We ask two experts the same question on a complex issue.
Question: What are the most cost-effective ways for a seller to increase the value of his or her practice in less than six months?
EDWARD C. CHALLBERG, MBA, MST, CPA
For five years you’ve been increasing production, revenue, profitability, and new patients, as well as updating technology and making major equipment purchases to maximize the practice value before sale. Now, during the last six months, what can you do to add value? You need to look at your practice through the critical eyes of a potential buyer.
1. Cosmetic—Clean up debris around the office, paint, repair broken equipment, replace carpets, refinish floors, replace worn furniture and fixtures, dispose of old plants, add new plants, and display flowers.
Goal—Show that your practice is a showcase for patients.
2. Staff—Tune up the staff, but proceed with caution. Set the tone with the team that the transition will be welcomed and embraced as a positive step forward. If a spouse is working in the practice, does the person need to step aside? If there is a position in the office that needs to be filled, should a new person be hired and trained before the transition occurs? If a person needs to be terminated, how and when should that be handled?
Goal—Show that your team is ready to hit the ground running.
3. Website—The website introduces and describes your practice to the community. Is the site up-to-date, inviting, informative, and user-friendly? Are there recent professional photos of all staff members and the doctor with up-to-date bios?
Goal—Show that your practice is warm and welcoming to new patients.
4. Management—A practice sale requires a lot of information be provided to the prospective buyer. Obtain a checklist from the listing broker and have all the information, schedules, statements, and returns ready and organized for the buyer to review. Review accounts receivable and clean up accounts outstanding over 90 days. Pay credit balances due to overpayments. Review your lease for any obstacles to reassignment.
Goal—Show that your practice is highly organized and well managed.
JEREMY BROWN, JD
The value of a dental practice is typically based on the previous three years of data. There are very few quick fixes to substantially improve a practice’s value within six months. Ideally, a practice owner will start to prepare for the sale of the practice three to five years prior to listing it for sale.
Here are a few ideas that can help improve practice value, especially the curb appeal, among prospective buyers in a very short period of time.
1. Get your fees in line—Fees should be evaluated and adjusted annually. Several resources are available to report treatment fees by percentile for a given zip code. If fees have not been adjusted within the past year, adjust them now but avoid increasing fees across the board.
2. Keep new patient numbers up—This is a key metric that purchasers review and consider an indication of practice vitality. Engage an experienced marketing firm that has success in attracting new clients through digital advertising efforts. This might include launching a new website, running social media campaigns, and asking for online reviews from patients.
3. Maintain your production—Sometimes practice owners start to slow down before retirement. This results in an exponential decline in proﬁt and practice value. It is important to maintain the historic growth rate of the practice until the sale closes. The year before you sell your practice is not the time to cut back your schedule or take an extended vacation.
4. Tune up equipment and declutter the facility—Have maintenance and repairs performed on all equipment as needed. Avoid making big equipment purchases the last few years of ownership. Remove any clutter from the facility. Ask a friend to walk through your office and provide candid feedback on the aesthetics. Fresh paint and some new décor can help freshen the look without breaking the bank.
You can never start too early to prepare for a future practice transition. Starting early can ensure a smooth and successful practice sale.
Edward C. Challberg, MBA, MST, CPA, of San Rafael, California, has been working primarily with dentists for 32 years, helping them acquire and build their practices, manage their taxes, and plan for financial independence. He is a long time member of the American Institute of CPAs, California Society of CPAs, and Academy of Dental CPAs. He can be contacted at (415) 491-1322 or [email protected].
Jeremy Brown, JD, earned his juris doctorate from Texas A&M University and completed his undergraduate studies at Brigham Young University. Mr. Brown focuses on preparing practice appraisals, drafting employment contracts, and consulting doctors with practice transitions. When he’s not working he enjoys following college football, backpacking, and playing outdoors with his wife and four kids. He can be reached at (469) 222-3200 or [email protected].