Whether you are fresh out of dental school or have been working as an associate for several years, the time may come when you want to buy your own practice. More and more dentists are choosing not to go this route, opting instead for corporate dentistry, but there is an undeniable appeal to owning your own practice. Yet it can be tough to figure out exactly how much it will cost to buy a practice. Here are some considerations.
The valuation is simply how much the dental practice is worth. This is determined by formulas that range from simple to highly complex, and is always an approximation. Still, the valuation is the jumping off point for negotiating a purchase price, so it is important to have a professional appraisal. Common valuation methods include:
Based on either capitalized earnings or discounted cash flows, income-based valuation works well for dental practices that have a strong history of growth. This type of valuation can be more challenging for newer practices and those that have gone through financial issues.
Market-based valuation can be a desirable choice for a newer practice without much history, as it is based on the market data of similar practices in the area. However, it is not generally considered as reliable as income-based valuation.
Net Asset Valuation
Net asset valuation attempts to put a dollar figure on not only tangible assets like chairs and real estate, but also such intangibles as the goodwill the practice has developed. It is tricky, since as much as 85 percent of the value may be intangible, but can be the right choice for practices that have had financial problems or have major tangible assets.
At best, valuation is an educated guess. There is simply no way to take into account all of the factors that are part of buying a dental practice. Here are a few more things to consider:
Equipment breaks. Staff members must be paid. Operational budgets may not be streamlined. Although a careful look at recent budgets can help you plan, always build in a cushion for unexpected expenses.
Until you actually purchase the practice, you have no real way to know how the staff operates day to day. From family troubles to workplace feuds, staff members are human beings with lives that are often messy. Be aware that workplace productivity will never be as high as it seems on paper, and try not to schedule more than 80 percent of any individual’s day. Over time, you may need to weed out bad apples to boost staff morale.
Accepting change is hard for most people, especially when it comes to their healthcare. Some may leave the practice altogether. Prepare your budget for a dip in patient numbers, and make a plan for actively recruiting new patients.
If you are a specialist, tapping into an existing referral network is vital. If you don’t have a local network, and one didn’t come with the purchase, you will need to invest some money and time into building those relationships.
It is nearly impossible to predict all of the costs associated with buying a dental practice. However, if you start with a professional valuation and then set aside cash to meet unexpected expenses, you will go a long way toward quickly achieving profitability.
Ascent Dental Solutions is a full-service agency dedicated to helping dentists build their practices and map out their careers. It is the brainchild of Dr. Kevin Coughlin, who earned his doctorate at Tufts University School of Dental Medicine and currently serves as a faculty member there. While Dr. Coughlin continues to practice dentistry as the principal owner of the 14-location Baystate Dental PC, he has a strong passion for helping fellow dentists maximize their success. If you are interested in learning how to take your dental practice to the next level, please contact Ascent Dental Solutions today at 413-224-2659 to learn how Dr. Coughlin can help.