The Guide to Selling a Dental Practice
Industry growth and good financials make it the perfect time to sell a dental practice.
Dental practices are a perfect business for an entrepreneur with an interest in the medical field. Dental practices are among some of the most profitable businesses in America, with most firms seeing profits in the 16% range and some firms bringing in profits as high as 45%! There are currently around 178,000 establishments in the United States but as more Baby Boomers are reaching the age of retirement, we’re beginning to see a high rate of acquisitions in the industry. Starting a dental practice from the ground up can cost up to $500,000 whereas purchasing a practice that includes a built-in customer base and equipment makes for a better investment.
If you own a dental practice and have been thinking about selling, the financial climate in America and growth predictions have placed you into a very favorable position. The first step to selling your dental practice is to get a business valuation. To give you an idea of which factors are important in valuing a dental practice, we have included some formulas below. Keep in mind that these formulas are only a guide and only a professional intermediary can tell you the true value of your business.
- 50-60% of annual sales includes inventory
- 1-2x SDE includes inventory
- 4x EBIT, 4-5x EBITDA
Now that you have a better understanding of what goes into valuing a dental practice, you can begin taking steps to ensure you fully maximize the value of your business. If you are planning to sell your practice within the next 6-12 months, these steps can help you prepare and ultimately, pull the highest sales price possible.
In this digital age, not having a marketing program can set your business back significantly and severely limit your exposure to potential clients. Dental practices have much to gain by having a robust website and social media presence, especially if they take it further and invest in SEO. For practices that need to improve their web presence, start with your website. Make sure that you provide educational material, insurance information and forms to help clients with ease of learning about your practice. Adding social media to your marketing platform will also help with search results and magnifying your presence and getting in front of different audiences. Have social platforms also allows clients to leave feedback for your business, good and bad, which gives you the opportunity to improve. Some businesses fear that bad reviews will hurt them, but good business owners reply to the feedback in a professional manner, which ultimately improves their image. Having a marketing program will increase your client volume, and also lay the ground work for success for a new buyer.
As seen in the above formulas, cash flow and sales are important in determining the value of a dental practice. One way to increase those numbers is to offer additional services at your firm, and as America continues to place a high value on appearance, cosmetic services can really help. The economy is trending upwards and consumer spending has been steadily increasing since January, which means Americans are spending more on health services such as taking care of their teeth. As the boomer generation continues to age, we’re seeing a spike in services such as dental implants, so it may be wise for your practice to begin offering this service. 10,000 people turn 65 every day and this trend is expected to continue for the next decade, so the demand is there. Services such as whitening, orthodontics or minor repairs are also on the rise, and your firm can turn prospects into clients by offering specials on these services to get people in the door.
The condition of your equipment is important as it will be transferred as goodwill during the sale taken into consideration when determining the sales price. To ensure you are able to secure the highest value for your equipment, make sure it is well-taken care of and always serviced on time. Broken or outdated equipment should be replaced prior to the sale, which would assist in finding a buyer faster and holding their interest. Dental work is part of the medical profession, a field where technology is constantly being improved so having recent equipment will bring in a higher multiple. While equipment is an important factor in valuing a dental office, it is not to be over analyzed. Having updated, maintained equipment will help you lock down the best possible sales price and impress buyers who are looking at your business.
Referral programs have been proven to work very well, particularly in the medical field. Offering incentives to current clients when they refer new customers can help get more business with very little investment. Yelp, social media and your website are all places to advertise your referral program that will guarantee high visibility. Creating contests can encourage employees to help spread the word, and attending local social events can also get your name and program in front of the public. An established referral program will not only increase your revenues, but also show buyers that you have a loyal customer base and take marketing seriously.
If you are looking to sell your dental practice, the time has never been better. The economy is flourishing and the small business market in the Southeast is growing. Small business loans are being granted more often and for more dollars than ever before, creating a very advantageous position for business owners looking to sell. The first step to selling your business is getting a valuation. At Viking Mergers & Acquisitions, we offer no-cost, no-obligation valuations to business owners. Give yourself that extra edge; call us today and find out how you can maximize the value of your business and make this the year you take the next step.