How to Increase the Value of Your Dental Practice Before a Sale

If you’ve been reading the blog at N/L Transitions, hopefully you know that the time before a dental practice sale is crucial. While some dentist owners may be satisfied with the status quo, eagerly awaiting their next step, you should take this opportunity to gear up your dental practice and increase its value. It might seem counterintuitive to spend time investing in your practice when you plan to leave it, but your practice valuation – and upcoming practice sale – will be better for your time and effort.

Selling in a hurry? Read our post on Four Strategies to Quickly Increase Your Dental Practice’s Value

If your timeline is at least one or two years out, these are four good areas to focus on.

Office Policies and Systems

Well-established office policies tell a potential buyer that the dental practice he or she is about to purchase is organized and efficient. No buyer wants to take control of a mess. Start with collection and billing policies and ensuring patients have multiple ways to pay you and pay at time of service.

Next up are staff and employment policies. Small dental practices especially have a tendency not to keep written policies for vacations, time off, performance reviews, dress code, etc. but if you’re selling, it’s a different story. Develop these policies with your staff and have the goal of creating (or updating) your employee handbook. Also, make sure you have updated job descriptions for each role. Potential buyers may want to look at all of this before deciding whether to buy.

Track Referrals

Most general practitioners refer out to specialists for many procedures. Are you one of them? If so, don’t worry – there’s nothing you need to change. However, start tracking these referrals, because many younger dentists are getting cross-trained on different specialties and may want to see a potential revenue stream in specialist referrals that could be done in-house.

Practice Management Software and Record-Keeping

Many dentists aren’t taking full advantage of their practice management software. Start by making sure everyone – including you – is fully trained on the software. Then, start running daily, weekly, monthly, and quarterly management reports. Look at how procedures are coded, how many hygiene hours you have, any gaps in scheduling, and patient reports. Learn the numbers that make up your dental practice. If you need a consultant to help train you and your staff on the software, even if you’ve had it for awhile, it’s a worthwhile investment that will pay off later.

Analyze Overhead

Your dental CPA can work with you on specific areas of overhead analysis and help you make decisions on which areas to focus on and what to do about them. However, there are three areas we recommend looking at regardless of how involved your overhead analysis is.

Debt service is one of the top reasons why dental practices have cash flow problems. If this is you, work with your dental CPA on a reasonable payment plan, and talk to your creditors, too.

Look at lease contracts to ensure a good, long-term lease is in place if you don’t own the property. Buyers will be looking for fixed, low interest rates, renewal clauses, and favorable terms for parking, signage, and more. If these items aren’t in your current lease contract, start talking to your landlord.

Finally, and perhaps the most difficult, is staff compensation. This is another typical high cost center for dental practices, and for good reason: you want your staff to be happy. Inflated salaries that eat into your overhead are not good solutions, however. If you find that you’re paying staff well above market rates and offering costly benefits, it might be time to renegotiate with your staff – before the new dentist does. Consider other ways to compensate high-performing staff, like flexible schedules, performance-based bonuses, training and education, and more. It’s also a good idea to secure employment contracts with your most highly valued employees.

Overall, the best thing you can do to increase practice value is not to coast or reduce hours leading up to your exit. If you don’t want to work extra hours, or even the same amount, hire an associate. The best thing is to not be complacent. Remember that your work now will pay off in a better practice sale in a few short years.

N/L Transitions can help you prepare. Contact us today to find out how.