North Texas Dentistry Convention Issue 2014 | Page 35

ments of practice value, but these are only useful in gross approximation. They help us set parameters of what should be considered a bargain, and what should be considered a rip-off (both exist), but they cannot tell us exactly what a practice is worth. That makes everything in between fair game. Within this spectrum of reasonable prices sits at one end the seller, who understands the community, the competition, the trends, the value of the equipment upgrades, the potential, and all the blood, sweat, and tears expended on keeping the practice alive. At the other end of the spectrum sits the buyer, who sees numbers: active patients, new patients, gross revenue, rent, staff wages, patient demographics, etc. It’s a cold calculation, but the only one available to the buyer. Inevitably, one of the first questions nearly all new clients pose to me is “Do you think this is a good price?” My initial response is to make sure they understand that practice valuation is outside my domain of expertise. That being said, I can tell when someone is being hoodwinked, and when someone is walking into a steal, but the numbers are better churned by the experts. Instead I focus on helping clients understand the fundamental nature of a practice acquisition, and how to protect the goodwill. In mid-December 2012, Google shares were trading at $696. At the time, many scoffed at such a high valuation and insisted it was wildly overpriced. Today, Google is trading at $1,088. While Google may have, in fact, been overvalued, it’s unlikely that a buyer is complaining about the nearly $400 extra in his pocket. While not a perfect comparison, the point is that a dental practice is an ongoing business concern. Buyers are not merely purchasing dental chairs and an electric sign on the storefront. Goodwill is what drives the economic engine of the practice. Whatever the exact dollar amount may be reflected on the price tag, a buyer is purchasing the opportunity to continue riding that practice’s momentum. That is what makes it possible to “overpay” on a practice that turns out to be a wild success for the buyer, and why a buyer can low-ball a seller in what will soon be a practice spiraling downward. Ultimately, the key to a successful practice transition is to understand that a seller will overvalue his practice. As the Kansas study confirms, that just happens. It does not make the seller greedy, it makes him human. Buyers will do the same once they become sellers years later. So long as the price is within the spectrum of reasonability, it’s important to bear in mind that the true “value” of the practice is by its nature very subjective. At the same time, sellers should not be offended when a buyer acknowledges that the price may not be right. It’s not personal . . . for the buyer. It’s simply a desire on the buyer’s part to move the price towards a more middle ground within the spectrum of reasonability. emotional investment in the practice, and the buyer becoming bogged down on the objective dollars and cents. An inability to appreciate the subjective nature of the sales price with a lack of appreciation for protecting the most critical asset — the goodwill — is, ironically, a recipe for leaving money on the table. But when two parties work together in good faith over a reasonable price, both the seller and the buyer win. Joseph L. McGregor represents dentists in their business matters, most often in the context of starting a new practice, purchasing an existing practice, facilitating a long-term buy-in or partnership, or employing associate dentists. I.T. McGregor & Oblad, PLLC is located at 2964 LBJ Freeway, Suite 414 Dallas, TX 75234. For more information, visit www.mcgregorfirm.com. To schedule a consultation, call [phone] or send an email to Joseph McGregor at [email protected]. We take the n n n n n PAIN out of We specialize in serving dental practices Full-service IT and consulting High-quality digital solutions Competitive rates, no hidden fees Friendly team of dental experts on staff www.doctor-tech.com CALL NOW! 682.206.0303 Serving the entire DFW area MENTION THIS AD AND THE 1st HOUR IS FREE! [email protected] The only real danger is the seller failing to acknowledge his www.northtexasdentistry.com | NORTH TEXAS DENTISTRY 35