practice transitions
Valuing a Practice
Post COVID-19
by Frank Brown
Whether you own a dental practice or are looking to buy a dental
practice, we are all wondering how COVID-19 will impact practice
values. No one knows how this pandemic will ultimately affect
any business, but we can make educated predictions based
on historical facts to help prospective buyers and sellers prepare
for the upcoming practice transition market.
Most Common Question
In this time of uncertainty, you can and should take steps to protect
the value and marketability of your practice. The first step
is to stop the financial bleed. The well-advertised government
provided financial assistance options available to dentists to support
the continued employment of staff and overhead costs have
been well-publicized and documented.
The Bright Side
The most common question I hear from both buyers and sellers
is “How will this pandemic affect dental practice values?”
Given the recent 60-day shutdown, many people assume that
values will decrease, especially if you take the hard stance that a
practice should sell for 80% of collections. This methodology,
however, has repeatedly proven to be an inaccurate valuation
process.
Investments in professional practices are based on future income
streams. Traditionally, in dental practice valuations,
future income streams are based on historical performance while
also taking extraordinary events into account. Therefore, the
evaluator will look at month to month production and collection
levels post event to determine if a practice has bounced back to
normal levels.
What’s Next
I am confident that buyers will continue their willingness to
pay premiums for practices that have proven their ability to
return to pre-COVID production levels. Practice owners who
are taking steps to return strong will be rewarded with higher
values. Furthermore, buyers may have an even higher motivation
towards buying a practice if their job security as an associate
was threatened or even dissolved due to the pandemic. For
a dentist, true job security exists in owning a practice with quality
systems in place and a solid patient base with consistent and
stable revenues.
The good news is we are continuing to see high volumes of buyer
activity on our current listings, and we are continuing to sell
practices. With low interest financing rates available, buyers are
showing increased interest levels towards owning their own
practices. In some ways, it may now be more important than
ever to be in charge of your own destiny. By owning your own
practice, you can see patients at your discretion and decide how
you want to practice in a post COVID-19 environment rather
than following the views and dictations of corporate owners.
Frank J. Brown is the current owner of Watson
Brown. He began his practice transition
expertise in 1989 when he began providing
Texas dentists and their families’ professional
guidance on selling or buying a dental office.
Frank earned his law degree from the University
of Arkansas and earned his Master of
Laws in taxation from Southern Methodist
University School of Law. As a broker and tax
attorney, Frank provides council to buyers
and sellers before, during, and after their transitions while also drafting
documents and valuing dental practices. For more information, call
(469) 222-3200 or email [email protected].
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NORTH TEXAS DENTISTRY | www.northtexasdentistry.com