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.

Blog By:
seanepp

Just How Adjusted Is Your EBITDA?

Add-back this, adjust that.  

“Pro forma” has become a verb and it usually has little to do with reality.  It can, however, provide the motivation and lubricant to get a deal done.  Always within reason.

When it comes to adjusting financial statements, most of it is easy and straightforward.  That person quit, we changed vendors, we dropped that insurance, we just hired a new RDH, etc.

At the end of the day, you can only squeeze so much cost out of labs and supplies.  Those businesses need to remain profitable as well (or cut out the middle person). 

That said, the Problem of Instant Gratification (the “PIG”) seems to send most folks rushing to wring out all “excess” costs.  If you don’t pay close attention, this expense elimination can leave the remaining business unsustainable - at least for the revenue assumptions being made.

There is no faster way to get yourself in a pickle financially than committing to a staffing model that doesn’t fit or support the activity and busyness of the revenue being modeled.

In the current market, this can require extra attention to all things hygiene-related from both revenue and cost standpoint.  Has hygiene become a loss-leader with certain insurance carriers?  Do workforce challenges have you considering assisted-hygiene models?  Are the dentists simply performing more hygiene services themselves as a practical solution?  

All of these questions have implications for overall profitability on Day 0 as well as your growth going forward.

Understanding the interplay between doctor and RDH production - and their cost - in your practice can help you see through the fog fairly quickly.  It can also help you more thoroughly assess any practice whether for sale or purchase.

Have a fantastic day!

Sean