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Transitions Roundtable: Expert-recommended updates to make before selling your dental practice

March 1, 2021
Two experts weigh in on the complex issue of what dental practice updates would improve the selling price.

Question:

I’m planning to sell my practice in a few years, but it’s a bit outdated. I have digital radiographs and practice management software that I mainly just use for scheduling. I still use paper for charting and clinical notes. I don’t have any digital impressions or CAD/CAM. Would my selling price improve if I made some updates?

Answer (Schiff): Many baby boomers have not kept up with advancing technology in dentistry. This could be because these dentists are satisfied with the level of care they’ve been delivering, or they never invested in dental consulting for expert advice. Unfortunately for these sellers, buyers of today are trained on the latest and greatest in dental school, which means that their idea of standard of care is quite different from sellers’.

Upon a practice sale, dental CPAs determine the estimated practice value. This estimate will support the current cash flow and serve as the starting point for the practice’s fair market value. Next, the prospective buyer will meet with professional advisers, communicating that although they like the practice, they don’t see themselves practicing without the latest technology. Why is this the case? It’s because the buyer’s perception of standard of care is much different than the seller’s.

If the buyer decides to move forward with the practice acquisition, they will negotiate the proposed fair market value, with items they feel they need to maintain their standard of care. For example, if a practice’s fair market value is $500,000, the buyer will adjust for items such as digital radiography (+/- $30,000), intraoral cameras ($5,000 to $10,000), along with an upgrade in practice management software ($5,000 to $7,000). Thus, the practice value that was once $500,000 may sell for $425,000 to $450,000 due to lack of updated technology. In effect, the seller will have to take a “haircut” with respect to practice value, because they have not stayed current with technology. What I have found is that most sellers are willing to reduce the perceived value of their practice due to their lack of commitment to keeping up with technology. 

Finally, if you were to prioritize the technologies mentioned, I would advise investing in practice management software, with the goal of replacing many of the paper functions with updated technology that serves the same purpose. The digital impression software along with CAD/CAM, although important to the delivery of oral health-care services, is not as necessary at this time. Good luck with your practice sale/practice acquisition! 

ALLEN M. SCHIFF, CFE, CPA, is a founding member of the Academy of Dental CPAs. This group of very knowledgeable CPA firms specializes in practice management services for the dental industry. Schiff serves on the ADCPA executive committee and is the current president of the ADCPA. Reach him at (410) 321-7707 or [email protected].

Answer (Ebert): Overall, buyers place greater emphasis on finding a well-run, productive practice than one with all the latest bells and whistles. Technology can certainly be a bonus, but if the practice lacks patients or does not turn a profit, fancy equipment will not make the sale. After all, it’s a lot harder for a potential buyer to build a patient base than to add technology. 

Most buyers consider digital radiography essential, and you have that. Your practice management software demonstrates a foundation for going digital. Since it takes time to switch to digital charting but it isn’t necessarily expensive, that might be worth the effort. If you’re in a desirable location, you can probably get away with a practice that is less updated. The key is finding the right balance.

Before you rush to buy expensive equipment, make sure you cover the basics: 

Collections. Strive for at least 98% of billable production, which demonstrates strong, effective policies and processes that contribute to profitability. 

Hygiene. Hygiene production is indicative of overall productivity. Ideally, it should be booked out for a couple of months. 

Fees. Adjust your fees to reflect the local market, as buyers may avoid a practice where they need to raise fees right away. 

Basic updates and maintenance. Buyers want a clean, modern, well-maintained practice, and this costs far less than a CBCT scanner! Organize,  perform routine maintenance, deep clean, refresh the landscaping, and consider interior design updates.  

Paperwork. Buyers want assurance that the practice’s financials are in good shape. Be ready to hand over documentation as soon as a potential buyer signs an NDA. Have at least three (preferably five) years of practice statistics, financial statements, and tax returns at hand. If you lease, make sure your lease is transferrable. 

If you already have all these pieces in place, adding technology can help with your sale price, but a well-run, profitable practice will always be attractive.  

SUZANNE EBERT, DMD, is the vice president of dental practice and relationship management for ADA Practice Transitions, the ADA’s digital matching service for dentists who seek to buy, sell, hire, or join practices as associates. Prior to joining the ADA, Dr. Ebert served as a solo practice owner, adjunct faculty member, and dental director at a federally qualified health center (FQHC). An advocate of organized dentistry, she rose through the leadership ranks of the Florida Dental Association, ultimately becoming a trustee.