Can a Buyer Afford Your Practice?

The past dozen years have impacted the prices of dental practices without parallel. Time was that the new dentist looked for a practice to purchase with the hope that he or she could find something older — yet salvageable — grossing $100,000 to $200,000 per year. The hope was to build the practice up gradually to a satisfactory level of productivity. Practices producing $75,000 to $250,000 were sought out and rather quickly purchased as they came to market. Not so today! Inflation has eroded the purchasing power of the dollar, contributing to a significantly higher cost of dental education whic causes, in part, more well-qualified potential dental students to forego dentistry for other more accessible fields. This, in part, has led to the decline in the annual number of dental school graduates. This isn’t the only reason for the declining enrollments in dental school, but it certainly is a major factor.

Consider this: The newly trained general dentist begins searching for his or her own solo practice. The solo practices in greatest demand today are those producing $400,000 to $700,000 annually, netting 40 percent or more. Today’s buyer rarely looks at the practices grossing $100,000 to $300,000. Why? These practices can’t generate enough income.

A hard road for the new dentist

Today’s new dentist needs to earn more than ever to live modestly. Consider the following scenario of income and expenses for one year: >

Expenses Yearly Payment
Student loan (10 yrs.) $35,000
Mortgage/rent, $24,000
groceries, telephone,
clothing, misc $500/wk. $26,000
Taxes, FICA $25,000
Insurance $ 8,000
Savings 0
Practice loan payment $ 58,800
Total yearly practice expenses $180,000
Net practice income before taxes $160,000
Less expenses $ 180,000
Adjusted net (loss) $ (20,400)

(Practice purchased for $240,000; 100% financed at 9% = $4,900 per month x 12 = $58,800 a year.)

With rare exceptions, today’s dental school graduate usually has $150,000 to $250,000 in studentloan indebtedness the day he or she graduates. The loan must be paid back with interest. As you can see from the example in the chart, this graduate really needs to purchase a practice with a higher gross/net and probably will not buy anything grossing less than $600,000.

These are the facts of dental business life today. Where is your practice positioned in the real world of dentistry today? What’s the asking price for your practice? Does it produce enough income that today’s new dentist can afford to buy it?

Jim Kasper is the founder of Jim Kasper Associates, LLC, a dental practice appraisal and brokerage firm, located in Keene, N.H. He has spent 47 years working in the dental industry, appraising and brokering dental practices for the past 20 years. He can be reached at (603) 355-2260. Kasper is a member of American Dental Sales, Inc., the largest group of dental brokers, appraisers, and consultants in the United States. See the ADS classified ads for names and phone numbers of ADS members.

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