Is This Realistic?

[member_225]

I was looking at dental practises for sale and came across this one: 

 

http://roicorp.com/practices-for-sale/dental/?practice=499

 

What I got from it is that there are 2 days of dentistry and 1.5 days of hygiene. Say the owner takes away 30% of the gross revenue (400 000) after all or most of the costs, does that mean he takes away 120 000 for only 2 days of work per week? 

 

Damn, it seems very unrealistic. Am I not understanding a concept?

[CPR trainer]

Yes, this is very realistic.

It extrapolates to a full time (5 days/week) $1,000,000.00 practice.

There are MANY practices producing these numbers.

[member_225]

Yes, this is very realistic.

It extrapolates to a full time (5 days/week) $1,000,000.00 practice.

There are MANY practices producing these numbers.

 

but that would also mean the dentist would make 300k  a year (120k x 2.5), no? 

[CPR trainer]

but that would also mean the dentist would make 300k  a year (120k x 2.5), no? 

yes

[member_225]

Yes, IF the clinic could run at the exact same capacity for 5 days instead of 2, but that's assuming they have enough new patients to more than double their production, which is a huge assumption.

 

Oh right, since he's only working 2 days his schedule is most likely packed...didn't think of that.

 

Thanks! back to searching ...  

[member_225]

What are you searching for exactly??

 

I like to look up dental practises for sale on my free time lol

[koft]

The more scary thing from that posting is the asking price!! 240% of gross billing..  

 

I honestly thing it is getting out of hand. Business loan has a 10 years amortization period, (most of them)  Therefore, you have to pay 97,500 + Prime Interest (on residual) which is total around 110k per year (give or take), that is before your other overhead.  400k gross (maybe that is his/her best year), assuming at least 15 - 20% attrition when take over (as he/she is skipping town, so not staying on to help transition patient over) depending on how many good active charts.  you will be lucky to get 320k.  assuming an optimized practice at 50% overhead, 160k left, 110k for loan, only 50k before tax.

 

 

The question is can this practice expands? maybe there is a reason why it is operating at 2 days a week.

[koft]

240% is a little bit high, but i haven't looked into it for awhile now.  But I wouldn't trust them....

180% seems to be norm around GTA.

[DennisCPA]

They're being sold at 180% or being appraised at 180%?

What I noticed was listing prices well over appraised prices.

 

I personally don't want to own so I don't really look at these things, but listing so high over appraisal value seems odd.

 

Listing prices have been a lot higher than the appraised value for many years now. It is a vendor's market.

It is like the housing market in the GTA.

 

Also another issue is certain banks are not willing or making it more difficult to finance the entire amount above the appraised value so you may need to find alternative methods to finance the difference.

[member_225]

I do agree that it's too high but don't forget that it's an investment. The price of the clinic will more than likely go up after 10 years when you paid off the loan.  

 

Look at this practise though,  the asking price is 50% (almost) of the gross revenue. What do you guys think? 

 

http://roicorp.com/practices-for-sale/dental/?practice=523

[member_225]

Yea, I don't understand why he's asking so much. If you look at other practises, most are close to if not the same amount as the appraised value. 

[koft]

They're being sold at 180% or being appraised at 180%?

What I noticed was listing prices well over appraised prices.

 

I personally don't want to own so I don't really look at these things, but listing so high over appraisal value seems odd.

 

I meant 180% of gross revenue, I don't really care about appraised value, unless it includes the property.

[Pauls]

we need a lot more info to make a decision. ask for p&L from quickbooks, tax returns, procedure codes by provider and by type, fee schedule. then we can calculate the EBITDA. I think in ontartio the practice value is something like 6-7 times EBITDA.  

[DennisCPA]

we need a lot more info to make a decision. ask for p&L from quickbooks, tax returns, procedure codes by provider and by type, fee schedule. then we can calculate the EBITDA. I think in ontartio the practice value is something like 6-7 times EBITDA.  

Agreed but that information will only be available when you are doing the due diligence on the practice which is the next step after you put in an offer and it is accepted.

 

The first step is getting the appraisal, reviewing specific details of it, assessing if it is under-performing or reasonably valued, and then deciding to move forward with the deal or not.