Dental Practices For Sale – The Associate to Purchase Part 1 of 3

By: David McLerran and Brannon Moncrief

(Part I of III)

As a dentist nears retirement age, it is crucial for them to contemplate the best way to transition the ownership of their practice and choose a strategy that fits their individual needs.  One of the more popular options is to bring an associate dentist into the practice with the expectation that they will purchase the office at a predetermined date (typically one to two years from joining the practice).  This “Associate to Purchase” strategy can be advantageous to a senior dentist for a number of reasons:Read More »

The Importance of Controlling Overhead

By: Brannon Moncrief and David McLerran

Earlier this year, we met with Dr. Vandalay, who is a couple of years away from retirement and wanted to discuss the value of his practice in addition to potential transition strategies.  He had heard from various “experts” that dental practices are worth approximately 70% of their previous year's gross revenue.  While this “rule of thumb” sometimes holds true, there are many other factors that influence market value, with the most significant factor being profitability.  When we brought up the tremendous impact that overhead and cash flow have on practice value, Dr. Vandalay's positive demeanor begin to change into one of concern.

Dr. Vandalay went on to explain that, while his practice's gross revenue had been steadily increasing, his net income had not followed the same trend.  After examining his practice financials for the past few years, it quickly became apparent that several overhead expenses were much higher than industry standards.  This was particularly obvious in his lab expenses, which were running at 14% of gross income as compared to the industry norm of 8-10%, and dental supply costs, which stood at 10% of gross revenue as opposed to the normal range of 5-6%.

Dr. Vandalay related the inflated lab expenses to the fact that he did a large amount of crown and bridge, but our investigation revealed that the true culprit was a high lab cost per unit.  Dr. Vandalay went on to reveal that his lab technician is a close friend and he had not shopped around in years.  By using a more competitive price per unit (without sacrificing quality), we calculated that Dr. Vandalay could easily reduce his lab expenses to approximately 8% of gross income, a savings of over $24,000 per year.

We also found that the assistant who ordered dental supplies for the office had developed a close relationship with one of the supply representatives and was not competitively shopping for the best buys. After reassigning this task to another person, the supply expense immediately dropped to a more acceptable level of 6 % of gross revenue, reducing overhead by an additional $16,000 per year.

From this experience, Dr. Vandalay learned that his profit and loss statement can serve as a valuable tool to compare his expense levels to industry norms, identify problem areas, and make changes that will lead to increased net income and practice value.  He also realized that while gross income certainly influences market value, the net income generated from those revenues has a much greater impact and plays a far greater role in gauging the health of an office.  Through making a couple of minor changes, Dr. Vandalay increased the profitability of his office by 10% or $40,000, which made a huge difference in his quality of life as well as the value and marketability of his practice. That marketability can be achieved and applied to all dental practices for sale in Texas, thus increasing their value.

We understand that dentists are busy people and don't typically enjoy spending a great deal of time analyzing numbers or pouring over income/expense statements.  Therefore, we suggest that doctors simply become familiar with the normal range for major overhead expenses (dental supplies, lab, staff, etc.) so that they can quickly notice if something is out of line and move to correct the problem, thus making their time and their practice more valuable.

Dental Practices for Sale in Texas

This article is brought to you by Mc Lerran & Associates specializing in Dental Practices for Sale in Texas.

If you have or are looking for other Dental Practices for Sale in Texas contact us.

In my recent blog post, which focused on maximizing the selling price of your practice, one of the strategies I recommended was to improve and maximize your recall system.  Many dental practices for sale however have over looked this area important to the practice. Today we are excited to have Sally Morgan, a registered hygienist and an experienced practice management consultant, give us a recipe for success in this important area of your practice.  We highly recommend Sally and her company for your practice management consulting needs and especially to those dental practices for sale! ” Patrick Johnston, McLerran & Associates-Houston  Read More »

Happy New Year!

Dear Colleague:

We hope your new year is getting off to a great start and that you and your family enjoyed the holidays.  We want to thank the Texas dental community for your support in 2011 and look forward to helping you reach your goals in 2012!

This time of year kicks off the dental trade show season in our state and we hope to see you at one or more of the shows.   To Read More Click here.

How quickly can I sell my practice?  What price should I list the practice at?  What will I walk away with at closing?  These are some of the questions that we hear when we meet with potential clients.  While there are no “magic” answers, there are common features of valuable practices that will help to provide the answers to those questions.  These desired features can be used as a basis for implementing strategies that will maximize the sale price at closing.  Read More »