal marketing strategy (asking for referrals from existing patients) and an effective external marketing strategy (such as a website or direct mail) can improve new patient flow. Hiring a practice management consultant on a periodic basis can help you and your team to stay on track in these areas.

Hot Button #7:
Upside Potential. When an acquisition opportunity provides the buyer with the potential to increase revenue through making minor changes in the practice, the buyer will typically be more inclined to offer full market value for the office. Retaining services that are being referred to specialists, increasing operating days or hours, and implementing relatively simple internal or external marketing strategies are all attractive ways for a buyer to increase revenues and patient flow.

Solution: While you should take advantage of the revenue potential of your practice prior to the sale, be sure to identify and quantify any opportunities that you have not pursued to your dental practice broker and potential buyers.

By understanding the factors that influence a potential buyer’s perception of value, making the changes necessary to maximize practice value and marketability, and planning ahead, practice owners can ensure that they will be in a great position when the time comes to sell their most valuable asset.