Wednesday, August 17, 2011

Landing a Buyer for Your Practice: (Part 3)

This is part 3 of our 3 part series.
Click Here for Part 1.

Click Here for Part 2.

The following are three real life examples of why “Being Prepared” is so important when selling a practice.

Example 1: (Get an Appraisal)
Unprepared: The Practice Owner did not have an independent appraisal of the practice prepared before she started talking to interested parties. She thought she was saving money. Since most buyers need to obtain financing, banks and other lending institutions won’t loan money without an appraisal.

Prepared: The Practice Owner got an independent appraisal of her practice done prior to speaking to any interested parties. She recognized any buyer would need to get their own appraisal, but the appraisal gave both her and prospective buyers a realistic expectation of the selling price. She quickly sold her practice to another Dentist interested in moving to her community.

Example 2: (Prepare Historical Numbers and Metrics)
Unprepared: The Practice Owner had not prepared the financial information necessary for a potential buyer to make an informed decision.
• Monthly, Weekly, Daily production numbers.
• Mix of procedures. Mix of Fee for Service, Insurance, or Medicaid.
• Hygiene production. Procedures referred. Growth opportunities.
• Number of active patients.
• Number of new patients.

All the owner knew was that he wanted to sell the practice for $500,000. He spoke with a number of potentially interested parties, but could not move ahead because they didn’t have any specific information they could use to make an informed decision.

Prepared: The Practice Owner tracked all of this information monthly. He prepared reports summarizing last year’s production information. A potential buyer realized the Practice Owner was referring out all of his endodontic and many of his pediatric cases. Since the potential buyer realized he could immediately increase production by $150,000 a year, he purchased the practice at the asking price.

Example 3: (Don’t Quit Before You Sell)
Unprepared: The Practice Owner wanted to retire two years ago, but his retirement funds shrank dramatically. The owner came to work begrudgingly and let the practice atrophy. There were a number of potential buyers. When they looked at the practice they saw it was disorganized and dated. Production had declined and key staff members had left, sensing they did not have a future there. The practice eventually sold but for $350,000 less than it would have sold for three years ago.

Prepared: The Practice Owner recognized he would not be able to retire for three years. Rather than cutting back, he realized that this was the most important three years of his career. He didn’t make major investments in equipment, but he repainted and updated the waiting area and operatories. He landscaped the outside. In addition he worked to grow his practice recognizing that its sale price was determined by the last three years production. He worked with a consultant and gave the staff incentives to increase production. After three years he sold the practice for $350,000 more than it was worth three years previously.

Written by Mark Kennedy, Owner/Managing Director of Executive Talent Search (ETS Dental, ETS Vision, ETS Tech-Ops). To find out more, call ETS Dental at (540) 563-1688 or visit us online at