The Top Five Questions Asked Of A Dental Practice Appraiser

Thank you to the many ODA members who stopped by our booth at the ODA’s Annual Spring Meeting in May. It is gratifying that so many of you read my column and I thank you for the compliments and feedback. One suggestion that was offered to me was that I make a list of the most commonly asked questions that appraisers and brokers hear. So I compiled a top five list with responses.

Number Five: “How do I sell half my practice to my associate?”

Don’t sell any share to anyone at any time. Sell 100 per cent – and only if you are physically unable to practise, tired of practising full time, or financially secure. Hang on to your practice – it is a great source of cash flow.

This is tough advice for some, but I highly recommend that you follow the most successful type of dental practice over the past 50 years: sole proprietorship. My experience is that dentistry is best delivered in this time-tested model and it will continue to be the best delivery system for the next 50 years. This has been proven through the thousands of practices that my firm has professionally appraised over the past 25 years.

Cost-sharing, group practice, partnerships and other forms of dental practice are interesting, challenging and can be successful for the right personalities. However, according to statistics, 73 per cent of all practices are still sole proprietorships and there is a reason for that: it works best for most dentists.

Number Four: “What can I do after I sell my practice?”

Giving up ownership of a practice does not mean giving up dentistry!

There are numerous opportunities for part-time associates and locums for experienced and capable dentists. Many of your colleagues take extended holidays, pregnancy leave, short-term disability, and some just want to enjoy more lifestyle options. There is a growing trend towards less work and more play in the baby-boomer generation. These dentists are very concerned about the effects of shutting down for weeks on end. They would prefer to temporarily leave their practice in the hands of someone who has owned and practised for 20 years or more. Think about it: who would you prefer to “hold the fort” while you’re away? This is also an opportunity for baby boomer dentists who may want to sell at a young age. After all, the most valuable asset dentists have is their ability, not in the facility in which they practice.

Number Three: “When should I sell my practice?”

Only if you are physically unable to practise, or tired of practising full time, or financially secure, should you sell. Until then, hang on to your practice. It is the best investment you have!

Number Two: “Should I hire an associate?”

No. The advantages may be numerous yet I believe that the disadvantages outweigh them.

Associates may relieve you of extra patient load, freeing up your time for vacations, family, etc. Associates can work extended hours that may attract new patients. If these are your goals, you will need to give up some patients to get them started, but be prepared for a reduction in your income for a while. And if the associate leaves, be aware of the consequences up front.

Appraisers will tell you that the effect of an associate on the value of a practice is often minimal – and in some instances, a liability. Some practices I have represented may have sold for more if there had been no associate at all.

This is a very contentious issue and one I am asked about daily. My advice is to hire an associate only if you want to slow down or if you absolutely must hire another dentist to treat your excess patient flow. But, do not expect to earn much profit from an associate. Budget to earn five to seven per cent of the associate’s gross billings as profit. And be prepared to assume numerous new responsibilities in return for this.

I recently met with a dentist whose associate moved on to new opportunities. She then encouraged several hundred of her patients to seek treatment elsewhere, as she did not have enough time to treat them. She is now happier, stress free and earning about as much as before. The office no longer opens on evenings or weekends, staffing is reduced, less costly and easier to manage, and the risk of losing patients to a departing associate is gone.

…And the number one most commonly asked question: “What is my practice worth?”

Not as much as you think or as much as I would like to sell it for. The reality is that purchasers will only pay so much. Many owners are disappointed when they see the conclusions found in a professional practice appraisal. But quite honestly, appraisers would like to sell practices for higher amounts because they are paid on a commission basis. An appraiser’s duty, however, is to measure the actual open market value.

Many owners can earn as much – and sometimes even more – if they slowly close a practice down and cut staff, patients, costs and responsibility, when compared to selling a practice outright. There are no magic formulas for saving taxes or deferring a purchase price that will make it less costly to sell your practice. If there were, appraisers would know about them.

I know several dentists who are purposely slowing down to eventually close their practice rather than sell it at any price. The reasons are simple: he will earn just as much money; he continues to have a place to go each day and work for another two or three years; and he avoids excessive capital gains taxes, income taxes and the other costs associated with selling.

However, the main reason dentists put their practice up for sale is pride. It is a very difficult decision to purposely set out to close or “deconstruct” something that you have built up over the years. And it goes against your training to let patients go because you spent years trying to attract them to your practice.

Ontario Dentist – August 2000