How much is my practice worth? What do I need to do to maximize my practice’s value?
Should I sell now or wait?
Dental Practice Valuation: Overview
We do not sell practices. We are an independent third party providing an unbiased, true value of Canadian dental practices. We provide added value where needed and cut costs for our clients where possible.
Here are the eight most common reasons why dentists hire us:
A dentist is preparing to sell (or considering the idea of selling)
A dentist needs to sell their practice in a hurry
Associate buying in
Selling/gifting the practice to a family member
Selling to a corporation
Incorporating, asset rollovers or CRA purposes
1. A dentist is preparing to sell (or considering the idea of selling)
The dentist is looking to sell the practice at the highest price to the right buyer. We want to be fair in our valuations, but at the same time, we would like for the seller to get the highest possible price. We can achieve that and make the purchaser happy. How do we achieve that?
In our experience, many buyers do not see the potential of the practice they are purchasing. This is where we spend about 70 percent of the valuation. We conduct a thorough internal analysis of the practice and external analysis of the environment. We rely on our industry-leading marketing and competitive information to highlight as many opportunities as possible. We also identify the risks and foreseen challenges and provide solutions on how to turn these challenges into opportunities. By unlocking the true potential of the practice and creating a road map for the buyer, we help the seller elevate the value of their practice and generate a higher return on investment.
2. A dentist needs to sell their practice in a hurry
A practice that needs to sell quickly is called a distressed practice. It could be because of something that happened to the dentist – i.e. injury preventing the dentist from work for an extended period of time (or permanently) or death. It could also be distressed if something happens to the practice – i.e. a dentist has a demolition clause and now has 3 months to leave the premises.
The valuation for a distressed practice is slightly different. First, we are operating under very tight deadlines. We make this a top priority. We also prepare two different valuations, the first one typically within a week, and the second one shortly before the open house. In this valuation, we identify the target buyer and focus on the potential, much like the other appraisals do. The difference with this one is that the major focus is spent on how to slow down and diminish the attrition and retain maximum practice value. In a distressed practice, the seller doesn’t have the opportunity to improve anything with the practice prior to the sale, so we need to prepare a more detailed improvement plan.
A distressed practice loses money quickly, and the potential sellers know that. We get involved much more in the financials, and often do the work that we would expect the accountants and bookkeepers to do. We need to first determine the narrative of the appraisal – in other words, strategically figure out the impact the dentist has on the practice and come up with a strategy so the practice will thrive without the dentist present. In this case, it is more than just a hand-off, we need to dig deep into the practice and find out quick solutions to problems.
3. Associate buying in
This is one we get the most questions. Sometimes we get contacted by the seller informing us that they already know who the buyer is and need a fair market value because both individuals will be working at the practice. Sometimes it is the associate who asks us to evaluate, and other times they both come to us. While it is easier to represent one or the other, our unique approach of providing fair value and concentrating on actually making the practice as good as it can allow us to represent both parties.
4. Selling/gifting practice to a family member
Proud dentist parents often pass on their practice to their children. This should be a beautiful moment, but regardless of how much love there is in the family, these can go sour. Some parents are looking at selling the practice at fair market value, some are willing to part for a lower amount, and some will give it away for free. Whatever the intentions are, it is good for both sides to know the true value of the practice, which is when a third-party independent valuation is helpful. Furthermore, it gives the parents and the children an opportunity to evaluate all areas of the practice and figure out ways to improve.
5. Selling to a DSO
Corporate dentistry is growing quickly in Canada. Corporate players are buying practices every day and integrating them into the group. Corporate players typically do their own valuation and present it to the dentist. What we do is come in and work with the seller to see if the price that the corporate player suggested is fair or whether they are low-balling the figure. We analyze the practice, the buyer, the market and the current supply and demand situation. We then make recommendations on the minimum price that the seller should agree on.
6. Incorporating, Asset Rollovers or CRA Purposes
Sometimes we just need a number in order to freeze the assets at a certain value. We need a thorough valuation that can get us that number.
When we prepare an appraisal for CRA purposes, the format of the appraisal changes again. We cannot expect the person at CRA to understand how a dental practice works, so we need to cut out a lot of the clinical jargon. Instead, they look at specific parameters and want to make sure that the valuation falls in between them. We go through it step by step, much the same way CRA would, and provide a clear trail from the beginning to the end of the process.
7. Partnership Breakups
Partnership breakups are sad but similar to any breakup, it might be for the better. With partnership breakups, much like in divorce settlements, we need to factor in the value the departing partner will have on the business. At this point, the focus is less on the potential of the practice, but rather at the snapshot of the current state. The impact will have a significant margin, so many factors need to be analyzed.
If it is a situation where there is a shotgun clause, then we have to look at the value of the practice separately based on the possibility that each of the partners will leave.
8. Divorce Settlements
When there is a divorce, we need to figure out the value of the practice. In this case, we need a snapshot valuation of what the practice is worth at this time, rather than the value of the practice in the future. We don’t focus on the value of any potential of the practice. If the spouse is working at the practice we need to determine his or her role in the practice, as well as their impact on the practice if they were no longer there. In the case of a divorce, a lot of money gets lost to third parties, and we don’t want to charge more than needed.
Frequently Asked Questions
Q: Do you have a simpler and/or more economical report? Can you do the report faster?
A: Yes. Some dentists just want a rough idea of what their practice is worth. Other dentists want to share limited information with potential buyers. There are circumstances where the dentist needs to make a very quick sale, sell only a portion of the practice, sell charts, or simply need a valuation for legal or other reasons. Therefore, we can shorten the report to several pages which reduces the content and lowers the fees and turnaround time. However, if you are looking to generate the highest value for your practice, we believe that the full Dental Practice Appraisal is the best option. Ultimately, the decision is yours and we will work within your preferences.
Q: Isn’t exposing weaknesses of the practice bad for the value of the appraisal?
A: Exposing some flaws could turn some people away; however, for the majority, it will make the practice attractive. First, buyers will find weaknesses during their own due diligence. Second, we can turn any weakness into opportunity. Third, if we produce a report that only talks about good things and omits anything negative, we will lose the credibility of the buyer. In our experience, buyers are becoming more informed and aware, and are asking additional and more in-depth questions. Furthermore, as the competition in the market becomes stronger, banks, accountants and lawyers also need to ensure they complete their due diligence. The days when every dentist could open doors and just wait for patients to pour in are over. Dentists also need to do their homework. Most dentists don’t like to take any more risks than necessary. We know from Wall Street that reducing the risk will make buyers more likely to purchase and pay more for it. Just as with patients, we believe that a combination of both a great presentation and informed consent will produce the highest treatment acceptance.