The Importance Of An Up-To-Date Practice Valuation

As dentists, we pride ourselves on being prepared.  We organize our clinical days to optimize patient care and efficiency.  We continuously take continuing education so that we are prepared for every eventually that we may face, both clinical and medical, in everyday practice.  We purchase life insurance, disability insurance, and malpractice insurance.  We create systems in our personal and professional lives that we believe prepare our families and our practice for every eventuality that may occur.  But, if truth be told, we really don’t think anything catastrophic will happen to us.  We’re too careful, we’re too healthy, and past experience (nothing bad has happened so far!) reassures us that we’ll be just fine for the foreseeable future.

Many of us know of a dentist who passed away suddenly due to an accident, heart attack, or a serious illness.  If you think about it sensibly, you realize that a tragic event could happen at any time to any of us; including you.  The danger here to your family’s financial security is obvious; there is an immediate loss of income.  In addition to the intense grieving that accompanies this event, the first weeks afterward are consumed by hospital visits or funeral plans, and other family obligations.  In addition to holding your family together emotionally, your spouse may also have added family responsibilities to immediately attend to in regard to handling family finances, and estate matters.  But did you know that in such a scenario, the value of your practice, which may very well be your largest asset, will decline by about 10% per week for the first six weeks following the event.  In addition to the aforementioned burdens and responsibilities, your spouse must also find and select a practice transition consultant, and then accumulate all of the financial and other practice information required by that consultant in order to properly evaluate your practice.  Only after a formal practice evaluation is completed can the practice be listed for sale.  Even in the best of circumstances, dentists typically take 4-6 weeks to accumulate all of this essential data, and the consultant may require 2-3 weeks to prepare the evaluation.  In this situation, a six-week delay can cost your family 60% or more of the value of your practice.

We recommend to all dentists with whom we consult, regardless of their age, that we prepare a practice evaluation.  This is a formal report (usually about 20-30 pages) that places a certified value on the practice based on a collection of practice data; both financial and informational.  With Legacy Practice Transitions’s Value Protection Plan, we’ll update that evaluation annually (at no additional cost) based on the previous year’s financial information and any significant changes that the practice has undergone.  By doing this, there is always a current evaluation and certified value placed on your practice.  This evaluation is an important element for estate planning, and in the event of the sudden death or a disabling illness or condition of the practice owner, the practice can be listed for sale immediately following the occurrence.  The importance of this cannot be overstated.

It is tragic when events like this occur.  But it is a further tragedy when you consider the true cost of building your practice…your financial investment, your incredible emotional investment, the thousands of long days that left you physically spent, the emergencies you’ve seen on the weekends, the evenings, and the holidays, the second “family” in your staff that you’ve built and nurtured and been concerned for over the years, the formidable mountain of trust that you’ve built with your patients that has only occurred on account of years and years and tens of thousands of procedures wherein you caringly took care of your patients’ needs… practices like yours can lose well over half of their value under these circumstances simply because of the lack, at this critical point in time, of a current, updated practice evaluation.  Of all the essential things that you do to protect your family and your assets, this one is very likely to be the least costly, with the highest potential benefit/cost ratio.  Please make it a priority soon, and get protected.

Kim Sena, DDS

Erick Rupprecht, DDS

Michigan Dental Practice Transition Consultants

Senior Analysts; Legacy Practice Transitions