We hear all the time that a dental practice value is X% of gross revenue, but is that just a myth? Matt and Joe can shed some light on understanding the difference between price and value.
Matt Scherer: Hello, and welcome. My name is Matt Scherer with PMA Practice Transitions. I assist dental professionals in buying and selling practices in the great state of Ohio and Western PA, and my colleague is…
Joe Gordon I’m Joe Gordon. I do the same from Indiana and Northern Kentucky.
Matt Scherer: And our topic today is…
Joe Gordon: Our favorite topic, absolutely. It’s price versus value.
Matt Scherer: Absolutely. So, Joe, price versus value. Talk to me. Why should I pay this price for this practice?
Joe Gordon: Because. Because I said so. No.
Joe Gordon: Because of all the factors that go into what the true value of that practice is. We hear these rules of thumb all the time that practices should be X percentage of gross revenue: biggest fallacy in the world.
Matt Scherer: Absolutely.
Joe Gordon: There is no such thing like that. I have sold practices for 98% of gross revenue and 30% of gross revenue just because of all the other factors that go into it.
Matt Scherer: I think what happens a lot of times is consumers, we feel like we have to get the best price for something, which means we haggle or whatnot.
Matt Scherer: Keep in mind when you’re buying a dental practice, the most important thing is the value of the good will.
Matt Scherer: To come into a practice and automatically… just because you’re a consumer and you feel like you want to get a better value… you’re offering a lower than asking price, what does that truly do for you? Okay, you might save $20,000, but in the grand scheme of things, is $20,000 that much, number one? Number two, are you saving the good will of the practice by coming in at a lower offer price? Potentially not, right?
Joe Gordon: No.
Matt Scherer: Because it could cause the seller to get a little bit angry that you’re coming in under value.
Matt Scherer: The biggest thing you have to understand between price and value is price is what you pay, value is what you receive.
Joe Gordon: Yes.
Matt Scherer: I think the best analogy is that some people like Mercedes and some people like, what, Fords.
Joe Gordon: Sure.
Matt Scherer: Right?
Joe Gordon: Absolutely.
Matt Scherer: They both probably have power windows, power locks, a radio, cruise control, all the little nice things about them. Why would you buy a Mercedes over a Ford, right? It’s what you feel the value of a Mercedes is over a Ford, and you’re willing to pay more money for that car because you see the value in it.
Joe Gordon: Value of having it, yeah.
Matt Scherer: So, when you’re looking at a practice to purchase, don’t focus so much on what is the price, focus on what is the value I’m going to receive from purchasing that practice.
Matt Scherer: Meaning… Seller refers out endo, oral surgery. Maybe they don’t do Invisalign or braces. You’re coming into the practice, and you do oral surgery and endo: that can add value to the practice.
Joe Gordon: Absolutely.
Matt Scherer: Right? It’s the practice in your home town, it was your dentist growing up: things of that nature. That’s going to have more value to a buyer than somebody who is not from that town.
Joe Gordon: True, true.
Matt Scherer: So, you really have to focus on value versus price. It’s not worth jeopardizing good will over price.
Joe Gordon: Right.
Matt Scherer: Especially if you can see the value for paying that price.
Joe Gordon: Yes.
Joe Gordon: Value’s also found within the staff that works there too. If you’re taking over a practice that has very consistent staff that has been there for years, that’s huge value because you’re going to be the new kid on the block and they’ve been there. Their presence is going to bring a lot of value to that practice. It’s not something you can buy and sell.
Matt Scherer: That’s right.
Joe Gordon: You can’t pick up that value and put it on your coffee table and show your friends, but there is huge value within that existing workforce, within the systems that are in the practice that are already existing, things like that that can bring a lot of value to a practice that just are not chairs and-
Matt Scherer: Right.
Joe Gordon: …instruments and-
Matt Scherer: Right.
Joe Gordon: ..x-ray heads, and things like that.
Matt Scherer: So, I think the moral here is… What we’re trying to get at is you really need to focus on, when you’re looking at practices, is what is the value that I’m going to get from buying this practice, not necessarily the price I’m going to pay?
Joe Gordon: Very true.
Matt Scherer: Well, we thank you for your time today. If you like us, please give us the thumbs up, and please share this with your colleagues and friends. Thanks.
Published by Matthew Scherer on August 16, 2019