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Value Or Price - Choose Wisely


by Earl M. Douglas, DDS, MBA, BVAL

There has been a great deal of discussion over the years about dental practice price, but very little has been said about practice value. It is especially important that practice buyers understand these terms and be able to differentiate between them, since practice value has significantly more impact upon the futures of buyers than does practice price.


Price is the consideration (cash, note, barter, etc.) paid to a seller to acquire an asset. Sellers receive price. Value is the benefit received by the buyer from the use and ownership of the acquired asset. Buyers receive value.


All too frequently buyers zero in on price as the primary practice purchase issue while ignoring the issue of value. However, buyers stand to benefit much more by receiving high value than by paying a low price, since the primary practice value is actually the net income the buyer takes home from the purchased practice.


I illustrate this point by asking buyers to consider two similar practices. Practice A grosses $400,000 and is priced at $275,000. I ask buyers if this is a good deal. Most buyers admit they do not know.


Then we look at Practice B which grosses $400,000, of which the hygienist produces $100,000 and the buyer produces $300,000. After paying all of the overhead expenses and all of the purchase payments, the buyer will have a net income of $140,000. Without even knowing the price, most buyers believe that Practice B is a good opportunity. Knowing the price and gross alone does not make for a well-informed decision. Knowing the cash flow-derived value, or net income, received in return for the amount of work performed by the buyer, does allow for a well-informed decision.


Consider Practice C which grosses $400,000 and is priced at $300,000. After paying all the practice overhead expenses and all of the purchase payments, the buyer will receive value, or net income, of $150,000. Now examine Practice D, which is very similar to Practice C. It also grosses $400,000, but is priced at $250,000. After paying all the practice overhead expenses and purchase payments, the buyer will receive value, or net income, of only $125,000. This comparison shows that it is actually possible to pay a higher price for a practice and still receive more value, or net income. Differences in fixed expenses, such as rental cost, can cause such differences. Which practice would you choose?


While we do not suggest overpaying for any practice, we do point out the old saying, "you get what you pay for". Since "what you pay for" is net income in the case of dental practices, higher priced practices will generally yield higher net incomes, even after paying the payments. In the case of purchasing a practice, it is often safer to pay slightly too much than too little.


We strongly suggest that if you are considering buying a practice and are seeking professional advice on price, be sure that you also receive a practice cash flow analysis to learn all of the important facts, especially the answers about practice value, the net income you will earn.

Testimonial from a Satistfied Dentist

"I recently retired and sold my dental practice of forty years. Dr. Earl Douglas at ADS facilitated the transaction for me. I can honestly say that the entire process went more effortlessly and smoothly than I could ever have imagined. Dr. Douglas has vast experience in this field and his guidance was invaluable. At no time did I feel pressured to make a hasty decision or feel rushed just to "close the deal." Also, I might add that he is very good at being equally fair to both parties involved. I would give him my highest recommendation. The service I sought and received was superior, professional, and executed in a timely manner. I was very impressed by Earl and enjoyed getting to know him. He knows how and what is required to meet his clients' goals."

H. C. Davis, Jr., DDS

Back to Articles

Value Or Price - Choose Wisely


by Earl M. Douglas, DDS, MBA, BVAL

There has been a great deal of discussion over the years about dental practice price, but very little has been said about practice value. It is especially important that practice buyers understand these terms and be able to differentiate between them, since practice value has significantly more impact upon the futures of buyers than does practice price.


Price is the consideration (cash, note, barter, etc.) paid to a seller to acquire an asset. Sellers receive price. Value is the benefit received by the buyer from the use and ownership of the acquired asset. Buyers receive value.


All too frequently buyers zero in on price as the primary practice purchase issue while ignoring the issue of value. However, buyers stand to benefit much more by receiving high value than by paying a low price, since the primary practice value is actually the net income the buyer takes home from the purchased practice.


I illustrate this point by asking buyers to consider two similar practices. Practice A grosses $400,000 and is priced at $275,000. I ask buyers if this is a good deal. Most buyers admit they do not know.


Then we look at Practice B which grosses $400,000, of which the hygienist produces $100,000 and the buyer produces $300,000. After paying all of the overhead expenses and all of the purchase payments, the buyer will have a net income of $140,000. Without even knowing the price, most buyers believe that Practice B is a good opportunity. Knowing the price and gross alone does not make for a well-informed decision. Knowing the cash flow-derived value, or net income, received in return for the amount of work performed by the buyer, does allow for a well-informed decision.


Consider Practice C which grosses $400,000 and is priced at $300,000. After paying all the practice overhead expenses and all of the purchase payments, the buyer will receive value, or net income, of $150,000. Now examine Practice D, which is very similar to Practice C. It also grosses $400,000, but is priced at $250,000. After paying all the practice overhead expenses and purchase payments, the buyer will receive value, or net income, of only $125,000. This comparison shows that it is actually possible to pay a higher price for a practice and still receive more value, or net income. Differences in fixed expenses, such as rental cost, can cause such differences. Which practice would you choose?


While we do not suggest overpaying for any practice, we do point out the old saying, "you get what you pay for". Since "what you pay for" is net income in the case of dental practices, higher priced practices will generally yield higher net incomes, even after paying the payments. In the case of purchasing a practice, it is often safer to pay slightly too much than too little.


We strongly suggest that if you are considering buying a practice and are seeking professional advice on price, be sure that you also receive a practice cash flow analysis to learn all of the important facts, especially the answers about practice value, the net income you will earn.

ADS South

Testimonial from a Satistfied Dentist

"I am Dr. Roger Bermingham, and I purchased my dental practice 28 years ago through Dr. Earl Douglas of ADS South, LLC. The experience then was so comfortable and easy that when I decided to sell my practice and retire, I could think of no one better to handle the sale than Dr. Douglas. Dr. Douglas handled the transaction from start to finish and it could not have been a more pleasant and professional experience. He identified a qualified purchaser within weeks of listing my practice and made what could have been a stressful process very easy which is a tribute to his many years of doing what he does so well. I’ll always be grateful to him for that and would recommend him to any dentist who would want to sell their practice."

Roger B. - Roswell, Georgia