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April 18th, 2022

Episode 121 – Requested Replay: What is the Value of Your Dental Practice?

“What is someone willing to pay for your practice and how can you affect that number?” ~Dr. Bruce B. Baird

What is your practice really worth? 

A lot of docs have been asking me questions about selling their practice and the value of their practice and let’s be honest, as much as we may enjoy dentistry and serving patients, none of us want to do this forever. Savvy business owners keep one eye on the horizon and ask “when can I retire, and how much can I get for my practice when I go to sell?”

The sad truth is most dentists are not able to sell their practices at a value that will support their lifestyle in retirement. So what happens? Where’s the disconnect?

Something a lot of people don’t understand is how the outside world looks at the value of their practice. For example, you may think if you increase your sales, then your practice will be worth more. Well, that’s true…as far as the revenue side but what about debt and overhead?

I was a great example of this. I love the latest and greatest technology and I was always buying new technology and equipment but all that costs money. I was thankfully able to out produce my need to spend money, but that is unusual. It’s so easy for us dentists to see what others are doing and say I want that but you have to be careful that while chasing the lates and greatest you aren’t actually negatively impacting the overall value of your dental practice. 

And that’s just one example. The truth is, there’s not any one thing that determines the value of your practice. There are many, many things and if you’re wanting to sell, then there is no time like the present to get a good handle on understanding the true value of your dental practice so you can grow that value into a number that will support your future.

I believe every dentist deserves to have a practice that is high-value, so today I’m digging into what:

  • Someone would be willing to pay for your practice
  • How to determine what your practice is really worth when you look at production & income vs. debt & expenses
  • Numbers and areas you can look at to increase your practice’s value

Never miss an episode! Subscribe on iTunes & Spotify. Visit us at http://www.productivedentistpodcast.com

EPISODE TRANSCRIPT

Dr. Bruce Baird

Hello, this is Dr. Bruce Baird with the Productive Dentists Podcast today we’re going to talk about practice value and valuations and those types of things and, and how does the outside world look at the value of our practice? And how can we increase our valuation or increase the value of our practice? on an ongoing basis? And so the questions I often get, and I have doctors that, you know, will call me and, and they’ll say, hey, Bruce, you know, I was thinking about selling my practice. Another question might be, I’ve got an associate and I’m, I’m considering selling the practice to the associate.

They’re really great professionals out there that can do your standard, you know, valuations on your business, based upon your equipment based on your productivity and your profitability and those things can be put together but what is someone willing to pay? That’s a difference? That’s a different animal? And how can I effect that number? You know, what, what does it look like? And this is like if we step back right now and said, How would this work in any business? Obviously, the first thing we always think about is sales. Okay? If I increase our sales, what we’re going to find is, you would think our practice should be worth more. Well, that’s true. There are dental practices that are doing 2 million in revenue and they are busting it, they’re kicking butt. As far as the revenue side, but they have debt, they don’t handle the expense side very well and so they’re always buying new equipment and I tell you what, I resemble this remark. You know, I, I love the latest and greatest technology and I’m somebody who pretty much had all of that technology in the office, I was fortunate that I was able to outproduce my necessity to spend money, but that’s unusual.

There’s not a lot of practices that can do that but as a dentist, you see what other guys are buying and doing and you think, Oh, well, I’ve got to have that. So you have to be really careful when you start, you know, going out and buying new equipment and for a long time in my business. I would buy stuff just at a meeting because the rep was nice or whoever and I thought yeah, this makes sense but I didn’t think of it from a business perspective and so, you know, we’ve talked about predictive analytics in the past, I did a webinar today on it earlier and, you know, you want to be able to predict what your monthly expenditures are going to be and can you handle that? And can you offset it? Because people would say is it is if I grow it to a $2 million practice, is that better than if I grow it to a $1 million practice? And 90% of people say, Well, yeah, I mean, that’s obvious but what if your $2 million dollar practice? You were netting 500,000 and in your $1 million practice, you’re netting 550,000 Which would you rather have? Well, I’d rather produce a million and net 550 and that’s where the overhead conversation comes in.

