On occasion, a dental practice must be relocated as a condition of sale. This occurs when the real estate may be more valuable if vacant than when occupied by a dental office, as is the case with many converted residential properties in highly desirable neighbourhoods.
When a typical dental practice is sold as is and where is, the purchaser is responsible for assuming the rent, staff, existing equipment and all other practice commitments. However, when the goodwill of a dental practice is the only item sold, the value of that practice may be the same, or even higher, than the value of the practice if sold as is, where is. Why is this? Purchasers who have a large under-utilized office of their own nearby may recognize a unique opportunity: they can add hundreds of patients into their existing hygiene program, achieve higher utilization of existing staff and facility, and obtain a direct endorsement from the selling/retiring dentist.
When certain dental practices are professionally appraised, the break-up valuation method for goodwill may yield a higher result for the owner compared with traditional goodwill valuation methods. The goodwill value could be the same, or even greater than the total practice value as is, where is. In special circumstances, the goodwill value may exceed the total practice value if certain conditions are met, such as when some key staff are willing to relocate, or when the economies of scale can be dramatically enhanced due to the merger.
Recent open market sales of “goodwill-only” indicate that purchasers are willing to pay more for a goodwill only sale (i.e., charts, patient lists, etc.) if the patients can be relocated into the purchaser’s office immediately.
The cost of attracting a new patient to a dental office is increasing, as advertising and promotion methods become more sophisticated.
The break-up scenario is applicable to those who are thinking of selling, but are fully aware that their office may be a detriment to the sale. By timing the sale of your practice to the ideal time to vacate the premises, you may obtain a higher overall price. The retiring dentist can usually donate the old equipment and obtain a tax credit. The property, if owned by the selling dentist, may actually become more saleable in certain markets, thus yielding higher real estate valuations as well.
The cost of attracting a new patient to a dental office is increasing, as advertising and promotion methods become more sophisticated. Some dentists now compete more aggressively than in the past and new patients may be at a premium in the high-density areas surrounding major cities, mostly in the GTA. What does it cost to gain a new patient using traditional marketing, advertising and promotional methods? How much would you pay other dentists to recommend you directly to their patients?