Dental Practice Sales: Paying for Potential

Simon Palmer, January 2015 -  

When trying to sell any business a seller will try to describe the business not just as it is but also as it could be. Being able to show untapped potential and unexplored opportunities can mean a significant premium paid above and beyond what the financials of your dental practice would suggest.

What opportunities might buyers be willing to pay a premium for?

Excess Capacity
The term excess capacity describes a situation in which actual production is less than what is achievable for a business.
Ways of showing excess capacity in a dental practice could include:

  1. A room in the premises that could one day be converted into another operatory means that the practice’s production is able to grow beyond its current chair limitations without having to move.

  2. A council permit allowing more practitioners to work in the premises than there currently are or for the practice to be open more hours than it currently is.

  3. Having low fees when benchmarked against other practices in the area.

  4. An appointment book full with patients far into the future.

  5. Hours currently not worked by the practice or any dentist in the area (evenings or weekends for example).

Unrealised Opportunities

  1. Having achieved current practice figures with little or no advertising.

  2. Opportunities for prominent signage that have not been utilised.

  3. Recent investment that the practice has undertaken that is not yet reflected in the practice production but is likely to in the near future (an OPG, New signage, rebranding, etc).

  4. Demographics in the area that have not been catered to by the practice thus far (for example children, a growing ethnic group) that could be incorporated into the practice for future growth.

Any potential underservicing by the practice that can be rectified by a future owner should be made explicit.
Examples of this could include:

  1. Significant amounts of lucrative treatment getting referred out that could be kept in house if the buyer had certain clinical skills (ortho, implants, etc.).

  2. Poor participation in continuing care/ 6 monthly check-ups.

  3. If the practice operates reduced hours (if the practice is not open on Wednesday or open half day Friday).

  4. Any historical closures of the practice that will not need to be repeated by a buyer. For example, if the practice was closed for 3 months last financial year for long holidays, renovations, flood, etc.

Changes In The Market Place

  1. Any impediments to business that have been or are about to be removed. For example road closures in the area that are being removed. Renovations to the façade of the practice that are nearly finished.

  2. Any developments in the area that might impact positively on the patient base (a new large medical facility, residential development, train station, industry moving to the area, etc.).

  3. New government spending that you might be the beneficiary of (for example CBDS if your practice is near a school or day care).

The above 16 items are a few of the many ways that might show potential future growth to a buyer in order to maximise the asking price of a dental practice.

Being able to identify and highlight this hidden wealth in a dental practice is not something that could be done by an accountant alone or a generic business valuer. It takes a trained eye with extensive experience in the industry and with many transactions under their belt.

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