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Practice Values in Decline? (Revisited for Late Career Practitioners)

Our entire team at ADS Florida is fortunate to have the opportunity to put a considerable number of practices through our rigorous review process on a consistent basis. Whether for outright sale or appraisal, our team reviews financial data for a large number of practices in Florida and nationwide, providing us the unique ability to see local, regional and national trends. That, combined with our exclusive partnerships with the best of the industry nationwide, enables us to bring the highest level of expertise and experience to you, our local doctors.

Just a few weeks ago, members of our team were able to spend considerable time with these industry leaders. One topic of particular interest focused on how the transitions market has changed due to the recent economic difficulties. While the discussion from our original article is still valid (click to read “Practice Values in Decline?”), we felt it would be beneficial to provide a few specific updates:

Declining Three-Year Revenues
It’s the case all over. Practice collections have been declining for many reasons. To purchasers, this downward trend generally indicates that a practice is dying on the vine. Since they are looking to spend as little money to get as much practice as possible, and since they have heard many times over that “three years of declining revenues indicates a practice in decline,” their immediate inclination is to significantly discount their offer–if not walk away all together. Beyond that, once a deal has been made, it has become increasingly difficult to convince credit analysts with lending institutions that a practice is truly viable going forward.

What does this mean for you? You have to be on top of your game with analytics, reports and practice management. If you’re not tracking details of your practice with practice management software, reviewing reports and/or using an overlay product like Sikka Software to track your practice statistics, you need to do so. When it comes to your transition, it’s that much more important to have an educated, experienced advisor. Even CPAs and attorneys (but particularly the local equipment rep) are not trained in this type of analysis. As transitions experts, it has become particularly vital to us to peel back the leaves and find out what is truly going on in the practice. In doing this, we can find the right answers to a host of questions, thereby ensuring the highest possible price and level of financing.

Location, Location, Location
Unfortunately, this is one piece you really have little control over. When you started or acquired your practice, you acquired the location as well, whether it be the city or area, or specific building or rental space. This is affecting value. As mentioned earlier, practices in rural areas or in dilapidated or out-of-date facilities are deemed less valuable in the current market. Purchasers are looking for opportunities to pay as little as possible, and this is a point you cannot patch over. What you can do is take advantage of the market yourself. Are you three to five years (or more) from a transition? Take a look at your facility and equipment, and consider an upgrade. Do you own your building? Fix it up to like-new standards, as much as possible. Are you leasing? Ensure your lease is assignable and the rate is well-negotiated. This will make things easier not only on your bottom line, but on a potential purchaser’s, as well. If you’re a few years out, and your equipment, furnishings or décor are out-of-date, consider a refresh or upgrade with new flooring or paint or even quality used equipment. Bring in a set of fresh eyes and ask them to look around and give some feedback. A little time and money goes a long way and can most certainly help.

General Scarcity
With the shrinking of retirement funds over the last few years, the number of practitioners transitioning to retirement has declined. Realizing that there is not enough remaining in their investments to sustain a desirable lifestyle for 20-30 years of retirement, the phenomenon of “I’ll just work one (or two or even five) more year(s)” has ruled the marketplace. As a result, there has been a persistent scarcity of strong practices on the market. While some brokers may ‘list’ a large number of practices that they insist are for sale, this simply is not the case. A good number of practices that have sold recently have been due to the seller’s disability, death or relocation.

This current scarcity could be a boon to you if properly planned. If you are one of those who have looked and said you may extend your career, particularly another one or two years, it may be worthwhile to look closely at your retirement egg and see where a sale may put you. Your practice may sell for a ‘premium’ right now, if priced and represented properly. This could be an opportunity to seize, but it will take your team of advisors–CPA, financial manager and transition specialist–to cooperate in developing an overall strategy with you.

These are just a few of the many factors currently in the marketplace. Generally speaking, the market for practice sales is still strong, and financing is still readily available for purchasers with good credit history. Dental practices have been recession-proof over the long term as dentists provide services that cover not only cosmetic needs, but health care needs, as well. Owning a practice not only provides job security, but a business that has inherent control, lifestyle and economic benefits that do not come with working for someone else.

Think you may be within a few years of a transition? Now is the time to talk. Contact us at 800.262.4119 or email us at transition@ADSflorida.com.

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