# Transitions Roundtable

April 1, 2013
The answer lies in the details. Almost every time the 60% to 65% of annual collections value is quoted, the complete picture is not given.

### We ask two experts the same question to give you two different answers on a complex issue

QUESTION

"One of my classmates just sold his general practice and told me he received 75% of 2012 collections. That seems high to me, as I thought most general practices are valued between 60-65% of last year's collections. Can you please clarify?"

Gary Schaub

The answer lies in the details. Almost every time the 60% to 65% of annual collections value is quoted, the complete picture is not given. Just as you can't see the foundation of a home, most dentists do not know that over two-thirds of dental practices actually sell for 40% to 80% of annual collections. This means that the actual sale price of a typical practice collecting \$800,000 per year can range from \$320,000 to \$640,000. This is a swing of up to \$200,000 from the value determined by a Rule of Thumb method. There is no such thing as a typical practice – every practice is unique and needs to be valued in that manner.

In my Dental Economics (January 2007) article titled "Maintaining Practice Income and Value," I compared two similar practices that each had annual collections of \$1,700,000. One practice had an appraised value of \$1,209,000, the other \$956,000. The higher valued practice was appraised at 71% of collections, the lower one at 56% of collections, thus there was a swing of \$253,000. Did you notice that both practice values fell outside of the Rule of Thumb valuation technique? Why did this happen?

You probably think that the higher valued practice had brand new equipment and a newly remodeled facility. Wrong. The value of the tangible assets for this practice was actually only \$206,000 vs. \$477,000 for the lesser valued practice. The key element was the overhead of the practices. One had an operating income (cash flow profit) of \$782,000, the other \$476,000. Thus, the owner of the high valued practice had over \$300,000 of extra cash flow due to the practice's lower overhead. The value of goodwill accounted for the increase in value for the higher valued practice.

The key to a successful transition is a comprehensive, accurate practice appraisal. Build a successful transition on a foundation of facts, not guesses. The financial payoff can be incredible.

Gary Schaub is the founder of HELP Appraisals & Sales Inc., a dental and medical appraisal and brokerage firm in Portland, Ore. He is a member of American Dental Sales and can be reached at (503) 223-4357.

Tom Snyder, DMD, MBA

Tom Snyder, DMD, MBA, is the director of transition services for The Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].

More DE Articles
Past DE Issues

### Clinical Study: OraCare Reduced Probing Depths 4450% Better than Brushing Alone

Good oral hygiene is essential to preserving gum health. In this study the improvements seen were statistically superior at reducing pocket depth than brushing alone (control ...

### Clincial Study: OraCare Proven to Improve Gingival Health by 604% in just a 6 Week Period

A new clinical study reveals how OraCare showed improvement in the whole mouth as bleeding, plaque reduction, interproximal sites, and probing depths were all evaluated. All areas...

### Chlorine Dioxide Efficacy Against Pathogens and How it Compares to Chlorhexidine

Explore our library of studies to learn about the historical application of chlorine dioxide, efficacy against pathogens, how it compares to chlorhexidine and more.

### Enhancing Your Practice Growth with Chairside Milling

When practice growth and predictability matter...Get more output with less input discover chairside milling.