You Don’t Know What You Don’t Know – Part One

While business cliques such as this and others like; “At the end of the day” and; “It is what it is” get thrown around to the point of ad nauseum, there is a strong element of truth attached to it with respect to practice transitions. Let’s face it, most docs have very limited if any experience in practice valuation, marketing and sales. Admittedly there is a certain order to the process but I can assure you that every one of the 285+ sales we have had over the last 27 years has been unique. Dealing with roadblocks, maintaining order and fairness is an everyday part of our business. I’m pretty sure you would not sit in the left cockpit seat of a passenger jet without proper training so how can you be expected to know what to do when you have no experience in dental practice transitions?

A few years ago my friend Steve Jordan of the PMAgroup, LLC penned a list of 36 questions (there are potentially hundreds) for Dental Economics that a practice owner might ask themselves or prospective advisors about the sale of their practice. I’ll take 10 and let’s see how you do. There are no trick questions.

  1. A classified ad in your local dental society publication will reach most buyers. T/F
  2. What documents and metrics will you need to provide to buyers and their lenders in the form of a Prospectus?
  3. Why is EBITDA or Excess Earnings important to a practice valuation?
  4. A revenue multiplier is the best way to value a practice. T/F
  5. How did you determine that number?
  6. How is a cap rate calculated, how is it used and what rate is typical?
  7. Dental schools are a great place to find buyers for your practice. T/F
  8. Smaller practices with potential are easier to sell because the buyer can afford them. T/F
  9. Student loan debt makes it impossible for buyers to borrow from a lender meaning you may have to carry part of the financing. T/F
  • What is involved with Due Diligence?

I’m happy to score any answers you might be willing to submit but suspect you’re asking for trouble if you don’t get nine out of ten correct as these are common, everyday elements of our business. If you have any doubts, connect with us by phone, text, email or facebook and let’s find a time to meet to see if we can be of service to you, your staff, your patients and your family.

Steve Wolff

UMKC Class of 1977