Four keys to creating practice value for future sale

Aug. 20, 2013
It's never too soon to start thinking about how to maintain the value of your dental practice for future sale, even if you are just starting a first practice.

by Keith Merklin

It's never too soon to start thinking about how to maintain the value of your dental practice for future sale, even if you are just starting a first practice. Despite all the advanced planning, you may end up expanding to a larger location, opening a second practice, or ready to retire sooner than expected.

The value that your practice holds at the time of sale could make the difference between a successful transition and a challenging one. Here are four key steps to building and maintaining practice value:

1. Start with location.

Just as with a home purchase, a good portion of your practice value is based on "location, location, location." If you are planning to build or purchase your practice, spend as much of the investment as you can afford to secure a premium practice location. Nothing speaks more to the quality of services patients can expect than the location of a practice.

Look for a professional neighborhood with a good reputation for safety and services, and plenty of foot traffic. Seek out a location that has excellent visibility from the street or from traffic thoroughfares if you are in a mall.

Ensure the site has adequate parking for staff and patients, and good lighting day and night. If your location is less than ideal, use attractive signage, a solid building design, or an expert paint job to communicate the quality of services you provide. All will contribute to the ultimate value of your practice.

2. Design with longevity in mind.

If you are building or remodeling a practice, create a floor plan and office design with intrinsic longevity so they will still be appropriate years from now when it's time to sell. Use an open floor plan that ensures ease of traffic flow. Build in the capacity to expand services as needed with extra operatory, laboratory, equipment, or storage space. Use furnishings that are classic in design and colors that are timeless.

Consider incorporating environmentally friendly materials and systems that save energy and improve air quality, as these will positively impact the value of the practice. While poor practice design may not be a deal-breaker at the time of sale, a carefully thought-out floor plan and interior structure can add perceived value to the practice for the right buyer.

3. Create a technology investment plan.

Keeping your practice equipment and technology up-to-date is critical to the future value of your business. But more importantly, it's imperative to the comfort and well-being of patients. Advanced technology usually means more and better options for patients. When you can deliver better options, patients have a strong incentive to keep returning.

Consumers today are savvy shoppers and understand what current "best practices" are. With social websites that encourage the sharing of personal ratings of business services, they may have instant input on what's available from your competition.

If you are not staying current with the latest offerings, such as laser injections and teeth alignment services, your practice may lose not only some of its equity value but its stable patient base as well.

Regularly investing in new advancements in dental equipment is an important means of remaining competitive while meeting your patients' needs for best quality care. A technology investment plan is fundamental to maintaining practice relevancy and value over time.

4. Maintain positive cash flow.

Nothing will sink your practice value faster than poor cash flow. Cash flow can be defined as total monthly income minus the total cost of operating expenses. A practice with cash flow equaling 40% or more of total income has flexibility to hire new associates, purchase new equipment, and ride out market fluctuations.

But practices with cash flow of about 25% of total income may be struggling to meet monthly payments and lack the flexibility to take advantage of new opportunities. Costly salaries, rent, and debt are the biggest contributors to poor cash flow. If your debt is more than three years old, consider taking advantage of today's lower interest rates and refinancing or consolidating debt to improve cash flow.

Keith Merklin joined Live Oak Bank in 2010, bringing with him more than 14 years of experience as a commercial lending officer. He is a top producer and has spent his career working with small health-care practices. Contact him at [email protected].

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