In the world of orthodontics, timelines are extremely important. From day one, patients ask, “How long will I have to wear my braces?” As a doctor you provide your best estimation, stating if all things go as planned AND you are compliant, things should stay on time.
In the world of practice valuation and transitions, the second question asked by many doctors (after the total cost of the transaction) is: “How long will my orthodontic practice transition negotiations take?” At Bentson Clark & Copple we tell orthodontists to allow about 6 months, 90 days for a valuation study and another 60 to 90 days for any negotiations and documents.
You’ve identified the candidate; they have reviewed the prepared practice valuation and physically visited the practice. You want to move forward. You have likely discussed the transaction on a high level, and you are now delivering the terms of the proposed transaction to your candidate. The terms are typically delivered in a document called a “term sheet” or “letter-of-intent.” This is usually a five- to-seven-page document that outlines the asset allocation of the purchase price (for tax purposes), association periods and compensation for both doctors before and after closing, remedies for breach, non-competes or liquidated damages, how retreatment issues will be addressed, real estate matters, financing terms, and certain representations and warranties by both buyer and seller. This document will be the road map for the attorney to draft legal, definitive documents. Typically, a cash-flow pro-forma is presented in conjunction with the terms so that both parties have a financial illustration of how the transaction relates to their expected income over a period of years.
An open, back-and-forth dialogue between both parties is expected as terms are agreed upon. We suggest that both parties have knowledgeable representation during this stage of the transaction. There are companies that encourage the idea of representing both parties, but Bentson Clark & Copple suggests that both parties seek separate counsel, as there are definite financial conflicts on almost each deal point in a transaction.
However, be aware of pitfalls during this process. A “my way or the highway” attitude is likely not practical. The fairest spot or win-win most commonly occurs with both sides feeling a similar degree of discomfort. On the other hand, giving too many scenarios or too many different ideas of how to get to agreement often confuses one or both parties to the point of not being able to make a decision. Paralysis by analysis can happen on both sides of the transaction. Careful is good, but if you miss seeing the forest for the trees, the transaction can die, and an opportunity for both buyer and seller could be missed.
At some point in the life of your orthodontic career, there will most likely come a time to have your practice valued. This process usually occurs only once for most practitioners, but more in some cases. The reasons for having an orthodontic practice valued vary, but by far the most likely reason is the contemplation of a change in ownership. If you plan to retire and sell your practice, a practice valuation is highly suggested as one of the first steps in the process. When the time arises, do you know who should perform your orthodontic practice appraisal?
The AAO provides its members with a list of companies or individuals that offer valuation/evaluation services to the orthodontic community. If the purpose of the valuation is for an ownership change, it is strongly suggested you select a firm that specializes in orthodontic valuation and transition services rather than using your local CPA or accounting firm. Bentson Clark & Copple, LLC, provides valuation services and appears on the AAO’s listing, as do several other well-respected companies.
Most Certified Public Accountants who have been involved in the sale of various businesses can likewise prepare some type of valuation report for your practice. For reliability purposes, the report should follow accepted valuation methodology. It should be completed and signed by someone who holds nationally recognized valuation credentials (such as CVA, AVA, ASA, etc.).
Bentson Clark & Copple specializes in orthodontic valuations and transitions, but what does this really mean and involve? We are in the business of helping orthodontists during the pivotal points within their careers. We perform practice valuations, provide partner location services, offer practice sales and marketing services and help negotiate practice transactions.
Let’s focus on practice valuation. You are more than likely aware of the concept of business valuation, but may question how orthodontic practice valuations work. When an orthodontist is ready to find out what their practice is worth, they come to us. We then provide them with an information request document. This multiple page form requests the doctor’s personal information, and general information about the practice, including, the staff, hours of operation, leasing arrangements, number of locations and referral sources, among other items. After this information is collected, we then accumulate statistical and operational information. We inquire about the practice’s fees, the number of start cases and case completions, contracts receivable balance, number of active and recall patients and information on all active patients with paid in full balances.
Besides the on-site practice visit, perhaps the most important part of the valuation is collecting the practices’ financial information. We ask doctors to provide the past three years’ profit and loss statements and the most current interim profit and loss statement. We also obtain the most recent tax year-end and month-end balance sheets and a fixed assets listing. Lastly, doctors need to submit tax returns for the past three years including any other supporting statements. (Generally, we find that practices that employ practice consultants have a good grasp on key operational metrics and systems compared to practices that do not use practice consultants.)
We take all this information and determine a fair market value of a practice through a valuation report. The report briefly explains the various general valuation approaches and the valuation approach used by Bentson Clark & Copple. Through a variety of charts, graphs and statements, we explain how the value is calculated. The report includes a practitioner biography, the practice history, state and local demographics and an industry profile.
For more information regarding orthodontic practice valuations, please contact our office.
GREENSBORO, NORTH CAROLINA – Orthodontic valuation and practice transition services company Bentson Clark & Copple, LLC recently released their 7th annual orthodontic practice valuation review in their quarterly newsletter, the Bentson Clark reSource.
The review analyzes data from 25 orthodontic practice valuations performed in 2011. The data includes net collections, practice income, overhead rate, practice value and number of locations for each respective practice. The data analyzed was completed in accordance with the National Association of Certified Valuators and Analysts’ Professional Standards, says Laura Overcash, Director of Marketing. This annual review of practice valuations can be used as a benchmarking tool for current orthodontic practice owners in regards to practice overhead, fair market value and current net collections. The analysis notes that many other factors must be recognized and considered to provide a complete understanding of the value of orthodontic practices for sale. The orthodontics practice valuation review compares the average single office practice values to multi-location practice values. As in previous reviews, a material variance in collections between single-office and multi-location practices exists.
Overhead rates for all practices analyzed ranged from 35.5 percent to 67.1 percent of collections. The overhead rates analyzed in the review do not include any doctor-related compensation or non-practice related expenses such as perquisites to the doctor owner.
More trends and interesting findings were available mid-February to subscribers of the first quarter issue of Bentson Clark reSource for $95 a year. To subscribe, visit bentsonclark.com/reSource.cfm or call 1-800-621-4664.
Learn More To learn more about buying or selling an orthodontic practice, subscribe to the Bentson Clark resource newsletter, an orthodontic newsletter or to schedule a free 30 minute consultation visit www.bentsonclark.com or call (800) 621- 4664.
Bentson Clark & Copple is committed to providing orthodontists with the tools needed to run a successful business, from the first day of practice until the last day. As an orthodontics transition services company their services include practice valuation, partner location services, and transition negotiations.
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