As you reach the midpoint of your dental career, ask yourself how the remainder of your time can be spent wisely reinvesting in your practice to achieve your retirement goals. You’ve honed your dental skills as well as your entrepreneurial and business management expertise. You’re at an ideal time in your career to make improvements to your practice that will enhance goodwill for a future practice valuation.
Goodwill is an accounting term that encompasses the intangibles of a business and reports the probability that the business will continue in the future as it has in the past. Making investments in your practice over the remainder of your career will show a positive, long-term growth trend.
A desirable office location is one of the most valuable variables when calculating goodwill.
According to the NYU College of Dentistry, “the circumstances of the local market (i.e. area demographics – patient, dentist and employment) will have a great influence in the determination of the actual price for a dental practice.”
Generally, dentists who are interested in acquisitions range in age from 28 to 35 years old, and place an emphasis on the location, demographics and competition ratio, technology/equipment and aesthetics when selecting an office. By focusing on these three areas during the second half of your career, your practice will appeal to more potential buyers and increase goodwill.
Around 18 to 24 months before your lease expires, you’ll be faced with a decision to renew or relocate. This is an opportune time to evaluate whether your office is in the right location for the next 10 years, which is the average term of a dental office lease under current market conditions.
The timing of listing your practice for sale and the terms of your lease agreement need to align. Should rental rates continue to climb, locking in a market rate now and negotiating future renewal terms could be your ace in the hole.
Advice the ADA gives students and alumni as they approach acquisitions is, “You must consider the desirability of office location and if it will be possible for you to retain and renew the office lease.”
Buyers want a location in a dominant position with high visibility and large signage that captures the attention of drivers as they travel between their homes and daily needs stores. Typically, this office is either on the corner of a new (or recently developed) retail center or neighbors a popular national tenant, such as Starbucks. Patients want convenience and doctors want to minimize excess marketing expenses.
If you find yourself in an area that has shifted away from the patients you want to serve, services you want to provide, or brand you want to portray, the good news is the surge in population growth across Texas has generated residential and commercial real estate development. This opens up opportunities for your practice to relocate to an attractive location, and subsequently, promote a relaunch of your practice. This strategy builds excitement within your staff, patient base, and the community; as well as allows for networking with new referral sources.
2. Demographics and Competition Ratio
As previously mentioned, the area your office is in needs to fit your target market of patients. Many potential buyers want to serve the fee-for-service, private insurance population.
Whoever you choose to serve, the minimum demographic factors you’ll want to evaluate include:
- Average household size
- Forecasted population growth rate
- Households with private insurance
- Median age
- Median household income
- Native language
- Number and type of housing units
- Number and type of jobs
- Owner-or renter-occupied households
- Population density (number of persons per square mile)
- Population growth rate
- Total population
In addition to demographic factors, you should consider the competition ratio. The American Dental Association recommends a ratio of one dentist to 1,500 patients. However, we encourage our clients to err on the conservative side.
It’s important to include terms within your lease that protect you from competitors becoming your neighbors. In certain cases, it’s advantageous to your practice to allow referral sources to take a space near your office.
Most young dentists are drawn to new, modern design styles and wary of practices that appear to have been sitting idle for some time. To update your look, search through pictures on Pinterest or our website to get ideas, such as:
- Fresh, neutral paint (e.g., light gray)
- Clear or opaque glass features
- An Instagram-worthy feature wall
- Art from a local artist
- Rustic or industrial exposed beams
When searching for a practice to acquire, potential buyers expect to see photos of the office. This is your opportunity to make a lasting first impression.
TDA Perks Partner Xite Realty
finds the best location for a practice to increase a dentist’s probability of success. The company uses the most comprehensive real-estate database to provide a clear picture of competition in an area, and identifies a target patient base using key demographic criteria that has been tailored for dentists. TDA members receive a free initial demographic analysis—both on existing space(s) as well as any new offices being considered.