The goodwill generated by many years of practicing dentistry in one practice can be a valuable asset for an owner dentist to count on when planning for retirement. Planning and foresight are crucial to preserving that value to get the most out of the transition. Start five years or so before your intended retirement age to build the value of your practice in preparation for an eventual sale.
In valuing a practice, almost all experts heavily weigh the last year’s revenues and profitability the most, usually about 3 times as much as two years before that. Keep the 2018-2019 figures accessible also to get a good look at pre-pandemic profitability as well as more recent figures. Practices that rebounded well after the pandemic shutdown can be more valuable just because of that factor. Even if all the tumult and anxiety the pandemic has caused makes you to think about retiring sooner, using COVID-19 as an excuse not to be increasing revenues is not effective now that practices have been open continuously for some time now.
Now is not the time to take an extended vacation and shut down the practice during your absence, even though we all want to get away while things are opening up around the world. If you do take a vacation, it may be a good time to make sure that the practice is operating on a full-time basis even without you practicing dentistry. Make sure that hygiene schedules remain full and there are associates or other dentists who you can trust to treat your patients well in emergency situations if you do take some time off.
Now might be a good time to think about making the smart investment of hiring associates to fill out hours and increase the the patient base. Make sure that each associate hired is a good fit for the office, and if possible, find a good young dentist with aspirations of practice ownership at some time. Statements about buyout possibilities in associate agreements can solidify that relationship and make the associate more enthusiastic about helping build the goodwill of the practice and a loyal patient base. Payment by collections instead of by the hour or per diem also can get associates more involved in the growth of practice revenues. Get a good non-solicitation agreement put into the associate agreement as well, so that dentist doesn’t leave with that newly generated goodwill for another opportunity. It should be noted non-competition agreements are limited to one year under Massachusetts law, but non-solicitation agreements can have a longer duration.
Not just associates, but the loyalty of other good employees is important to keep the practice thriving and attract potential buyers. Paying employees well enough to keep them for the long term, and keeping them happy to increase good relationships with your patient base is a good thing. Acquiring the latest software for running an efficient office and having employees trained to use it effectively is important also.
Modernizing the practice with new equipment to keep up with the latest technology is a part of a good strategy for increasing value of a practice. A prospective buyer always looks at the equipment age and value before estimating the worth of the practice, since otherwise, more costs would be incurred after a purchase to keep up with current dental equipment innovations.
When keeping the practice valuable to a potential buyer, marketing is not something to ignore. Keep the website looking great and emphasize the improving credentials and knowledge of the dentists and owners in the past few years. If certain types of dentistry are being highlighted more in advertising by other dentists, take note that your practice is following newer trends.
Most importantly, keep track of profitability from year to year since that aspect of the value of the practice is worth more than gross collections. An excellent dental accountant can show you how the bottom line is working out, if some expenses are higher than they should be, and file tax returns that attract a future buyer when they request them to do due diligence. There’s nothing more valuable for a practice than showing increases in profitability from year to year, and thus potential for future growth.
COVID-19 has made us all think about retiring, but take steps first to increase the value of your practice to make that transition a satisfying one. Having grown the practice, the owner can then retire comfortably after a sale.
