Dental Practice Valuation Issues – What a Seller Can Do

During my many buyer representation engagements I tend to see some common issues when it comes to practice valuations that sellers could have avoided to help maintain their practice values. Here are some of those areas.

1. Clean Record Keeping:

Remember, buyers and their advisors will be picking over your information, it’s like inviting someone into your home, and you want it to be clean. Your practice books and records should be the same way, clean, easy to read, and at your finger tips. For example, your Quickbooks file should match the tax return numbers and if not to the dollar, pretty darn close and easy to match up.

2. Complete and Accurate Practice Management (PM) Reporting:

Make sure your PM software is current and accurate. You should be recording production, adjustments and collections by provider. Clean up your accounts receivables WELL before you plan on selling.

3. Don’t Coast:

This is one of the worst things a seller can do prior to selling their practice. It decreases dentistry production and therefore, decreases practice revenue which buyers AND bankers do NOT like.

4. Don’t Reduce Your Hygiene Hours:

Let me correct myself, THIS is the worst thing you can do. Not only are you reducing your practice revenue, you’re potentially losing patients as well.

5. Update Office Appearance and Equipment:

Again, just like a house, an outdated décor with old equipment will generally create less excitement with a buyer and less excitement means a reduced offer. Create excitement with your buyers with current décor, updated equipment and a fresh appearance.

6. Overpaid Staff:

Be aware of your staff compensation and make an effort to make sure it stays within “market” for your area. There’s nothing wrong with showing appreciation to your staff with discretionary bonuses, fancy trips, paying for CE travel, etc., however, make sure they’re aware that these are not customary fringes so they don’t come to expect it from their new boss.

7. Inflated Overhead:

Well before you sell, I’m talking 2-3 years ahead of time, begin to evaluate your practice overhead expenses and make sure you’re ONLY spending on things you NEED. I’m not talking about skimping on updated equipment; I’m talking about wasting money on unnecessary supplies, small toys, unnecessary services, etc. Become a good CFO! Profits will drive value most of the time and wasted overhead eats into your profit and will usually drive down the value of the practice.

8. Office Policies and Systems:

Well before you sell, make sure you have excellent operating systems and policies. If you’re not collecting a patient’s portion of the fee at the time of visit, make that change now. If you don’t take credit cards, start taking them. If you’re not running daily, weekly and monthly management reports, start doing so.

9. Track Your Referrals:

At least one year prior to a sale, begin tracking the procedures you refer out every day and be prepared to provide your broker with some really good, accurate information for the prospective buyers.

10. Don’t Change or Eliminate any PPOs Prior to a Sale:

This can backfire if you begin to see fewer patients even if the revenue stays about the same. In most cases when a practice decides to eliminate PPOs, there’s a transition period where you’ll have holes in the schedule. Those PPO patients that opt NOT to come back for their scheduled recare appointment or follow-up work will in turn cause revenues to be lower for a period of time.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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