Dental practices are small businesses by nature. At the end of the day, they are trying to bring patients(customers) in the door and get them to accept treatment plans(buy products) to ultimately drive revenue all while working to keep overhead low and thus yield a profit. Sounds like a business to me.

Where dental practices veer off the path that many small businesses drive down is when it comes time to selling the practice (business). While there are many variables that impact the valuation of a business, I’m going to attempt to keep this simple because I do believe the underlying difference remains. A starting point for business valuation is often derived from an Owner Benefit number. The formula for such number is:

Pre-Tax Profit + Owner’s Salary + Additional Owner Perks + Interest + Depreciation less Allocation for Capital Expenditures

The “Rule of Thumb” is that businesses tend to sell for a one-to three-times multiple of the sum of that equation. That holds generally true, EXCEPT for dental practices. In many cases, a profitable dental practice can actually, and often times do, sell for LESS than the Owner Benefit valuation. Why you might ask? Simple. Practices rarely follow the principles of ‘Branding’. What ends up happening, is that by default, a practice coincidently becomes branded as Dr. John Doe instead of High Plains Cosmetic Dentistry.

So for the sake of this example, we can assume that when High Plains Cosmetic Dentistry is up for sale, it is because Dr. John Doe has decided to pursue a retirement filled with golf, tennis and travel. That single clinician practice may have had an Owner Benefit of $1mm but the practice is lucky to get $400,000 in the sale. This is because more often than not, patients leave when Dr. Doe leaves. The new owner may be just as talented and even keep the name High Plains Cosmetic Dentistry but it is now Dr. Tom Jones instead of Dr. John Doe. All of a sudden, customers (err… I mean patients) are confused and look for alternative options. All of a sudden the practice is not worth the $1mm that the valuation might have initially lead us to believe.

Calling all dentists! It does NOT have to be this way. Focus on branding your practice and not necessarily yourself. Be on the lead-edge of the shifting paradigm by building brand equity through strategic dental marketing. This is the first step in helping you sell your practice for what it’s worth. Heck, why not even a multiple of what it’s worth like most other successful businesses?

Balihoo is working with those forward-thinking dental practices across the country to focus on communicating the brand to the public via strategic direct-to-consumer dental marketing and local advertising campaigns. Let’s face it, at the end of the day, most of us don’t want to work forever and would sure like to sell our lifetime of hard work for what it’s worth.

Look at it this way: when Phil Knight retired from Nike in 2004, did people stop buying Nike products? Point and case.