“I know they valued the practice at $650,000, but the office is very dated. I’d need to put in some serious money to get it to be what I want it to be. Shouldn’t I offer less?”
I hear this all the time: Does the age of the equipment/facility affect the value of the dental practice?
The short answer is no.
Am I saying that an old, dark, dingy practice with film radiographs and paper charts has the same value as a modern office?
Why? Well because the question you’re asking is about the practice’s value or worth. The value of the office is determined by the cash flow of the office.
Cash flow is determined by the quantitative factors we’ve already discussed in previous posts: Collections, staff costs, supply expenses, total overhead, etc.
Cash flow is not determined by how many days the office is open or how appealing it is. Such qualitative factors may be the impetus for your heightened enthusiasm, such as a nice 4-day work week or big beautiful windows.
Though the practice may not be aesthetically or technically appealing to you, the cash flow reflects that patients are obviously still coming through the door.
Ultimately, the seller is not responsible for your predilection for the finer things. That being said, negotiating is okay. If you want to submit a lower offer, it’s not totally unreasonable to use renovation or update requirements as justification. As long as they are reasonable renovations and the reduced price is fair, some sellers will acknowledge the validity of this request.
Keep in mind, however, if there are multiple offers on the table, this increases your risk of getting the door slammed in your face.
Just because patients are coming regardless of the appeal, for your success as an owner, look for ways to improve the office in all capacities, including the superficial attractiveness and the digital efficiency of the office. You may end up seeing a few more patients in your chairs.
Just like a dingy office is worth as much as its modern equivalent, the opposite is obviously true.
Read this as: So even though the seller just bought a new scanner, I don’t have to pay more?
Top of the line scanners are not a consideration in cash flow based valuations. The Gladiator thumb-up/thumb-down judgment is still based on the quantitative cash flow.
If the state of the equipment doesn’t impact the practice’s value, then should you even pay to have an equipment rep value the “stuff” in the office?
Why? Knowledge is power! It may not impact the valuation of the practice but at least you’re not going into the purchase blindly.
With an equipment rep report, you know that the handpiece in Op 3 leaks. You know that the autoclave doesn’t get cleaned frequently enough. You know what you’re paying for and you can plan the steps you’ll take to make the office what you want it to be.
In sum, knowing what you’re getting into with the building and the equipment is a good idea. But that knowledge probably won’t much affect the actual value of the practice for sale.
Why Sellers Sometimes Wildly Overvalue Their Practice – And What To Do
What Is The Most Important Quality To Look At When Buying A Dental Practice?