Understanding your true value in a seller’s market.

Finding a buyer for an Orthodontic practice is not difficult in what is the epitome of a seller’s market. The trick is finding the right kind of buyer and structuring a transition in the way that makes the most sense for your goals as a seller. NDP has an established track record in finding qualified buyers for orthodontic practices resulting in a smooth and profitable transition for both parties.

Factors driving orthodontic practice demand:

· More residency programs mean more graduates

· Orthodontists retiring later means fewer established practices hit the market

· Orthodontic start-up practices take longer to build cash flow due to Contracts Receivable and nature of production

While demand may be high, that doesn’t mean qualified buyers just show up at your door:

· Residents are typically saddled with $250,000 to $600,000 in student debt at anywhere between 6.8% to 11% interest.

· They are understandably hesitant about borrowing more money for an acquisition or their own startup.

· Many new orthodontists associate for their first few years in the business

· That’s not actually in their best interest, because practice ownership is one of the smartest paths out of student debt.

Our relationship with 67 of the top residency programs across the country puts us in contact with some of the best new talent in the field. We have attended GORP since 2007 and the AAO since 2004. Our partners across all fields work with hundreds of orthodontists across the nation, giving us a network of potential buyers and sellers to connect.

But before you can find the perfect buyer or partner, you have to have a clear assessment of the practice’s value.

Orthodontic Valuations

Orthodontics practices are valued similarly to other dental practices, but of all the specialties, an Orthodontic practice will tend to value slightly higher due to the demand and nature of the production. Some key factors to understand in an Orthodontic valuation include the following:

· Case Starts – A review of the trends in phase I and phase II starts over the last 12-18 months will be reviewed

· Observation Cases – These can positively impact the value as they could represent new growth expected as those cases age and develop

· Contracts Receivable – Reviewing trends over the previous 3-5 years will show the consistency or growth of the practice, typically we see this balance as 55% of annual production

· Overhead – overhead costs and how closely they’re controlled directly impacts profit margins and cash flow resulting in a change in the valuation

· Assets – Key to a potential Orthodontic buyer so the detail and accuracy of the appraisals of equipment and any potential upgrades in the immediate years prior to transition are crucial

· Location – a practice on the west coast, west of Interstate 5 will value higher than rural Southeast simply because of location.

While no two orthodontic practices are the same, the seller’s market and demand from buyers have definitely elevated the transition and valuation process industry wide. 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 office, or fill out a short contact form below. To get started, we request basic financial and operational information and set up a one-hour review of your practice to give you real expectations of what you can expect as a seller, and what buyers are expecting from you!

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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