The Dollars and Sense Behind Practice Improvements: How Much is Enough?

The Dollars and Sense of Practice Improvements: How Much is Enough?
Tuesday, November 13, 2012

Have you ever asked that question? Yes, the question about how much updating and how many improvements are really needed. Or maybe you’ve asked yourself a similar one: Is it smart business for me, as the owner of my practice, to invest right now in equipment and systems improvements?

Whether you are a solo dentist and owner of your practice, or you’ve forged a partnership for growth; whether you’ve been building your patient list five years or for thirty years, you are a decision-maker for your business. And as your business grows and the dental industry continuously introduces new technology with techniques, you regularly face improvement decisions.

So, is there a formula for deciding when this type of expenditure is worthwhile?

As a partner with 5th Avenue Acquisitions, I come to work with dentists such as you at three critical decision-making points: Your purchase of your own firm; Your expansion phase to make improvements, merge with or acquire another practice; and Your transition to sell the value you’ve created in your practice.

At every stage of your and your practice’s life, identifying value or how much your practice is worth gives you the information to move forward on strategic decision-making. It equips you with the knowledge to address the looming practice improvement question.

The answer? It may be less daunting than you think.

Improvements and the value they add hinge on timing. As you know, equipment and office updates fall into two categories: The dreaded unplanned ones, and those that are built into your budget. If you’ve been tracking new equipment and know that you can increase your fee schedule or provide a new specialty service, this is generally regarded as a planned expenditure. So, let’s talk about when it makes sense for these expenditures to increase your practice’s value.

For dentists who are five or more years into ownership of their practice, expansion through service offerings and specialty diversification can significantly add value to the practice. Even three months of increased fees realized from improvements increases the fair market value of your practice. As you’re at the decision point of expansion, improvements will allow you to realize immediate returns on your investment.

An added benefit is that your practice becomes more attractive to future practice mergers or sale. For example, if you are looking to merge you practice with a periodontist due to an increase in patients needing surgical solutions, that prospective periodontist will take notice of a practice that reinvests in improvements because their specialty sees value in technological advancement and consistent updating.

Now, maybe you’re nearing the retirement horizon or have already arrived at the decision to sell your practice. Depending on the sophistication of your equipment or the extent of your improvements, you may not realize your initial investment if you are immediately ready to list your practice or a year away.

Contradictory? Not at all.

If you are eager to attract a buyer, perhaps a recent graduate or an area dentist looking to add a location, there are ways to do so without financing. Such simple things as a fresh coat of paint, new carpet and monitors shouldn’t be overlooked. These small updates make a large visual impact when your qualified buyer visits the office. Esthetics aren’t everything, but they do make that critical first impression. When you sit down to discuss patient files with that buyer, don’t be surprised if they comment on the fixtures, while noting the wisdom in incrementally increasing the fee schedule pre-sale.

At the end of the day, the value and amount of improvements necessary comes down to you, to where you are in your career and where you’d like to be next. Start with a valuation to clarify your position, the dollars and sense of your practice. Then, look at the timing of your expansion or transition. And finally, explore making your expansion a reality. Reach out directly if you’d like to discuss your timing or talk about financing for the buying, growing or sale of your practice.

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