Improving Dental Practice Curb Appeal

If you are planning to sell your dental practice within the next three years, this article can help you sell it more quickly and at a higher price.

A recent article in this column discussed improving a practice's physical facility as a way to make it more attractive to buyers. Today, I'd like to review some equally important aspects of practice "curb appeal" — documentation and systems.

Even a small practice sale represents a very significant purchase for the buyer. At an average transaction price of around $500,000, the investment will likely be the largest of a person's life. You as the seller will need to provide very detailed information to your broker in order to place a value on the practice. Prospective buyers will also want to have the data available for analysis of the practice and to justify the price. Even more importantly, your buyer's lender will demand it.

Gathering all of the required information can be a tedious, time-consuming chore. Starting from scratch, it can easily take a month to round up all the information from multiple sources. You need to look in your files and computer and your accountant's files for the necessary information.

During the month of information gathering, your practice will be off the market — your broker cannot prepare offering materials without it. It is likely that some of your prospective buyers will decide to buy another practice — without ever learning of yours.

Documentation

To provide a comprehensive presentation of your practice, you will need, at a minimum, the last three to five years' tax returns, similar period financial statements, current year-to-date production/collection reports, census of active patients, fee schedule, revenue by procedure code report, copy of lease (or a proposed lease if you own the building), and staff roster with tenure, wage rate, and benefits.

You want to stand out from all of the other practice opportunities that prospects are evaluating. So you also need to include reports for current year's procedure mix, annual days worked, accounts receivable aging, office financial policy, insurance payer detail, patient treatment hours, office hours, staff vacations taken and owed, W-2 forms for employees, detailed information about contributions to your personal pension/profit sharing, payments for your personal benefit package, and any other payments for IRS permitted owner "perks."

Now you have a data package that will allow your buyers to quickly see the benefits to buying your practice. It justifies the asking price — and it will certainly set you apart from your competitors.

My suggestion — Make a list of the above items and collect them a little at a time over the next several months. If you are not under a deadline because you have already listed your practice, you can complete the chore as you have time. Once you have assembled the reports from past years, you should make extra copies of the reports as they are generated and put them into your practice sale folder. A collection of quarter-by-quarter reports is even better since it shows practice trends more clearly than annual reports.

When the time comes to list your practice, you can hand a superior data packet to your broker and be at least one month ahead of the normal sales cycle.

Offices that are not computerized need to be even more diligent. Make copies of several representative days in the appointment book each month (three to five days). Since you won't have a procedure analysis report, make notes of your particular shorthand codes, for example, "NPEX" means new patient exam. Compile as much detail as you can by making copies of representative daily transactions. Believe me, it will help you sell your practice.

Systems

Every practice falls into its own way of doing things. Hygiene recall is done a certain way, fees are charged based on what used to be done, co-pay policies are administered a certain way, charts are kept as they always have been. It all just seems to work for the practice owner.

But a potential new owner probably will not have the same view. To make your practice stand out, you should take the time to review and improve your office systems.

Make sure your fees are contemporary — your new owner does not want to raise them immediately after purchasing. Also, this will increase your profit — always a good thing when you are selling.

Update your charting system if necessary. Buyers view a chart update as a major task.

Small changes make a big difference in curb appeal!


Steve Jordan has over 32 years of experience in the dental industry. He spent the last 16 as managing member of ADS Professional Management LLC. He can be reached at 330.335.9042 or SteveJ@ADSTransitions.com.

Click here for a PDF version of the article that appeared in the August 2010 issue of Dental Economics.