The outside business world looks at that as EBIT, ah, you know, earnings before interest, taxes, and depreciation. So they look at it differently but then there are also some businesses that they look at revenue and so what I’ve seen in the past, gosh, in the past 15 years is how things have changed. In this kind of valuation market, there was a time when you could kind of look at your numbers and say, My practice is going to be worth somewhere around 75% of previous years. collections and then you’d look at, okay, maybe it’s over three years of previous collections, what you want to show if you’re trying to grow your business and show more value. If I’m buying your practice, I would much rather see a practice that three years ago was at 800,002 years ago was at 1.1 and this year was at 1.4. As opposed to a practice, where if I’m buying that practice, it’s been 1,000,001 made 1 million every year, no real growth, you know, and the dentists will say, Well, you know, I’m just I just kind of stick with what I do but if I’m buying a practice, are there opportunities here where yep, there may be a lot of unspoken opportunities, meaning that dentist really isn’t doing all the dentistry that’s there and they’re just kind of keeping it going, I would look at the valuation based on new patient flow, you know, how many new patients are we seeing, but not just that, what is the production per new patient, and that valuation, for my practice, I want, I want a buyer to know that I’m doing higher end procedures, I’ve got patients that we’re marketing to that can afford the dentistry, you know, we talked about that with authentic marketing, we’re marketing to patients who need the services that we provide.

So I’m looking at this practice to buy and I’m saying, okay, which is, which is the best, and I want you to be able to look through the noise and you know, what I said was 80%, then it dropped to 75% and then 65% and as DSOs, have kind of come into the marketplace and begin buying up practices. There are other reasons that doctors are selling and so they’re saying, Well, if I get, if I don’t have to do the business anymore, I’ll take 65% but I want to continue to work. If it’s a straight sale, that’s a different animal. Because a straight sale you’re selling to possibly an associate, or possibly a new dentist, and you’re selling your practice. I’m now looking at all of these other issues, I’m not just looking at EBITA, I’m not just looking at, you know what the future is going to hold for me, I’m wanting to get out and so when I look at those things, it’s extremely important that we understand where we’re at as part as far as this practice, valuation conversation goes. Now, if I’m trying to grow my business, I’m going to spend money on marketing, I’m going to watch my expenses, I am going to want to increase my EBITA or my net revenue, I’m wanting to lower my overhead, the more I can lower my overhead, the more attractive that looks to a new dentist, or to when I say new dentists, it doesn’t have to be a young dentist, it could be a dentist buying your practice.

If I’m evaluating that, in a DSO market, very similar. I mean, I still want to have good profits but what you can count on, if you’re going to sell to this DSO, you’re going to say, Okay, does this offset what I would make over the next five years? Does this offset or let’s just say I’m 55? I want to work till I’m 60 and I’m done. All right and the DSOs says, we’re going to pay you 25% of what you do but we collect and you’ve been getting 38%? Well, you have to figure out what have I been doing? That’s a 13% difference and you can figure it out, they’re going to pay me cash right now and I’m going to have 13% less in revenue. That’s one way of looking at it. Another way of looking at it is the DSOs going to buy I’m not going to have the stress of running the practice and my production is going to go up that 13% or 14% or 15%. So I will make it similar to what I have but you have to be realistic in what you’re looking at and how you’re thinking that the days of selling to a DSO and walking away. You know, those, for the most part, aren’t around anymore and I think it’s important that you understand that because all of us whether we’re young dentists early in our career where we’re a mid dentist or whether we’re late in our career, practice valuation is something whether you’re buying or whether you’re selling, you just need to know what you’re looking at, again, as a buyer, I’m looking at, I’d like to see growth. I’d like to see the new patient flow that is really good but not just cleanings and small kids, unless I’m a Pete Adonis, you know, but I’m looking for I’m going to that production by procedure report is I’m evaluating a practice to buy and I’m looking at, I’m saying, Well, do you have to do a lot of implants? Well, I don’t do implants, okay, well, this may not be the practice for me.

