Dentists are now fully back to work with some restrictions due to COVID-19.  The COVID shutdown, the new requirements, and other changes have caused dentists to have a lot of questions on their minds. The questions range from Human Resources related questions to questions on selling their dental practice. While we are not HR experts, we can answer the questions on practice values and sales. Or, at least, we can give our thoughts and opinions like everyone else. Below are some questions that we have received with the answers we provided.  Disclaimer – the answers we provided are based on our opinion, the opinions of other “experts” and past history.  

Question #1 – How is COVID and the mandatory shutdown going to affect the value of my practice? 

Answer #1 – Good practices in good locations are going to sell for a good value in the short and long term. Practices that are in a good area with good cash flow and profitability, a good patient base with a great staff will sell for a price similar to that of prices pre-COVID shutdown in most areas.  Buyers’ reps and consultants will argue that there should be a “COVID Discount” because of the shutdown and patients not coming back. We call bull on their argument. For these good practices, there is a reason they are good practices. The goodwill – location, staff, reputation, even the selling doctor is still there. Patients still need work done and the numbers have followed. We’ve spoken with several doctors recently who have nice practices and they reported that their schedules are booked out due to pent-up demand.

Now, for those practices performing below the average of $450,000 per year with not great margins, older equipment, and a transient patient base, they may need to take a discount to sell.  They probably would pre-COVID as well, but it’s even more firm now. That discount can be 10% to 20% depending on the practice.

Question #2 – Are Buyers still Buying Practices?

Answer #2 – In short, yes. The vaccine has given buyers more confidence that we are going to get through the pandemic. The number of cases and deaths due to COVID-19 has also been improving. Coincidentally, demand has increased in rural areas recently and metro areas have been a little slower to pick up in sales but we’re beginning to see an uptick.

Question #3 – Can Buyers Get Bank Financing?

Answer #3 – The National Association of Practice Brokers as a group keeps in constant contact with many banks across the country. There are some banks that provide practice financing that completely stopped lending on practices during the COVID-19 shutdown and shortly thereafter.  Most of them have started lending again. There has been a bit more scrutiny on the practices pre-COVID and more demands from the bank for monthly reporting to ensure the patients and numbers are coming back into the practice. 

Question #4 – Are Banks changing the way they are approving and structuring the transaction?

Answer #4 –   In some ways they have changed their approvals. As stated before, there seems to be more scrutiny of the practice. The banks ask for month-to-month production reports and sometimes monthly profit and loss statements. They want to see that the practice is back to within 85% or so of their pre-COVID numbers.  They also have lowered their loan amounts in some cases. Pre-COVID they were lending at between 85% and 95% of collections. They are now closer to 75% to 85% of collections.  Some banks are now requiring the seller to carry back a portion as well. 

Question #5 – What are the most important things to do if I’m thinking about selling my practice in the near term?

Answer #5 – As “they” say, Cash Flow is King. You need to get your collection numbers back to near where they were pre-COVID as quickly as reasonably possible. You should also evaluate the profitability of your practice and see where you stand compared to where you should be.  Ratio analysis will tell you if your payroll, supply, lab expense, etc., is too high, or where it should be. If you need help with the analysis, give us a call.

If you have any other questions related to selling your practice either now, or in the future, please feel free to call us anytime.  We are always here to give you any guidance and advice that we can.  Stay safe and be healthy.