Things To Consider When Determining The Future Value Of A Dental Practice

By Darren Shanahan, AVAIL Dental Exit Advisory Services (Dental Broker Services)

One of the things that we've been talking a lot to clients about, and in particular last week, we had a really good session talking about the future value of a dental practice and kind of getting it set up for making sure that there's predictable outcomes.

The "Game" of Business

Unfortunately, in a game like football or hockey or something, there's no real predictable outcomes because you're really not sure what the other aspects are gonna be hitting you throughout the game.

The difference being of course in a business, you can somewhat dictate predictable outcomes if you pay attention to the right metrics in a practice, for example.

So with a dental practice here, you want stabilized metrics, hygiene, rent, lab, supplies, staffing cost, new patient flow, the right balance of procedures, the right balance of teamwork.

All of those components, kind of put together, will help you drive the practice and continue to maintain value.

The Big Question: Maintaining Your Clinic's Value

We've heard often, "we're doing 1.5 right now. Our practice is worth about 1.92 million based on current market and we're just wondering how do we then go about to maintain that value?"

The first thing is maintaining their hygiene program...

They've got an excellent hygiene program, so we want to keep that hygiene program and maybe grow it a little bit. It's always great to have a little bit of, what we call, superior metrics, and they have a very good hygiene in their particular practice.

There's No "I" In Team

Some variable to consider are keeping the staff on, keeping the stable staff at the front, keeping the stable staff at hygiene, keeping stable patients in marketing. So not tailing off their marketing come towards the end, keeping your predictable hours kind of going and not tailing off saying, "Okay, well, I'm only gonna work three days a week."

You got to keep the pedal to the metal I guess is probably the bigger word from that perspective. You want to continue hitting those rules of thumb.

What Are The Numbers

In terms of hygiene, you want to be getting anywhere over 25% of hygiene staff wages.

Expenses kind of in the 26% to 28% range.

Associates, probably in the 24% to 26%, and that includes the owner as well. You got to pay the quarterback and you got to pay the owners in that as well.

Rent's usually 6% to 8%, but these are large variables depending on the size of practice and the production, so sometimes that rent number can vary.

Supplies, 6% to 8% too, depending on the type of practice you're running.

What About The Bottom Line?

Ultimately, at the end of the day, you want to keep that somewhere between 20% and 30%. Obviously, the more efficient you can make it, the better your running back's gonna do when he takes a ball across line.

Obviously, there's gonna be outliers to those predictability of a future practice, right?

Are There Some Outliers?

So, someone gets hurt, something happens to the lease, something happens to the location of the building.

Economic factors can play a large component of it as well.

Sometimes this particular scenario that we were working with is, we're looking at their family and saying, "Okay. Well, what happens if someone falls ill early? How do we maintain this?"

So outliers kind of being in predictability a future value... we've seen them drive up. In one case where all of a sudden a practice closed down three doors down and they got a whole influx of new patients.

We've also seen the other side of it as well, where there's been an issue with the lease. They can't renew their location, they have to move locations. So it's protecting those items to keep that predictable future value of the practice, right? You need that stable location.

Where's The Leverage At For Owners

When you're getting ready to sell, you start off by doing a little bit of a review of the practice review of the procedures. A review of the location, the staff, and then being able to basically take that and say, "Okay, is this predictable going forward?"

If we keep all these things the same, can we maintain the pace and finish our career with the same value and or greater value three, four, five, years down the road, obviously, when we get there?

When we're talking about predicting future value in your practice, you've got to keep on top of the key metrics. I would say, if you want to chat a little bit further about your situation confidentially - give us a shout on our 1-800 number, 1-866-Go-Avail. Or you can book a consult with one of our experienced team members at CallWithAvail.com.