Key Items Buyers Look For In A Practice
- Collections – Most buyers want a good base amount of collections. The average practice produces around $500,000 per year. If you’re below this amount, expect your practice to take longer to sell as there are few dentists who want a small practice that they can grow. Most want to buy it, move in and get cash flow from the very start.
- Cash Flow – Buyers want to be able to pay the debt service on the practice and also pay themselves a decent paycheck. If you have an average size practice, your overhead should be at or below the national average of 65%. This is after the “add-backs” that are done on your tax returns which “add-back” those expenses you are running through your practice which are really not operational to the practice.
- Hygiene Recall – A solid recall program should be in place. Approximately 30% of the collections in the practice should be from hygiene for a stable practice. A little less is okay, but the lower you get, the closer you are to running an emergency clinic than a stable dental practice. Not that there is anything wrong with that, you just reduce your pool of buyers if you have lower hygiene production. At the same time, if you have really high hygiene – 40% or higher, that either means your hygienists are awesome and so is your patient retention, or, you’re not doing much in the way of procedures and doing a lot of “watches”, fillings instead of crowns, etc.,
- Digital Technology – While this isn’t a must, most buyers want to see digital x-rays at a minimum. You can still sell your practice without digital x-rays, but expect the price to be slightly lower. Panoramic x-rays are great as the machines are less and less expensive. Digital charts are also nice to have.
- Decent Lease – With the commercial real estate market going crazy, you never know what you’re going to get. It’s good to have a lease term of at least 5 years out with a 3-year option on top. Problematic leases with tear down clauses, little parking, or those with short-term leases and the landlord not willing to extend the lease will cause a formidable problem in the sale of the practice.
- Updated equipment and décor – If you have older chairs, be sure and at least have the coverings in good shape. Older chairs are fine, but torn dental chair covers are not. Dental chair covers are inexpensive. Get new ones if yours are not in good shape. Old carpet, paint and outdated countertops are also a turn-off. A bit of new carpet, paint, and countertops go a long way in making a practice feel fresh and new for not very much money.
- Poor Bookkeeping and Accounting – Have I got stories in this area! However, I’ve been sworn to secrecy. If you’re running your Porsche lease, spouses’ dermatologist appointments, vacations to Italy, or doing anything remotely grey in the accounting world through your practice, STOP! We have had practices we could not sell due to too much funny business going on in the books. Bank credit departments look at the numbers and ask a lot of questions which leads to buyers getting very scared and running away. I’m sure if you have a good accountant, they are following generally accepted accounting principles for your practice and there will not be a problem.
These are just some of the hot items that can quickly turn off a buyer and will give you the best chance of selling your practice. Not being able to check off the box for each of these items does not mean you cannot sell your practice, it just means your buyer pool will be smaller and it will take longer to sell. If you’re two to three years away from selling you can use this as a guideline to prepare your practice to sell over the next couple of years.