The Practice Buyer's Corner - Random Musings from the Buy-Side
The Practice Buyer's Corner - Random Musings from the Buy-Side
The purpose of this blog is to share current, real world, experiences on the topics of practice valuation, practice transition, retirement planning, and building equity value - over time - in your dental practice.
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seanepp
seanepp

Is Your Overhead Over Your Head?

4/30/2013 7:42:35 PM   |   Comments: 0   |   Views: 719
As a follow up to my post regarding Real Estate decisions the next most influential factor on practice valuation is non-real estate overhead - i.e. your staffing, lab, and supply choices.

Common Topics:

Tenured Staff

- It is not unusual to encounter practices with highly tenured staff that have received fixed wage increases over 20+ years regardless of economic cycles.  The net result?  Substantially above market wages which impair/compress the valuation of a practice.
- Interestingly, a common theme among very tenured staff is relatively low contribution/production.  Only human nature in many ways, but our experience suggests that tenure can often lead to apathy and indifference despite above market wages - a double whammy in the wrong direction for the owner/seller.
- Long story short, tenured staff can present a double-edged sword through a transition.  The seller's and buyer's trust and confidence in the team is often discounted to a greater degree by their financial impact on the overall deal.

Superfluous Staff

- Hangers-on or very part-time folks that are left on the payroll because of an owner's/seller's abhorrence to "uncomfortable" discussions
- Not really fair to them, the other staff, or yourself.  The next owner will most likely make a change and you'll be blamed regardless. 

Supplies, Equipment, & Labs

- Most experienced doctors have "go to" vendors for supplies, gear, and labs.
- When you start thinking about transitioning (or buying) be very wary of vendor choices.  Do you really think your vendors paid for those golf junkets or other fun times?  No, you did.  Don't be afraid to price out commodity-based relationships accordingly and take yourself on vacation!
- We understand all doctors have preferred labs for specific cases but the lab industry is changing quickly.  Many doctors continue to pay lab rates >2x what they could get for comparable quality from domestic labs.  The quality is out there at better value.  This can have a profound impact on your run-rate profitability as well as your practice valuation upon sale.

Cheers,

Sean

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