It would be a useful exercise for every orthodontist to examine his practice as if he were interested in buying it. Actually delve into every aspect of the practice that contributes to its value and its selling price and evaluate what shape it is in.
In evaluating fixed assets, furniture and fixtures, are they adequate in amount and condition? Are there enough treatment chairs? Is there enough diagnostic equipment? Should some pieces of equipment be replaced? Are the non-professional furnishings shabby and uninviting? Are the machines in the business office up-to-date, adequate, in good working order; or should they be replaced? In addition to appearance, morale and efficiency, would there be some tax advantages in buying new furnishings and equipment? Tax credits? Possibly some financial advantage in gifting the old equipment and making some favorable tax sheltering arrangement with the new equipment.
In the area of supplies, are you an indiscriminate buyer? Are you overstocked with a questionable inventory? Do you even have a restocking plan? An inventory and ordering system? Are there supplies that you should have, but don't?
What shape is your leasehold in? Does it have value? Is the lease written properly to protect your occupancy option? What are you paying per square foot? Is it in line with comparable space in your location? What about your location? Has your clientele moved some distance from you? What are the demographics of your immediate area and drawing area? Is your office too big? Too small? Inefficiently laid out? Is it decorated in an attractive fashion? Take a good look at your office from all of these points of view.
What kind of economic shape is your practice in? If you were buying it, would you be buying value or a headache? What shape are your accounts receivable in? What has been the economic trend--up or down--in your practice? What is the relationship of work left to be done and fee left to be paid on every case?
For many orthodontists, it is going to take a great deal of effort to answer the economic questions, but it may be the most worthwhile exercise of all. In order to relate the work left to be done with the fee left to be paid, not only does one have to make an honest evaluation of how much treatment time and retention time are left, but there must also be some method of calculating the value of time left in terms of fee. In this way, the value of the work yet to be done can be related to the amount of the fee yet to be paid. It would be more useful to do this in some precise, quantitative way, than to make an estimate. One such quantitative way - for the purpose of this exercise only could be to take one's full fee and assign money values to whatever breakdown of treatment steps you may choose. One possibility could be to assign values to Examination and Diagnosis, Appliance, Annual Treatment Fee (broken down into monthly), and Retention. The evaluation of treatment ought to be made from both ends. How much do you figure has been done? How much remains to be done? It will frequently be necessary to think about the difference between the sum of these two and the total estimated treatment time and to make some accommodation for it. Most often, if an accommodation should be necessary, it may have to be made on the patient's side. The value of this exercise alone, may pay you for the whole simulated sale. It will call your attention forcibly to the accuracy of your treatment time estimates, the efficiency of your treatment procedures, the true extent of patient cooperation, and also to the size of your fee.
It is important in the sale of a practice to know whether it is growing, declining, or static. So, look at your record of case starts and case finishes for the last 3-5 years; and look at your Gross Income, Costs, and Net Income for the past 3-5 years. It is also important to estimate future growth potential. What has been the pre-start flow in your practice in the past 3-5 years, in terms of referrals and observations as a backlog for case starts?
Another factor in a practice sale is goodwill. Do you have any idea what your goodwill factor is? Are you maintaining your sources of referral (which may not be transferable to a buyer, but are crucial to you) and your number of referrals? Are you meeting resistance on fees? Are you losing additional members of the families of patients in your practice? Have you run feedback surveys to try to find out how your practice feels about your operation? About their treatment and treatment results? Is your staff transferable? Would they want to continue to work together as a team?
If, in a simulated sale, you wouldn't buy your own practice, at least you will know why; and there could be time to do something about it.
