This weekend we celebrated the Canadian Thanksgiving. It occurs the 2nd Monday in October vs the 4th Thursday in November in the USA, likely due to the fact a large portion of the country is under a blanket of snow at that time. Following my fill of turkey and stuffing, I was sitting around the fire with one of my cottage neighbors. Coincidentally, he is in the dental business and manufacturers a state-of-the-art vacuum system.
As usual, we got on to the topic of business, specifically succession planning. He’d like his eldest son, who currently works in New York advertising, to join and eventually take over the business. As you can imagine, convincing a millennial to leave the glamor of New York for vacuums is a bit of a challenge. I asked my friend if he had ever had the conversation of increasing asset value with his son.
The son is currently a six-figured employee, but similar to a dental associate, his ability to earn and save is tied to that salary. The vacuum business, though not as sexy as New York advertising, is growing at a fantastic rate and so is its value. So if the conversation now focused on the future asset value and the participation in that growth – that New York salary becomes minuscule in comparison. And hopefully there would be a different outcome in the conversation to join the company.
As business owners, you control your practice. You choose the employees, labs, supplies, vendors, etc. and have the opportunity to hire other dentists to increase practice revenues. You also control your marketing and your practice’s ability to grow. Over the past 24+ years, we’ve worked with hundreds of practices that have doubled, and even tripled, revenues by implementing effective marketing, both internal and external. So what did this mean to asset value?
Well instead of following their accountant’s advice and cutting $50,000 in advertising, they invested this money in strategic marketing campaigns and experienced not only growth in their practice revenue, but significant growth in their practice asset value.
Let me first state, I’m not remotely an expert in practice valuation. It’s a complicated science of variables that determines a practice’s value. But let’s hypothetically say that a five-year $250,000 marketing investment increases practice revenue from $750,000 to $1.5M over 5 years (not uncommon). Using a very simple practice value of 60-90% of annual collections, the practice’s asset value increases by $525,000 (70% of collections), not to mention the increase of owner yearly compensation by 250% ($262K to $674K).
So hopefully you’re thinking future asset value and not just present-day income. You have the ability to increase the value of your practice significantly, and for many dentists, this is one of their largest assets. We can’t control the multitude of decisions that you have to make on a daily basis, but we can demonstrate how a targeted marketing campaign can make you stand out in your neighborhood and grow your practice value.