Written by Frank Brown
Whether you own a dental practice or 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:
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.
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.
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 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.
Terry D. Watson, DDS, and Frank Brown, JD, LLM, are with ADS Watson, Brown & Associates, a dental practice transition consulting and brokerage firm in Dallas, TX. They are members of American Dental Sales and can be reached on the Contact Page.