You may need to determine the value of a specialty dental practice for various purposes, such as obtaining financing, buying out a partner, or purchasing the practice. However, specialty practices, such as orthodontics, oral surgery, periodontics, or cosmetic dentistry, may have unique factors that can make valuing the business more challenging compared to general dentistry practices. Special considerations to keep in mind when obtaining a valuation for a specialty dental practice include:
Understanding the Nature of the Practice Specialty
Valuing a specialty dental practice begins with understanding its nature. Each type of dental specialty involves specific services/treatments, patient types, and billing practices. Recognizing the types of treatment cycles a specialty practice conducts and how it acquires or maintains patients will help forecast its revenue and determine its fair market value. In addition, the type of specialty practiced by a dental office will determine the equipment, technology, or staff needed by the practice, which can also affect its value. For example, a specialty dental practice may require expensive equipment or machinery, which can provide a practice with an asset that affects its value and imposes ongoing maintenance costs.
Revenue Patterns and Payer Mix
Specialty dental practices may have unique revenue patterns and patient mixes compared to traditional family dental practices. For example, each type of specialty practice may have a different mix of patients paying out-of-pocket versus with insurance. Furthermore, practices may have extended revenue streams from patients if they provide services that involve a long course of treatment or recurring treatments. Specialty practices may also offer payment plans, which can affect revenue patterns. Practices that provide “one-time” services, such as surgical care, may have more uneven revenue patterns compared to practices whose services involve regular treatments.
Referral Sources
Referral sources can significantly affect a specialty dental practice’s value, as many such practices obtain new patients through referral networks with general dentistry practices. Even when a practice has a strong referral network, that may not translate to an increased valuation for a potential business sale if the referral network will not transfer to the new owners. Analyzing referral data can also help with valuation by understanding whether the practice can sustain the inflow of new patients.
Equipment and Technology Investment
Specialty practices frequently require advanced, expensive medical equipment, such as surgical rooms or radiology scanners. As a result, the value of such equipment, the depreciation of advanced medical technology, and maintenance/replacement costs can affect a specialty dental practice’s valuation. The valuation process must account for the current condition and remaining life of critical equipment and tools.
Owner Dependency and Transition Risk
Valuations of specialty dental practices should also account for the goodwill attributable to the practice’s current ownership or practitioners. A practice’s success may depend on its dentists’ or dental surgeons’ reputation and skills. Thus, the practice’s valuation could end up lower for a sale compared to other transactions if key practitioners leave the business. However, parties can preserve value connected to goodwill by negotiating earn-outs or transition services with those key practitioners.
Regulatory and Credentialing Considerations
Finally, some dental specialties may have additional or stricter licensing requirements or regulatory compliance obligations. For example, some specialty dental practices may have to partner with hospitals or other medical facilities for patient safety purposes, which could affect whether a transaction jeopardizes a practice’s partnership or credentials. Licensing and regulatory requirements might limit the pool of potential buyers for a specialty dental practice or increase the time and expense of transitioning a practice’s ownership.
Contact Our Firm Today to Learn More
When you need to obtain a valuation for a specialty dental practice, working with experienced legal counsel can help make the process less stressful and more accurate. Contact Mahan Law today for an initial consultation with a dental attorney to discuss special considerations for valuing specialty dental practices.
