A businesswoman I know says that Goodwill is simply to the ability to make money from the underlying assets. She is absolutely right. The more money which can be made from those assets in the practice, the higher should be the Goodwill. In that definition lies all the clues to its maximisation.
Some would feel that one answer is to work harder. And faster. And longer. However from the businesswoman’s perspective, this does not generate extra Goodwill, it merely demonstrates that you can work fast for very long hours. The person who might buy your Practice may not work in the same way, so they may not see those profits as achievable.
Our businesswoman’s solution is rather to look at the structure of the factors generating the profits, and organising them to the practice’s benefit:
The number and nature of the patients
The attitude of the patients to ‘buy’ dentistry
The ability of the clinicians to deliver dentistry to the patients
We at Minford internally talk about the ‘performance’ Goodwill: the capability of the clinicians to do work, and the ability to hold on to the source of that work. The emotional value which attaches to a Practice over and above the “performance” value is not profit-producing, but arises due to a variety of reasons, such as the desirability of the location, the nature of the clinical work, and of course scarcity. It is entirely subjective, and it is best left to the selling agents to assess.
So what are the factors at play in ‘performance’ Goodwill?
Buyers recognise that patients under a Plan are much more reliable than a list dependent on Fee per Item. The reasons for this relate to the constancy and reliability of the income stream; income does not have to be ‘chased’ every month. The banks have also worked this one out, and regard high Plan-content private practices as less risky than Fee per Item, and will lend more readily, making the practice more saleable. A higher Goodwill ranking.
The type of patient is also important, and this relates to both the treatment plans needed and to the ability and willingness of the patients to accept treatment. High need demographics are not necessarily less attractive than a clinic which has a history of good preventative care – at least where the selling value of Goodwill is concerned. It is all about the ability to generate profits from the patients presenting. If the practice is highly specialised in, say, implants, then unless this has a solid and continuing source, either by the nature of the patient list or by the referral process, this may not easily be sustained by a new owner. So while the individual treatments maybe profitable, their value from a buyer’s perspective may be more questionable. On the other hand, steady repeatable GDS is attractive, because it is easily transferable to anyone.
This ease of transferability is a major factor in performance goodwill. It enables the owner to have the option of using associates or therapists, which increases the possibilities for other earning potential elsewhere in the practice. Leaving aside specialist practices, the more quirky the patients, the staff, the property, the lower the value of the Goodwill, simply because it is harder to walk in and take over.
So a “vanilla” practice might not have such high bragging rights — but it might sell better.
The shape and organisation of the practice building has an effect on the ability to deliver dentistry. Maximising the space usage and the efficiency through diary and rota management will produce results on the bottom line, which adds to the goodwill in the final reckoning.
The ability to hold onto the source of the work, the patients, brings the staff team into consideration. Any patient-influencing staff need to transfer with a smile to the new owner. This aspect is something often overlooked when assessing a valuation, but it is important for Goodwill retention.
Orienting the practice to achieve these Performance goals will reap rewards when sale time arrives. The days where a practice value is based on what it might do are gone.
The key is to recognise is that there are no “average” dentists, no “average” patients, no “average” location, so there should be no “average” solution. It is up to every dentist to take a strong look at their practice, the patient demography, the treatment plans, and how the team works – all these things affect the attractiveness of a practice coming to market, and all can be worked on over the five year run down prior to sale.
Johnny Minford and his team have been working as specialists across the UK for more than 25 years, working with practice owners in finding better ways of working, and specialising in practice acquisitions and sales. He is Chairman of the Association of Specialist Providers to Dentistry (ASPD), and is chair of the Membership Committee of
National Association of Specialist Dental Accountants and Lawyers (NASDAL).
For more information see www.minford.dental or call Johnny initially on 07841 26 0000 or text or mail firstname.lastname@example.org.