RE: [ACEsthetics] What's a practice worth?

My associates, at this point in time, cannot do what I do. How do you hire skill. You don’t replace someone like Arturo from Angie’s list.

Guy W. Moorman, Jr., D.D.S.

The Swamp

Douglas, GA 31533

912-384-7400

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From: Bill Greenberg [mailto:billgreenberg101@gmail.com]
Sent: Sunday, September 01, 2013 8:44 AM
To: conchdoc kw
Cc: Guy Moorman; Peter Boulden; ACE group
Subject: Re: [ACEsthetics] What's a practice worth?

Hey, Bill G. Nice to hear from you.

With a couple associates, the percent of gross formulas would be crazy high. After overhead and their percent of collections, they contribute a small percent to the "profit". (small percent of a big number, so I'm not complaining)

In my original example I defined "profit" as the money left over after all the bills and associates are paid (including me paid as an associate). If there was $100K profit, then that amount could finance the debt to buy the practice and thereby establish the value.

Alternatively, I could hire another associate (or 2) to do the same amount of dentistry and I could sit back and collect the "profit"and become the office manger. If I did that for 5 years, I'd net the same amount of money and still own the practice. Just thinking out loud, here.

Bill

On Sun, Sep 1, 2013 at 8:16 AM, conchdoc kw <billgoldner@gmail.com> wrote:

Hey bill g,

i was very pleased with Roger Hill's appraisal of my practice. As Guy said, they looked at it about 5 different ways, additionally Roger ran Pro-formas which show a believable forecast of what a buyer can expect in the following ten years. The appraisal was very thorough and explained well in person.

btw, the practice value did indeed equal approximately 60% of gross. go figure...

bill g

(the other)

On Sun, Sep 1, 2013 at 7:37 AM, Guy Moorman <gmoor@windstream.net> wrote:

Peter, McGill and Hill have a formula that takes into account just about everything that could equal worth or liability. They use gross and net, ARs, amount of depreciation left on equipment, number of new patients and potential for new patients and on and on and on. It has come up with a pretty fair number both times for us. The first buy-in valued the practice at about 400k (half) plus the payback for the new equipment and increased supplies. When they came in I was running on an overhead of 25% and Roger said that was ridiculous and they would figure it on 40% going into a new building. He just about nailed it.

The second doc came in with all equipment paid for…no debt and his buy in was about the same at 400k (I actually took 40k off of 440k to make him comfortable and payback is still tough). I financed the first associate because he could not get a loan. The first associate paid about 550k due to the five rooms of brand new Adec equipment. The second was about 100k less due to equipment being depreciated. We are still running on about a 40% overhead.

Guy W. Moorman, Jr., D.D.S.

The Swamp

Douglas, GA 31533

912-384-7400

From: acesthetics@googlegroups.com [mailto:acesthetics@googlegroups.com] On Behalf Of Peter D. Boulden, DMD
Sent: Saturday, August 31, 2013 5:50 PM
To: Bill Greenberg
Cc: acesthetics@googlegroups.com

Subject: Re: [ACEsthetics] What's a practice worth?

So you're using a 5x multiple based on net profit. Valuations in other industries vary from 3x to 7x. Sometimes even higher. I have never understood the valuation of a practice based on a % of gross. There ARE many factors that go in to it.

I know that most practices have an overhead of around 65%. So if a practice grossed 1,000,000 then there should be $350,000 net.
350,000 x 5 times net = $1,750,000. So that would mean the "Million Dollar practice" should have a value of 1.75M based on the 65% overhead.

This is NOT the case with most dental practice valuations done. They all seem to be a portion of GROSS. Seems like 90% of Gross is the highest sale price I've heard recently. So in this model, let's assume 90% of a 1M practice is purchased for 900K. This is only getting a 2.5x multiple.

Pretty crappy.

This is why Private equity groups are coming in an buying dental practices now. THERE ARE SOME DEALS!!!!!!!!!!!!!!!!

On Sat, Aug 31, 2013 at 9:01 AM, Bill Greenberg <billgreenberg101@gmail.com> wrote:

Please, tell me if this is reasonable:

The most important factor in the value of a practice is the amount of profit it generates.

I know there are multiple other issue that tweek the value, but let's assume there are no pressing capitol investment needs and the location/community are stable and the future is likely to be consistent with the past.

Let's define profit this way: I pay myself as though I were an associate, which reflects the value of the dentistry I perform. Any money left over after all the bills are paid is profit.

The profit is used to fund the purchase. A 5 year loan seems to be most common. If, for example, there is $100,000 annual profit, then that equals a value of $500,000, $200,000 would = 1M, and so on.

Seems to me to be more practical than a percentage of gross, which doesn't take into consideration the overhead, or percentage of net which could be totally from the dentistry performed so a potential buyer might do just as well as an associate.

I am in a practice with a couple associates and a handful of hygienists.

TIA for any opinions.

Bill Greenberg

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