Unbiased Fair Market Value in Face of Pressure

Recently, I had a client going through a divorce that insisted on repeatedly requesting that I provide the absolute lowest Fair Market Value (FMV) in order to minimize the impact on his finances of the pending division of property.

There are several ways for an appraiser to approach such situations, from directly explaining to him or her the importance to appraisers of providing an unbiased product, to stating that you (the appraiser) will provide the "most appropriate" FMV, to simply ignoring the issue.

All clients are different and each will likely benefit from a different technique, but I invite you to share your best experiences in such situations.

Dentist's Practice Appraisal Wants vs. Needs

The two conflicting challenges of doing a dental office appraisal are 1) establishing a "Fair Market Value" and 2) providing the client with a satisfactory sale price.

Generally, a dental practice appraiser is supposed to provide a Fair Market Value, which is, by definition, one that is just and reasonable for all parties involved.

However, each party comes with their own wants and needs with regards to the establishment of a practice value (usually a purchase price). And it is generally the Practice Owner who contracts with and pays the appraiser.

Usually...

• The current owner wants a high value.
• The potential owner wants a low value.
• The divorcing owner wants a low value.
• The estate of the deceased dentist wants a high value.
• The associate wanting to partner in the future wants a low value.

It is, of course, the appraiser's responsibility to understand the various forces pulling him or her in opposing directions, while trying to maintain an independent point of view.

I'd be interested in any comments or experiences sellers or buyers of dental practices have had in regards to whether the Fair Market Value from their appraiser seemed fair or biased.

Best wishes for a happy and safe holiday season!

Todd Christensen

Success@AssistToPractice.com

Dental Practice Appraiser

Personal Budget Busters

In addition to my practice appraisal services, I am a Certificate Personal Finance Counselor® and a financial educator. For many people, hearing the term, "Personal Finance," is tantamount to covering their face with a rag doused in ether. Zzzzzz.

With that acknowledgement, one of my favorite personal finance sub-topics - and one that most participants in my classes actually find interesting and enlightening - is a "Budget Busters" table. It lists several of the little expenses that creep into our day-to-day finances, along with the big sums they add up to on a monthly and yearly basis. I've heard it called "the latté factor" elsewhere.

Here's the link:

http://www.nationalfinancialeducationcenter.org/docs/Budget_Busters_Brochure.pdf

Check it out and see if you have any of your own Busters listed. We've all got something we can work on. It's not necessarily about eliminating them, but rather minimizing their impact and placing them in their proper place among our financial priorities.

Finally, believe it or not, with Halloween over, it's now officially the Holiday season. So with that, I'll end by saying,

Happy Holidays!

Can Your Practice Have Multiple Fair Market Values?

Certainly! The Fair Market Value of a practice can vary wildly, depending up the purpose and use of the valuation. The true value of any practice is only what someone else is willing to pay for it. And "someone else" will judge the practice's value based upon their perceptions. And perceptions are impacted by a great number of circumstances.

Here are just a few:

1. Sale to a potential buyer looking at the practice right now
The buyer sets the true price, though a professional appraisal should provide a practical value range that the seller can use to bolster his or her position. The buyer generally looks at past performance to determine future potential value. However, everything from the color of your equipment to the personalities of your staff members will affect the potential buyer's perceptions of the practice's value.

2. Sale after the death of the owner
With every day that passes after the death of a practice owner, the value of his or her practice decreases sharply. As the news of his or her passing reaches the patient base, uncertainty regarding the practice begins to lead the patients to set appointments with other dentists. Having a practice value established beforehand, and having an emergency transition agreement in place with a professional colleague can minimize the patients' perception of the practice's continuity and provide for an efficient and expeditious transition upon the owner's death.

