Written by William Adams, DDS Sunday, 31 August 2003 19:00
The contribution of the hygiene department can influence both the tangible and intangible aspects of the value of a dental practice. Obviously, a well-established, long-standing relationship between patients and staff certainly increases the transferability of patients to the new owner. It’s understandable why purchasers and their consultants are often impressed by this abstract incalculable value. The doctor’s role in a transition often is transferring the loyalty and support of the staff to the new owner. Therefore, the doctor’s selection of the right purchaser becomes more than just a monetary decision.
|Table. Common risk factors to consider when evaluating a practice.|
PRACTICE VALUATION METHODOLOGIES
There are many formulas and methodologies used in the valuation of any dental practice. The Institute of Business Appraisers, of which I am a member, has established acceptable standards of evaluating any business you wish to sell. The accepted standards give specific guidelines for valuations of closely held private companies. These guidelines are tried- and-true methods of appraisal and take into account market driven methods, cash flow methods, and the summation of all business assets.
VALUE OF THE HYGIENE DEPARTMENT
The hygiene department of any dental practice plays an ever-increasing role in its appraised value. In fact, any department of the dental practice that is a profit center, apart from the doctor actually doing the work, plays a huge role in the capitalization method of valuing the office. Capitalization methods of appraisal take into account such things as elements that increase the risk of purchasing a particular practice (see Table).
COMPARING PRACTICE X WITH PRACTICE Y
How does a measurable increase in hygiene production influence a specific valuation of a dental practice? Practice X and Practice Y had been delivering dental care for 20 years in a freestanding building just outside a large metropolitan area. Total collections for Practice X was $690,000, and the doctor worked 4 days each week. The production by procedure report revealed that he had a restorative practice with emphasis on crown and bridge. He referred out about 50% of endodontics and all oral surgery. Children made up only 10% of his practice, and most of his patients were over 45 years of age.
As you can see, hygiene production had an enormous affect on the final appraised value of the 2 practices noted above. Clearly, it pays big dividends to tune up the hygiene aspect of your practice years prior to any transition.
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