Episode 83 – Practice Value

What is your practice really worth? A lot of docs have been asking me questions about how the outside world views the worth of their practice and how they can boost that value. So today I’m digging into what:

• Someone would be willing to pay for your practice
• 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

I’ve asked Productive Dentist Academy’s Success Advisor to open up time in her schedule for you. She has 3 complimentary session spaces available so SCHEDULE NOW to determine what your true practice value is and discover ways you can boost your value.

EPISODE TRANSCRIPT

01:02

Hello, this is Dr. Bruce Baird, with the productive dentist podcast, and we’re going to talk about practice value and valuations and those types of things. And, and and how does the outside world look at our 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 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 considering selling the practice to the associate.

And there are 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 and those things can be put together. But what is someone willing to pay? That that’s a different. That’s a different animal. And how can I affect that? That number? You know, what, what does it look like? And this is like, if we step back right now, I said, how would this work in any business?

Obviously, the first thing we always think about is sales. If I increase our sales, what we’re going to find is, you would think our practice would 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 they’re always buying new equipment.

And I tell you what, I resemble this remark. You know, 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’t 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. 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? 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?

04:15

And 90% of people say, Well, yeah, I mean, that’s obvious. But what if your $2 million practice you were netting 500,000? And in your $1 million practice, you’re netting 550,000? Which, which would you rather, 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 EBITDA, 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 where you could kind of look at your numbers and say my practice is going to be worth somewhere around 75% of previous years.. And then you 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 800,000, 2 years ago was at 1.1. million, and this year was at 1.4. As opposed to a practice, where if I’m buying that practice, it’s been 1 million, 1 million, 1 million every year, no real growth, you know, and the dentist will say, Well, you know, I 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 opportunity, meaning that dentist really isn’t doing all the dentistry that’s there. And they’re just kind of keeping it 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 the buyer to know that I’m doing hiring 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 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 dentists and you’re selling your practice. I’m now looking at all of these other issues. I’m not just looking at EBITDA, 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 in marketing, I’m going to watch my expenses, I am going to want to increase my EBITDA 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 you’re going to say, okay, does this offset what I would make over the next five years? Does this offset that? Let’s just say I’m 55, I want to work till I’m 60. And I’m done. All right. And the DSO says, We’re gonna 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.

08:58

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, 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 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 dentist early in our career where we’re 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 new patients. Yeah, that is really good. But not just cleanings and small kids, unless I’m a pediatric doc, you know, but but I’m looking for I’m going to that production by procedure report, as I’m evaluating a practice to buy, you know, I’m looking at, I’m saying, well, do I do a lot of implants? Well, I don’t do implants, okay, well, this may not be the practice for me.

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 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, the guy’s selling, I’d like to buy his practice so that I can, you know, get his get his patients and, and what I look at there is, I would absolutely evaluate what kind of dentistry has been being done.

11:07

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 is a buyer going to want a buyer in my opinions 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? You know, okay, that’s 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. I you know, as a buyer, I know that this practice is bootable. 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 their 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 Dentist Academy 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 dentist who’s thinking I might want to sell now, call us because we can grow your business, 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 type 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 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, that the dentistry that’s done there is not good, whatever. That’s not true. That’s not true anymore. 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. Stacy will work with you and get these things handled.

So thank you guys so much. I look forward to next week’s podcast. Love you guys. Take care. And remember, this is Dr. Bruce B. Bayer the productive dentist signing off. But before I do, make sure you go to our website, productivedentistpodcast.com. Give us a like and we look forward to sharing some more information with you on our next podcast.