Keeping Emotions Out of Buying a Dental Practice
Buying a dental practice is one of the most important decisions you will make in your professional life. Often in the excitement of finally realizing the dream of practice ownership, buyers make decisions based on feelings rather than facts. Consequently, practice transition failures happen more often than they have in the past.
As you consider the major lifetime investment of buying a dental practice, it is critically important for you to have a thorough understanding of the dental practice you are getting ready to buy.
Unfortunately, in today’s market, professional performance standards for this process are often not followed—a situation that can have negative consequences for both the seller and the buyer. It is not unusual for dental practice brokers or their representatives to tell the current practice owner exactly what he or she wants to hear — grab them by the emotion — in order to obtain the listing. If a buyer can then be enticed to pay an inflated price for the practice, the buyer may struggle for years before achieving adequate cash flow to support the overhead.
Is Overhead Considered in the Dental Practice’s Price Tag?
An example of what often occurs in the industry of buying and selling dental practices can be illustrated by a Dentaltown message board post detailing a conversation between a prospective purchaser and a representative from a well-known brokerage company. The prospective purchaser asked why a dental practice had a significantly higher asking price than another broker’s practice (with similar collections and lower overhead).
The representative was quoted as stating that their brokerage firm “doesn’t take into account overhead in its algorithm when determining practice value.” When the prospective purchaser responded, “So, according to you, a practice doing a million dollars with 90% overhead and a practice doing a million dollars with 60% overhead have the same value?” There was only silence from the representative.
Look at the Dental Practice’s Cash Flow, Not the Furnishings
Keep in mind that when you are buying a dental practice, you are primarily purchasing a stream of revenue known as “cash flow.” Sometimes as dentists, we are wooed by the newness of the state-of-the-art equipment or the attractive office décor. Even though these tangible assets are factors contributing to the dental practice’s value, they can easily be replaced at a small percentage of the practice’s total value. Tangible assets do not solely justify a price that is not supported by cash flow. In the end, value is most often a function of net income.
If you are considering buying a dental practice, we can help you avoid a lifetime mistake by providing an accurate valuation/appraisal or consulting on your purchase, particularly on practices that are listed with another dental practice transitions firm or with none at all. We’ll help you sort through the “feelings” and provide you with the facts so that you make the right financial decision. If you make a great living and have a thriving practice as a result of your savvy decision, you are more likely to enjoy your work and your dental practice for many years to come.
Contact A Henry Schein Professional Practice Transitions Professional
Have a question about selling, buying or transitioning a dental practice? Contact us online and have a Henry Schein Professional Practice Transitions Expert help you take the stress — and emotion — 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 selling and buying dental practices, assessing partnership and associateship opportunities, and performing dental practice appraisals and valuations.