So often sellers ask how they can increase the goodwill value of their dental practice so here is a simple tip which adds value and gives buyers comfort too.
Frank Taylor & Associates has sold over £2bn of dental practices and the common theme among buyers is they want to buy consistency, stability, and opportunity – that is what goodwill is all about.
That’s the buyer’s viewpoint – so when you start to plan the sale of your dental practice keep this is mind.
In reality the things a buyer is looking for are the exact same things you should want in your own business.
A buyer will ideally want to see three years of growing, or at a minimum stable, income and profit. Remember it’s not just the gross; the profit is what will be paying the bank loan and new owner an income.
A wise old owl once said:
Turnover is vanity.
Profit is sanity.
Cash is king!
Turnover makes you feel good – in 2003 Amazon broke even and turnover was about $2bn. Quite remarkable really when you think Amazon started back in 1994.
Profit will keep you sane. This is the difference between your income and costs. Pat yourself on the back, you made some money.
When you get paid for this profitable work you will get the cash.
Cash is the air your business needs to survive but let us go back one stage to profit as this influences your goodwill valuation.
Don’t worry too much if the true underlying profit doesn’t appear in your published accounts. This will get adjusted in the goodwill valuation by adding back non-essential items to calculate a reconstituted net profit.
Clearly declining practices make buyers nervous but so do rapidly growing practices in the year prior to sale. This can be perceived as a big push to deliver higher than normal levels of dentistry on the patient base prior to sale to drive up profits and the price. Buyers wants to see fees are sustainable.
Consistent and sustainable doesn’t just apply to fees too. A stable team also says so much about the culture in a dental practice. People tend to change quite quickly in badly led practices or those with a toxic environment. A constantly changing team will also impact on the financial performance as the team won’t develop personal relationships with patients.
Across every element consistency and stability really do add to the goodwill value of your dental practice.
After all, remember, the buyer of a dental practice pays for the past but they are buying for the future.