Valuing a Dental Practice
Dental practices are among the most profitable businesses, with an average profit margin of 25.0%. As of December 2018, there are approximately 174,290 dental practices in the United States. According to IBISWorld, the cost of starting a new business has incited fewer dentists to start their own practices. As such, incoming dentists are looking to acquire established practices. With the number of retiring dentists exceeding the number of dentists graduating from dental school, there are countless opportunities for acquisitions in this space.
If you currently own a dental practice, consider the possibility of selling. The reason being now is a great time to prepare to sell. The first step to selling is obtaining a business valuation. Over the past few years, I have provided business valuations for several dental practices across the country. Below are some of the key factors used in valuing a dental practice. Keep in mind that the factors listed below are only a guide.
Market Multiples for a Dental Practice:
- 46.0 – 67.0% of annual sales, includes inventory
- 1.0 – 2.0x Sellers Discretionary Earnings, includes inventory
- 1.8x – 2.7x EBITDA, includes inventory
There are countless factors to take into consideration, but this will provide you with the basis of what your company is worth. If you are searching for a more extensive valuation, reach out to a valuation professional like Peak.
With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your Dental Practice business. I will touch on 4 ways in which you can increase the value of your business.
1. Referral Program
A patient referral program is a marketing system designed for providers who recognize that new patients are vital to growing their practice. Programs vary widely from practice to practice, but the ultimate goal it to motivate current patients to reach out to friends and family, etc. Oftentimes, a dental practice will provide gratuities in the form of sweepstakes, gift cards, or discounts off future service. An established referral program will lead to an increase in revenue. In addition, a referral program shows potential buyers that there is a marketing plan in place and a loyal customer base.
Technology can be a touchy topic for a dental practice. Dental technology changes rapidly and can be very costly. However, most buyers are interested in the technology that they used in dental school. Not only is the dental equipment important to consider, but also the state of accessing and exchanging information from within and outside the office (i.e. multidisciplinary treatment, insurance filing, etc.). This technology ultimately enhances the systems implemented by management. Overall, the state of the equipment and the systems implemented to operate the dental practice will impact the value of your business.
3. Products and Services
How does your business stack up next to the industry in terms of revenue breakdown? The primary revenue sources for Dental Practices are restoration, preventative and dental consultations. Observe the percentage breakdown of your revenue and compare to that of the industry. Below is data derived from IBISWorld. If you are interested in more industry research, feel free to contact me.
Dental Practice Products & Services:
- Restorative Dental Services – 22.3%
- Preventative Services – 16.3%
- Dental Consultations and Diagnostic Services – 15.9%
- Other 15.1%
- Prosthodontics – 9.4%
- Orthodontics – 9.3%
- Surgical Oral and Maxillofacial Services – 7.0%
- Nonsurgical Endodontic Services – 4.7%
After comparing your revenue breakdown to that of the industry, consider what additional services could be added. If possible, offer specials on these services to entice current and new patients.
4. Social Media Presence
A website provides the basis of an online footprint, but a majority of new customers rely on social media to inform their decisions. Your business reviews on social media not only report on the quality of the service provided but on the appearance and customer service of the practice. There are several robust online review software programs, designed to help local interaction. One of the services I recommend is Podium. Podium helps your business to stand out in the local SEO search by increasing exposure to your business. If you would like an introduction, feel free to contact me and I will introduce you.
Social media marketing is the ultimate way to building and maintaining relationships with your current and future customers.
Understanding the value of your Dental Practice business is important, regardless of any near future transactions. By implementing some of the points discussed above, you can increase the value of your business.Schedule Your Free Consultation Today!