Right now, Orthodontics is saturated with buyers making it the epitome of a seller’s market. Several reasons for this saturation exist including the number of residency programs that have been added in the last 10 years, the 2009 stock market decline forcing owner Orthodontist to work longer, and the advancements in technology (i.e. Invisalign which is able to be provided by general dentists and Orthodontists simply being able to treat more cases with better technology). This saturation of potential buyers and the network of relationships NDP has established has resulted in great success in finding qualified buyers for practices that we have and are currently working with.

Although finding Orthdontic buyers may be easier than other specialties, the key is still finding the right person to take over or to add to, your practice. There are many ways to structure a transition and different options for the seller…ensuring all options are considered is crucial and how NDP can help.

One of the reasons that you will want to work with NDP in your transition is our direct connections and relationships we have forged with the 67 residency programs across the U.S. We have attended GORP annually since 2007 and the AAO since 2004. Our valued partners worked with hundreds of Orthodontists further extending our network to help and connect to Orthodontists around the nation.

Whether looking to add an associate or looking for a potential buyer, here are some additional keys to consider:

Orthodontic Valuations

Orthodontics practices are valued similarly to other dental practices but of all the specialties, Orthodontics will tend to value slightly higher due to the demand and nature of the production.

The number of starts and observations cases a practice has monthly and annually can add (or subtract) from a valuation. A review of the trends in phase I and phase II starts over the last 12-18 months will be reviewed. Observation cases will also be reviewed as a large number of observation cases could positively impact the value as they could represent new growth expected as those cases age and develop.

Contracts Receivables can also affect the value of a practice as it represents work the patient has agreed to, but has not been performed (or paid for). Reviewing a trend of contracts receivable over the past 3-5 years will show the consistency or growth of the practice. NDP is seeing contracts receivable in the 50-70% range of collections.

As with any valuation, Cash-Flow is king! The level of overhead and how closely those costs are controlled will directly impact profit margins and cash flow resulting in a change in the valuation.

What is Overhead?

While it‘s rare to see an orthodontic practice outside the parameters of 45%-65% overhead, they do exist,. We have worked with orthodontic practices that have low overheads at ~40% and those will obviously value higher than a practice that is higher at 65%.

What about the Assets?

Similar to other specialties, the valuation of an Orthodontic practice will often times vary due to the level and value of assets. Because assets are key to a potential Orthodontic buyer, the detail and accuracy of the appraisals of equipment and any potential upgrades in the immediate years prior to transition will be crucial to the selling doctor. A practice that has just invested in a 2014 Carestream x-ray valued at $125,000 will obviously increase the value of the practice almost dollar for dollar.

Location can also play into a practice transition, a practice on the west coast, west of Interstate 5 will value higher than rural Southeast simply because of location. This is especially true of Orthodontics, there were several Orthodontic practices in California that valued and sold for 90 -100% of collections which is far above the standard across the dental industry. In many of those cases, because banks will often only lend up to maximum of 85% of collections, the buyer had to come to closing with liquid assets or larger down payments. While this is not the case in every Orthodontic transition, the seller’s market and demand from buyers have definitely elevated the transition and valuation process. Read more about NDP’s valuation services here.

Interested in understanding how to plan for an Orthodontic transition? Want to know what your practice may be worth in today’s market?

For a complimentary review of your practice please contact our offices, or fill out a short contact form and we will contact you! Once we hear from you, we will request some basic financial and operational information and set up a one-hour review of your practice to give you real expectations of what you as a seller can expect, but most importantly, what new buyers are expecting from you! NDP only works in the field of dentistry and understands what is necessary to ensure the success of a your Orthodontic practice transition!

Overhead is the operating expenses of the practice. Typically, this will be the total expense of the practice minus any of the following expenses:

  • Owner Doctor’s & Associates Salary (including applicable payroll taxes)
  • Financing Costs (Interest Expense, if applicable)
  • Non- Cash Charges (Amortization, Depreciation)
  • Owner Discretionary Expenses – Travel, Continuing Education, Automobile Expense, Cell Phones, etc.)
  • Excess or additional rent if owner also owns building and are paying themselves a rent above or below the market rate
  • Retirement or Pension Expense

Whatever is left divided by the collections of the practice will equal the overhead rate of the practice. This typically falls between 30-60% in dentistry, the lower the percentage, the better.

Assets are the items in your practice that help you generate your cash flow such as supplies, equipment and the furniture and fixtures of your office.

  • Supplies: To understand the value of your supplies, we aren’t asking you to count gauze pads or gloves, we will typically take two months of your normal supply expense to estimate the value of the supplies you have on hand. This will vary by specialty – but typically Oral Surgeons or Periodontists who work with implants will have higher supply expenses due to implant or bone grafting costs.
  • Furniture and Fixtures: You will want the estimated value of the assets that are not dental related (waiting rooms chairs, break room, decorative pieces that will stay in the practice, etc.) to be accounted for in the final estimate of asset value. This can be as detailed as a piece-by-piece inventory or estimated by room.
  • Oral Surgery Equipment: Generally in a valuation of your practice, a third party will be required to come in and provide you an independent third party appraisal of your equipment value. Alternatively, if you have the original invoices of the equipment of your practice, we can use these as a basis for an estimate of value. X-ray units, dental chairs, cabinetry, sterilization equipment, Lasers, Intra-Oral Cameras and computer systems and other similar equipment will be included here.
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