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How much is your dental practice worth?

Jun 12, 2020 2:39:57 AM / by Everything DSO

How much is your dental practice worth?

How much is your dental practice worth?

The value can be drastically different depending on who is asking.

Here are some factors that determine your practice’s valuation when selling.

Dentists and DSOs

There are two main types of buyers of practices: Doctors and DSOs.

Other dentists may want to buy your practice. Traditionally this is how it was done for many years.

However, times are changing and young dentists are not buying or starting their own practices as much as they used to. 

The debt after dental school is simply too much for many dentists to also take on the financial burden of buying or starting up their own practice.

Enter DSOs. They are the fastest growing segment in the dental profession and the trend is accelerating.

DSOs (Dental Service Organizations) are here to stay… and there is a HUGE difference between how doctors and DSOs determine the value of a dental practice.

DSOs use a Multiple-of-Profit Valuation model which means that the value is a function of how profitable your practice is.

Typically a DSO views a practice as more valuable than a doctor because they are largely concerned with profitability over the long term.

Not only that, they are able to pay much more to acquire a practice because they use their own capital.

Dentists who are looking to buy your practice will also look at profitability to determine how valuable it is.

However, many times dentists will need to get a bank loan to pay for the transaction.

That means their purchasing power is limited to how much a bank will lend them.

Typically, a dentist can afford to buy a practice for 60-80% of the total profit of a dental practice. That is because a bank will not usually give a loan for anything larger than that.

The end result is that a DSO’s valuation will be higher than a dentist who must take a loan to purchase your practice.

Size of Practice

The size of a practice is very important in determining who would be interested in buying it.

DSOs typically are not interested in small solo practices. 

Here are the primary types of business DSOs are interested in:

  • Generating a million plus in revenue, ideally 2 million or more in revenue
  • Multiple doctors working in the office, the bigger the better
  • Six to seven chairs
  • Multi-site group practices are a prime prospect

Small solo practices are more likely to appeal to other doctors looking to buy their first clinic or who are looking to expand.

Location and Local market

A second major factor is the anticipated future profitability of a practice.

A town with the right mix of services and growing population will be factored into the final equation, especially by DSOs who have a longer timeline in mind.

How Well You Negotiate

DSOs and Doctors view your practice as an investment.

As such, they are trying to buy a valuable investment at a competitive price.

Of course, owners want to sell their practice for the highest fair market value.

Negotiation between the two parties is how they can reach the final agreed value.

Poor negotiation skills would result in a sale that is far from the true value of a practice.

Negotiators who know the most are the best prepared to have the deal go their way. 

Ideally, it’s a win-win for everybody involved.

Keep in mind, each type of buyer has their own priorities and limitations. (Profitability and access to capital come to mind.)

Therefore, being armed with the rich expertise and know-how during negotiations can easily add a few percentage points to the final agreement.

If you are in a position of selling a practice, it is likely that it is something you have never done before.

As they grow, DSOs continue to buy practices at an increasing rate and are very prepared for this type of engagement.

If you would like more information about how to determine the true market value of your practice, I invite you to schedule a confidential, no-cost consultation with me. Click here to see my Contact page.

Everything DSO

Written by Everything DSO

 Stan Kinder

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