One of Debbie’s and my monthly pleasures is shopping at a local Kansas City antiques center which is only open during the “First Friday” weekend. This particular store epitomizes the word eclectic, and has been the source of numerous purchases. Recently I noticed a couple of 50’s era stools which, although I had no need for them, I thought were really cool. They had been marked at $85 each, but having noticed them not selling for a couple of months, I thought I would flash my negotiation skills and see if I could buy the pair for about $120. Imagine my surprise in finding them not in the usual display but positioned in one of those out-the-door bargain locations for $25 each. Interestingly, though I would have been proud to have bought them for $120, I found myself a little reluctant to hand the cashier $50 for the pair. What happened? Why did it no longer seem like such a good deal?
Obviously the chairs had not changed, nor did the store change their marketing format. The fact is, my perception of their value changed. The chairs went from being kitschy, industrial décor to clearance sale items. Ultimately, I did buy them, but the feeling of victory was tainted.
By now you have to be asking “How can this have anything to do with dental practice sales?” Ironically, the answer can range from “Not Much” to “Everything.” Let me explain.
At EMA, we are very proud of our appraisal track record. In 2014, our accuracy with regard to the appraised value versus the sales price is within 2%. Even at that, we don’t feel too bad. Since the market has been so strong, even when we’ve been off, we’ve been a little low.
A thorough review of the practice revenues, cash flow, assets, practice demographics and our catalog of historical data gives us a pretty good idea what the practice should be “worth”. Our standard of value for a practice appraisal is a number for which we think we could sell the practice given a reasonable length of time to present it to the market, and assuming that the business will remain under competent, consistent management.
All this being said, we do not control the market. A practice still sells for what a buyer will pay and a seller will accept. While both parties may think they know “the number”, many factors may influence their decision to act. The urgency of the sale, location of the practice, the seller’s health and family situation, comparisons to other opportunities and access to capital can all change a buyer’s and/or seller’s perspective. What seems like a bad deal to one potential buyer may seem like a bargain to the next. What a seller will accept in September may be considerably different from what they will accept the following April.
Perceptions of value can change. So do your homework, get qualified help, stow away your American Picker’s manual, and do your best not to get too emotional. In the end, everyone needs to walk away satisfied.
Write it off? Not so fast.
John Whipple, DDS – Jefferson City, Missouri
Chad Barth, DDS – Kansas City, MO
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