When looking at the impact of equipment on the overall value of a practice, itโ€™s important to seperate out two types of equipment. Discrete, standalone, non standard items such as CBCT/Cerec and normal equipment every practice has.

Discrete high value items, which can be easily separated and sold off are not the norm when discussing equipment and fitout and itโ€™s impact on valuation.

You can sell a CBCT easily. Separate to the sale of the practice, if the buyer doesnโ€™t want it and same with something like Cerec. In some cases, it makes more sense to do that.

In cases where a low volume of Cerec is being done or a low volume of CBCTs are taken, the machines would be given almost no value in the context of a purchase. Think of a practice billing $600,000 with a 4 year old $120,000 CBCT where maybe 15-20 cbcts are taken a year. Would you pay more for this practice than the equivalent practice without a cbct? How much more?

There is no real marketplace for second hand equipment that provided object valuation of that equipment. This makes valuation methods with regards to equipment, difficult.

Now CBCT and Cerec aside, the more obvious and frequent examples are differences in the quality of age of a fitout or the quality and age of the normal dental equipment (dental chairs, intraoral xray units, compressor, suction).

Imagine a practice billing $1,000,000 and making $250,000 with a brand new fitout with high end finishes vs a practice doing the same numbers but with a medium quality fitout thatโ€™s now five years old. Are you gonna pay more or less for one practice? How much more or less? Myself, many sophisticated owners and many corporates, if we were interested, wouldnโ€™t assign much, if any, greater value to one over the other. Sure, the flashy fitout might be easier to sell, but I doubt it translated to much, if any, increase in value.

What about dental chairs. Same example. $1,000,000 turnover, $250,000 profit. One has 3 year old sirona intego ($35-40k?) chairs vs 3 sirona Teneo chairs ($80k?) – would you pay more for one over the other? I wouldnโ€™t.

A friend of mine and member of DPO has a practice in the Northside of Brisbane and was billing $3,000,000+ many years ago when I visited his practice. 3 chairs. All 20+ years old. He wasnโ€™t looking at imminent replacement. His practice was growing and profitability was high.

When purchasing a practice, astute buyers and more importantly their financiers, are interested in one thing and one thing only. That is, the financial outlook of the business – how much will this business make for the owner. Either through business profits or their wage, working there. The quality of the fitout or the quality of the equipment, has very little impact to an astute buyer. It will however, be something that inexperienced buyers, and their inexperienced advisors will look at and give more due than is necessary.

I was selling a practice recently and I wasnโ€™t there but my brother logged into the cameras when the various parties were viewing the practice. We knew many of the people interested in the practice purchase. There were guys that already owned practices and some of them owned multiple. The experienced owners went straight to the computers and spent significant time looking through the books with just a casual glance around the practice and fitout. Then you had guys that had never owned a practice. Literally took photos of every piece of equipment down to handpieces. Every chair, steri, plant equipment, etc etc. Took them 1 hour plus. It was actually amusing.

Of course, there is one exception to all of the above and that is when replacement of equipment and fitout is imminent (within next 1โ€“2 years). All buyers will discount this heavily and it will have an impact on the sale price.

We cover this and much more at our practice ownership seminars. Our next practice ownership seminar is coming up in Sydney on the 11th and 12th of June 2022. This seminar now only has a few spaces available โ€“ please register ASAP to avoid missing out.

Dental Practice Startup And Buying Seminar Sydney 2022

We also offer expert guidance in various areas of practice ownership. Please see the below link for more information.

Expert Guidance