It is important to get your dental business valued yearly. This surprises a lot of people who only seem to think about this when they need financing or they are planning their estate, or something like that. However, this process is very important to do, and ideally, it is a process you should do every year of your business’ existence. It will help you achieve your financial goals for the business and give you more options and put you more in control of your business’ direction.
Say, for example, that your dental business grows its profits by 10% a year. Over 20 years, this would translate to a profit growth of 215%. If you started your business with a profit of $100,000, you would, thanks to the magic of compounding, earn $1.5 million in profits over 20 years. If you grew profits by 10% a year for 20 years straight, you would earn $4.3 million in profits over that time. Understanding the impact of chasing a 5% versus a 10% profit growth helps you understand where your company is going.
WHen you know the parameters in which your business is growing and developing, it is easier to forecast just what kind of value your business ends when you plan on closing shop, selling, or handing it over to someone else. You see, small decisions can have huge effects in the long run. That’s what the compounding effect is all about. And when you watch over your dental business’ value, you can adjust those parameters to maximize the future value of your dental business.
How to Start
SWhat you want to do is begin with a valuation of your business. This will not only allow you to see where you are going, it will also allow you to benchmark your performance against that of other dental businesses that are located in your area and have a similar size. You can’t improve what you can’t measure. Measuring is the heart of progress and innovation. You need to know what your business is worth.
To value your business, you will need:
- Your financial statements for the last three years or more
- A breakdown of your income stream according to:
- Income source, e.g. Medicare, Medicare Advantage, or private plan, or
- By clinician/associate/hygienist
- The pay rates of associates/hygienists, their working hours and the ratio of lab to materials
- A list of your practice team, with their hours worked, their hourly rates, their pension plans, and the approximate value of rentals or freehold.
This looks pretty intimidating, but it is absolutely essential. You will have to do the work if you want to understand the financial side of your business, get it valued and figure out what you need to improve in your practice and where exactly your business is going at the current rate of things.
If you do this every year, you become better and better at it and it will stop seeming so intimidating.
Many of these items should be easily available in your administrative software. It is largely a matter of rounding it all up. The best oral surgery practices do this stuff and you need to do it too.