They do a lot of love map surgery, Oh, great. I’ve got a period lace or they do. In other words, you’re evaluating a practice based on how you can grow it. Another example that is for I’m not gonna call a seasoned veteran, a seasoned dentist, you know, that wants to buy another practice in town. As an example, you know, and I have people ask me this all the time, you know, hey, I’m looking, there’s another office down the street that guy’s selling. I’d like to buy his practice so that I can, you know, get his patients and, and what I look at there is I would absolutely evaluate what kind of Dentistry has been being done. have, you know, have they been doing comprehensive exams on these patients and doing pretty much all the dentistry that they need, they may have 1000 charts but there may only be $500,000 worth of dentistry that needs to be done, they may have 1000 charts, and they may have $5 million worth of dentistry that needs to be done in that practice. So these are the things that I want you to think about and there’s not any one thing, it’s, it’s, as part of your imagination, you need to look through these things and I’m just trying to give you some guides that you can do that if I’m selling, what things are a buyer going to want. A buyer, in my opinion, is going to want to have either a really nice growth in the practice and show you that, hey, we’re growing, and this is an opportunity for you. As a seller, I’d be saying why are you leaving? Okay, that’s a fair question.

Why are you leaving? So you have to have these answers. You have to have these answers, and you’re growing your business? Did you just boost it up to sell? Well, yeah, if I’m the seller, yeah, that’s what I did. You know, as a buyer, I know that this practice is boost double, meaning if I come in with new ideas, new thoughts, and some new, you know, maybe new leadership, is this a practice that I could double? Because I have no doubt that any practice out there can double its revenue in a matter of two years. So if you’re selling, I have no question, you could double your revenue in two years. That’s what productive dentists does. I mean that we work with dentists to double revenues. You know, if you increase your productivity per hour, by four or five, 600 an hour, you’ve doubled revenue and your practice, you’ve also increased your ability to be able to sell the practice, and make a great return on your investment. So, you know, there’s a lot of dentists out there that are talking about valuation, should I sell it? Should I do this? And they asked me these questions through these webinars and through all these podcasts and stuff I do, what I can tell you straight up, is getting involved with productive dentist Academy. Yes, I have a vested interest. You know, I’m a part-owner, but so are the employees.

We sold 30% of our company to our employees. So we all have a vested interest in growing your business and so if you’re the if you’re the dentist who’s thinking I might want to sell now, call us because we can grow your business for 568 100,000 a year, which is going to put an enormous amount of money in your pocket, and it’ll be worth it 10 times over. If you’re somebody who says, I’m, you know, I’m not sure if I want to sell but I’d like to have a plan. You know, we can help you with that. So these are the types of things that you need to start thinking about when we start talking about valuation, it gets very there’s a gray area out there, when DSOs are kind of jumped into this marketplace and, you know, they’re very successful, they’re doing very well and we used to think, Oh, it’s just because, you know, the dentistry that’s done there is no good, whatever. That’s not true. That’s not true anymore. There. There are some amazing companies out there and they’ve got the economies of scale. So what my suggestion is, give us a call and let us evaluate. You can you know, just call productive dentist Academy and they will point you in the right direction. Thank you guys so much. I look forward to next week’s podcast. Love you guys. Take care. This is Dr. Bruce Baird here and I have a question for you. Do you feel like no matter how hard you try, you can’t get off the plateau into the next level of your business.

I guess It can be incredibly frustrating to work harder and longer and not see any increase in your revenue but I do have great news for you. Productive Dentist Academy is hosting a productivity workshop from September 22, through the 24th in Frisco, Texas, so you and your team can come to learn the tools and systems, you need to get your dental practice to the next level. We’ve been doing this for 18 years and it is a course that you really don’t want to miss can learn for yourself like hundreds of other independent dentists have learned, you can get off the plateau. It’s just about knowing what levers to pull when you’re in business.

To make things a little bit easier for you. You sign up for the PDA productivity workshop during the month of April. We will give you access to PDA online for free and to our comprehensive business advisory sessions so you can start increasing your revenue right now even before September. Again, sign up for the PTA workshop during the month of April and you’ll get PTA online and the advisory session at $2,500 value is our free gift to you. So reserve your seat go to productivedentist.com/workshop now that’s productivedentist.com/workshop. This workshop is already 50% Full for September. So register today to secure your seat one last time visit productive dentists.com forward slash workshop. Thank you for joining me for this episode of the Productive Dentists Podcast. If you found this episode helpful, make sure you subscribe, pass it along to a friend. Give us a like on iTunes and Spotify. Or drop me an email at podcast@productivedentist.com Don’t forget to check out other podcasts from the Productive Dentist Academy at  productivedentist.com/podcasts Join me again next week for another episode of the Productive Dentists Podcastst

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