BY Paul Feuerstein, DMD
Older dentists with practices often ask me if it's worth investing in new technology, since it seems to be a great expense if the practitioner is closing in on retirement or slowing down at the office. Many look for a new dentist to buy in or outright buy the practice, while others look for a young associate who will work with an option to buy. There are many practice-management experts who can analyze these details far better than me, but the technology purchasing trends of my peers warrants a look.
I called Scott Cabral of National Practice Transitions (http://www.nptnetwork.com) for some insight. Scott and his partner, Dan Baccari, are attorneys, and the two have sold and appraised thousands of practices. A great part of the appraisal beyond the number crunching is the intrinsic value of the practice.
Prospective buyers prefer turnkey operations that will start generating income right away. Of course, everyone wants to put their mark on an office as soon as possible. But with education expenses and the cost of the practice, some of this will have to wait.
Most dental schools (including hygiene and assisting) are nearly chartless and have incorporated digital radiography. I would venture to say that most new graduates have never used developer and fixer. This brings up the question of whether or not a seller would get any sort of ROI so late in his or her career by investing $20,000 to $30,000 in, for example, digital radiography.
Scott says this is a common question among potential sellers - "Should I buy new technology and/or replace existing equipment in the office?" The answer has two issues that need to be considered. The first issue relates to the type of purchase, and the second to the timing. What Scott means by type is income producing vs. upgrading.
"I am nearly always a fan of income producing," Scott said. "Income producing is introducing new technology that has not been in the office. Such technology allows the owner to offer income-producing procedures to help increase collections/profits. This is compared to upgrading, which is buying a newer piece of equipment to replace one already in the practice. I am certainly not saying an owner should not replace a defunct piece of equipment. But if it is functioning properly, to simply replace it for esthetic purposes is not the best course of action.
"For example, replacing a dental chair with cracked upholstery will not earn the owner a single penny more. Neither will it entice new patients, as the only ones who will see it are existing patients. The owner would be better off to simply reupholster the chair, then use the money to purchase technology that will make money and hopefully bring in new patients."
The second issue has to do with timing.
"The issue here relates to ROI and selection of technology," Scott said. "If the owner plans to sell within a very short window of time (immediately or within a year), then it may not make sense to bring in the new technology, depending on cost, of course. Furthermore, when there are several choices for costly technology, the seller may choose one that the buyer might not have selected, thus the value to that buyer is less.
"Since practice value is determined at time of sale, it is all relevant," he added. "This means the practice may be worth a little more with new technology, but you have to factor in the cost of obtaining that technology, as well as a seller's responsibility to pay it off at closing to pass clean title. The same holds true in reverse. A practice may be worth a little less with older equipment, but money was not spent to upgrade, which in most cases will not be fully recuperated with the sale."
Scott also says something obvious but important. "Always keep walls, rugs, ceiling tiles, etc., looking new. It is a minimal investment to replace a worn out rug or repaint some walls. First appearances are key to buyers. That ROI is guaranteed."
There are many "new" technologies that mature practices should look at to entice new buyers. A few, such as cone beam CT and digital impression systems, are large investments. But if properly financed, they might allow a young practitioner, who will most likely have to finance the purchase anyway, a way of coming in at the top. If the seller intends to stay on for a while, these technologies will make his or her last years in the practice more rewarding. For my baby boomer friends, this is great food for thought.
Paul Feuerstein, DMD, installed one of dentistry's first computers in 1978. For more than 20 years, he has taught technology courses. A general practitioner in North Billerica, Mass., since 1973, Dr. Feuerstein maintains a website (www.computersindentistry.com), and can be reached at [email protected].