3. Buy in of a current associate
   Establishing the Fair Market Value of a practice in advance of an associate-to-partner transition can be a complicated equation. On the one hand, the original owner (who naturally wants to maximize the practice value during the transition) perceives that the years of hard work placed into his or her practice includes the potential value the new partner brings into the practice. On the other hand, the potential partner (who naturally wants to minimize the practice value during the transition) perceives that his or her contributions to the practice should be excluded from the practice's current value. It will likely take a skilled and experienced appraiser to help both parties understand where the "Fair" Market Value truly is. It may seem contradictory to say it, but both doctors have valid arguments. The challenge is to reach an agreement perceived by both doctors as "fair," who, after all, want to form a long-term partnership of working together in a positive and constructive relationship.
4. Distribution of Community Property (Divorce)
   In the unique case of divorce, there is generally not an actual buyer for the practice. In such situations, the Fair Market Value is determined by a third-party appraiser and must satisfy the perceived values of the court and all parties. Consequently, the appraisal must be thorough and include reasonable arguments and justifications for the established Fair Market Value.

Getting your practice appraised is an important decision. Make sure that the professional appraiser understands your purposes and the ultimate goals of the valuation.

5 Things EVERY Dentist's Website Should Have

Perusing the Internet, looking at a number of dental practice web sites, it's clear to see why some many doctors still have not invested in one of their own. Certainly, you know a professional colleague who has spent hundreds (though hopefully not thousands) of dollars getting a web site designed and published, only to have it "just sit there," doing nothing for their business.


Having contracted with a professional web designer, the dentist may have a very nice looking home page, with attractive photos and even professional look. But the content can often be meaningless, boring or, worse yet, a turn off to potential and current patients.

While there are other pieces of information and ideas that may be beneficial to have on a Dentist's website, here are 5 things EVERY dentist's website should have easily accessible on or from their home page:

1. A Map with Directions to the Office
   Think like a patient. As with this entire list, consider the most common questions your receptionist answers on the phone. "Where's your office located?" Refer to any landmarks and stores/offices next to your own.
2. Office Hours
   Include the days your open and your normal office hours. As a bonus, look into offering an online scheduling option for potential and current patients to request appointments.
3. Insurance Plans Accepted
   At the end of the list of insurance plans you accept, whether long or short, include an invitation to potential patients with other insurance plans to call your office to discuss their options.
4. New Patient/Health History Forms
   This will only save your patients and your office time if you tell new patients (or email them a link) to visit your website ahead of their visit in order to complete the forms.
5. Dentist AND (more importantly) Staff Bios and Photos
   I'm sure most dentists are aware of the fact that their patients generally have a stronger relationship and more frequent conversations with their staff members than with the doctor. Make sure you have your staff members listed with bios and photos.

Once you have all of these items on your website, market it to your patients. Hang a snapshot of your home page in your waiting room (or place it on the front desk) with the printed question, "Have you visited our web site yet?"

Other great ideas for your website include an office newsletter, frequently asked questions about hygiene and oral health, and perhaps even your office's financial policy.

Doctors who add these five items to their websites and then consistently market it to their patients will find that they actually increase their business's efficiency and will eventually drive new business to the practice.

From the Curb

I just returned from a brief trip to southern Utah County and swung by six dental practices. Four of the six had brand new or nearly brand new offices. All six were in buildings that were well taken care of.

I was struck, though, by a few whose view from the curb was not as appealing as their entry way. Curb appeal matters. If your patients see only blacktop parking and a cement sidewalk, the perception your practice offers may be a bit bleak.

A couple of offices were surrounded or completely fronted by parking, with no room for the patients to walk by any grass. One office had a line of juniper-type bushes along the side of the building.

Now I grew up in a home with a row of junipers along side our long driveway, and I hated the thought of having to venture into the juniper bushes to retrieve a ball or other play thing. They were poky, sharp, and uninviting.

Perhaps not everyone has such a view of junipers, but replacing such bushes with some perennials or some flowering bushes would do much to soften the harshness of the cement.

Like someone considering how to raise the value of their home, spending money on your practice's curb appeal may be one of those few expenses that can produce a higher return than the investment.

