- How do you appraise or value a dental practice?
Business valuation professionals, attorneys, and bankers follow standard practices for valuations and appraisals which can also be applied to buying or selling a dental practice. Establishing the value of a dental practice is based on the Risk Factor and the Net Income Factor. Higher risk results in lower practice value. A true appraisal process encompasses evaluation of several different methods of relating value to residual net income of a practice. Net income is derived by deducting all reasonable expenses of the dentistry practice from gross income. A realistic evaluation of a dental practice involves reviewing no less than three years of financial data and other practice management reports.
- What factors can increase or decrease the value of a dental practice?
Several factors contribute to a higher value when buying or selling a dental practice, such as:
- Fewer specialty services, if it is a general practice
- Less discounted fees or insurance—notably HMO/capitation
- More stability
- Higher gross and higher net income value
The aesthetics of a visibly appealing dental practice may justify a higher sale price, but may not affect the actual appraised value. Financial investments in aesthetics or major equipment will not necessarily produce a justifiable return in the short term.
- Can you explain the dental practice transition process?
During the transition process of buying a dental practice, the purchaser makes an offer to the seller which can be accepted, declined, or countered. The offer should include the price you are offering to pay, the anticipated closing date, restrictive covenant terms, and whether there will be a transfer of real estate. These details set the general framework for the subsequent purchase agreement that will be made.
Once the seller accepts the offer, the purchaser applies for financing and completes the in-office due diligence. Simultaneously, purchase agreements—and lease agreements, if needed—are prepared and reviewed by counsels for the Seller and Buyer. Once the documentation is finalized and financing is secured, the closing date is set and the staff is notified.
- What is a Restrictive Covenant?
This agreement establishes a specific time period and geographic area within which the seller agrees to not practice dentistry or participate in another practice after a sale. Additionally, the seller is usually restricted from soliciting patients or staff. Time limits are often set by state law or jurisdictional court rulings and can range from a few months to several years. Some states don’t require a time limit. A transition expert and legal counsel can review the restrictive covenant and make sure it is legally binding and adheres to local laws.
- Will the Seller’s staff and patients stay in a transition?
It is just as beneficial for the staff to remain in their jobs during a transition as it is for the purchaser to want them to stay, especially if the transition is handled correctly. With a proper transition strategy, patient retention is in the mid-to-high 90% range for transitions handled by experts such as those at Henry Schein PPT.
Contact A Henry Schein Professional Practice Transitions Professional
Have a question about buying, transitioning, or selling a dental practice? Contact us online and have a Henry Schein PPT Expert help you take the stress out of buying or selling a dental practice.
Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for buying and selling dental practices, assessing partnership and associateship opportunities, and performing dental practice appraisals and valuations.
