Overpaying a Little for a Dental Practice Pays Off in the Long Run – With the Right Advice

I worked with a buyer back in 2005 looking at a small practice doing $540k in collections, appraised by broker at $400k, asking price was $422k (go figure, ask for more than appraised value).

I calculated the “range of value” to be between $325k-$360k & suggested that the buyer counter @ $350k. He did and the seller would only come down to $400k (you think?), my buyer countered at $360k, “our ceiling”. Seller would not budge another inch.

Buyer was in a quandary, he’s offering at the top of what we think the practice is “worth” while seller isn’t even offering to compromise below what the broker felt it was “worth”, my buyer was getting emotional, ready to throw up his hands & walk away….over $40k.

So we talked about all the endo, OS work the seller is referring out, all the implant and cosmetic procedures the buyer does that the seller does not do and the most important fact, of the $540k, hygiene was $180k which means there was probably additional “regular” general dentistry being left on the table, at least $100k in my opinion. I had to push the buyer in accepting the $400k price.

He asked me a few days before settlement “is it a mistake to pay $40k more than what you thinks it’s worth ?” of course he was getting nervous, cold feet, etc. he had been making $150k as an associate.

I said absolutely not, there’s a minimum of $100k of revenue that you should be able to generate easily, don’t worry about it (easy for me to say, i wasn’t going on the hook for the loan).

In the first 12 months after settlement the buyer collected almost $700k, netted about $225k after debt service, in the next 12 months almost $800k, netting about $275k.

So at our last meeting I said “so, do you think your $750k+ grossing practice was worth $400k ?” I think he’s still smiling…..

Don’t get hooked into the emotions of negotiating, it’s a business deal, it’s not personal. don’t feel like you have to “win” in every negotiation, or better yet, don’t think that “they” are getting their way. Evaluate YOUR position, know the facts, the risks, potential rewards and act accordingly. Trust your advisors, especially if they’ve been down this road many times before.

Sometimes paying a premium will pay off in spades, you simply need to have a good understanding of the potential payoff and how it relates to the premium.

This post first appeared on New Docs.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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