What is your dental practice worth amid the COVID-19 crisis?

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Tens of thousands of dental practice owners were projected to be looking into selling their businesses within the next year or two. Some even started the process by seeking appraisals, speaking with advisers, or placing their practices on the market.

For some, it was time to sell and retire; younger dentists were happy to sell off the business so they could focus on treating patients; and others wanted to take advantage of a seller's market. Now, everything has changed.

COVID-19 came in and forced people to stay home, kept kids out of school, overwhelmed hospitals, and shut down numerous businesses, including many dental practices. So now what?

Practice owners have so many questions, such as the following:

  • Do I delay selling? If so, for how long?
  • Will there be buying postpandemic?
  • Can I expect lowball offers?
  • Will banks be inclined to approve loans?

The list goes on.

These are all good questions, but many don't have answers -- or easy ones -- because this has never happened to our industry.

The knowns and unknowns

What we do know is that there will be a great deal of money out there for practice acquisitions, there are and will be buyers, and some, if not many, of the buyers who were proactive pre-COVID-19 also will be after this is over.

What we don't know yet is how, exactly, the situation will affect valuations, offers, and final practice purchase prices. This is because we don't know how long practices will have to be closed and lockdowns will remain in place, and we don't know how quickly patients will come back and whether they will spend discretionary dollars as they had been doing.

Simply put, it's entirely possible that, while we've had a norm in place the last few years that meant high multiples due to high demand, the "new norm" will be lower multiples due to lower demand from buyers in general and/or the selling practice showing reduced collections over a long period of time.

The good news

It won't all be doom and gloom. It is entirely possible that this blip on the radar isn't going to negatively affect practice sales numbers in a dramatic way.

We've spoken with dozens of dental service organizations (DSOs), practice financers, brokers, and advisors over the past few weeks to better gauge the current thinking. Many believe that valuations may not take much of a hit if practices get back up and running within 60 to 90 days.

What to do now

We recognize that is easier said than done. There will be many challenges, for sure, when practices reopen. For now, let's focus on those dentists who were getting ready to sell.

If you are or were planning to sell, get your practice appraised now. Why? Part of it has to do with having a better understanding of how practices have been appraised in general.

If collections are down, and collections are a major aspect of practice value, remember that every practice is down throughout the country. Buyers will be wanting and needing to evaluate based on "up to March 2020" numbers. Therefore, getting a grounded value range of what your practice is worth pre-COVID-19 can be very valuable information for planning how to proceed currently or in a few months.

Let's face it. You have the time now, and so do the people valuating the practice. This makes it easy to get it done quickly.

Also, we expect many practice owners will assume they should delay getting an appraisal done and/or selling their practices, so there will be a glut of practices going on the market later this year or early next year. This will affect the economic cardinal principle of supply and demand and, therefore, negatively impact practice purchase pricing.

Retiring and getting the most out of your practice or leaving behind the day-to-day operations for others to handle sounds appealing, but moving forward requires getting a handle on your business's value. This starts with getting an independent, objective, third-party appraisal pre-COVID-19.

Get your thoughts and paperwork together and order an appraisal now.

If you want to learn more about how practice value is determined and why you should move ahead with an appraisal, register for our free one-hour webinar -- "What Is Your Dental Practice Worth NOW?" -- being held on April 22 at noon Eastern Standard Time.

Anthony Stefanou, DMD, CBI, is a dentist of 32 years (nonpracticing) and a certified business intermediary. He is the managing partner and founder of Connect the Dents, a dental mergers and acquisitions and business development advisory company working with manufacturers, dealers, DSOs/practices, and the Dental Sales Academy. He can be reached at tonydmd@gmail.com.

The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.

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