Profit is truly a prerequisite for value. Most buyers are looking for offices that generate sufficient cash flow to cover practice overhead expense (including the debt service associated with their practice loan) and their personal living expenses needs.
Therefore, ensuring that your major expense categories (staff payroll, dental supplies, and lab fees) are within industry standards will ensure that your practice is an attractive option for potential buyers. Additionally, the ability for a buyer to obtain financing for the practice purchase is heavily tied to the historical cash flow of the practice.
It is also important to increase, or at a minimum, maintain the consistency of the production in the years leading up to the sale. Regardless of the explanation, declining or erratic revenue trends will cause concern for buyers and their lenders regarding the future viability of your office. Therefore, you should try to maintain your revenue in your final years as a practice owner.
This is the first in a 7-article series that will look at the Keys to Maintaining your Practice Value. Look for future newsletters for additional articles.