Although profit and patients are the main driving forces for determining a practice’s value, they aren’t the whole story. It is very difficult to take a good older practice with old equipment and old leaseholds – even one with low, low overheads – and come up with a value that truly reflects the high income generated by the practice. The bottom line is that it’s important for a $500,000 practice to look like a $500,000 practice.
A balanced practice is one in which the value of the assets (equipment and leaseholds) is a material portion of the total value, somewhere in the 30% to 60% range. If your practice is not balanced, you can’t expect to achieve top dollar when you go to sell it.
Investing in your practice as you proceed through your career is the easy way to keep your practice up to date. For example, pre-Harvey Chemoclave 5000 sterilizers are undoubtedly a deterrent when selling of your practice. State-of-theart today requires a Statim or Tuttnauer high speed sterilizer. Without current equipment, the value of your practice will be affected.
After 20 to 25 years, a total remodeling of the practice is generally required. For example, the old “hole in the wall” for the receptionist is not where it’s at today. Today the reception area projects into the patient seating area. Of course, colour, texture and flow are also part of the visual impact of the practice. Many practices are making the new Triangle Sterilization Centre the centre of attention in the office. The centre is certainly expensive and smaller practices cannot easily afford one. However, these smaller practices are not trying to have a value of $500,000 or $750,000. A $300,000 practice would not be expected to have such a centre.
New practices have the opposite problem: they are all assets with limited patients and profit. Again, this is an unbalanced practice. A purchaser would look at the potential growth of both patients and billings when assessing the future viability of such a location. It is hard to sell “potential”: it’s not concrete and depends on the purchaser’s ability to draw new patients through advertising and word of mouth.
Purchasers look first at the facility, then at the profitability. First impressions are extremely important. Recent graduates, however, are looking at patients and profit: if they are there, one can easily change the facility, though there is a cost to do so.
In northern Ontario practices, this is even more important as it is easier to open a practice without purchasing assets if the area is under-serviced. I can recall a northern cottage-country practice that did not sell until the vendor put in a used contemporary operatory.
To realize the full value of your practice when the time comes to sell, ensure it is balanced. While profits and patients are important, many purchasers want to see assets before they’ll agree to buy.