We're Not Invincible Teenagers Anymore

I generally and thoroughly enjoy this career that I've chosen. However, there is one type of phone call or email that is understandably heartbreaking.

It usually begins with the individual introducing themselves as the son, daughter or spouse (or someone representing such individuals) or a dentist.

Next, they explain that their father or spouse had an unexpectedly injurery or illness that took their life.

Finally, they share that, having endured a week or two of numbness during which they have eulogized and buried someone they had hoped would be around forever with them, their thoughts have turned to their loved one's dental practice.

Often, a friend or a professional acquaintance will step in on a temporary basis to handle the appointments on the books.

But questions from the family members naturally come up:

• What am I supposed to do with the practice?
• So and so has expressed an interest in purchasing it, but what's a fair price?
• This was supposed to be part of our retirement plan, but how do I know what its value it now?

As we all know, it takes only a few days for a large percentage of the patient base to learn of their doctor's death. Their have their own questions, which often concern their future dental care. They wonder, as do the dentist's family members, what will happen to their dental office. Unfortunately, if their questions aren't answered in a timely manner, they assume that they will be left to find another dentist on their own. Consequently, a quickly dwindling patient base means that the dental practice value drops precipitously in a matter or a few days to a couple weeks.

I've appraised practices whose doctors have been deceased for less than a month, and the potential buyers know, not from any greed or ill will, that the actual value of the practice is at best half of what it used to be.

Such scenarios perhaps best illustrate the need to have your practice appraised now. Many appraisers, such as Assist to Practice, will update it every three years or so for no charge.

With an updated appraisal in place, your practice's value will be set and ready for any such eventuality. Dentists should also have in place an arrangement with a friend or other professional to not only step in and fill in during emergencies, but also seek financing for the purchase of the practice as a whole.

Think of the peace of mind such arrangements could provide you and your family. Contact a professional appraiser today. Explain your reasons for having a practice valuation done, and make sure to have it updated every few years.

I Ain't Selling, so Why Appraise?

It's a common assumption (and misconception) that a practice should only be appraised in advance of its sale.

Even without an upcoming practice transition, there are several compelling reasons dentists may have to get their practice appraised, including:

• Life Insurance Review and Planning
• Estate and Gift Tax Planning
• Division of Community Assets (Divorce)
• Future Buy-in/out Arrangement with an Associate
• Formation of Partnership or Group

Dental practice owners need to approach such events and projects with information about their practice value in order to make the best decisions to help them reach their short and long-term goals.

A good practice appraisal should include more than just the estimated fair market value of the practice. But that's a subject for another day.

Appraisals and Tax Returns

When it comes to appraising the value your practice, what matters to the potential buyer has got to be the potential income stream that it may generate for them in the near and long terms.

Yes, having the latest equipment is nice. A bright and freshly painted office space is important. But purchasing the practice is pointless if there's little possibility of procuring a projected and periodic pecuniary profit. Get the point?

When I've spoken with dentists about a given practice's appraised value, they often ask to see the tax returns. While I garner much information from the returns myself, I also ask the potential buyers and partners to consider the reckoning behind the numbers.

Practice owners and their accountants have every reason to minimize the practice's income they report to the IRS. Unfortunately, this can also give the impression that the practice's financial benefits to the doctor are less than they actually are.

Beware of any appraisal based soley (or even heavily) upon tax returns. An accountant's handiwork should be just one of many tools used to set the practice’s appraised value.
Practice value is, to a great extent, subjective. To the potential buyer, the practice value may involve the desirability of the office’s physical location, its image, the practice’s patient profile base, how well the practice's procedural profile fits the potential buyer's experience and professional goals, the practice's location relative to a metropolitan area, and, among many other things of course, the compatibility and longevity of the current staff.

Do Your Patients Know How Smart You Are?

There are numerous reasons for pursuing--and various benefits of completing--continuing education. One that I have seen very little of, though, relates to "marketing" it to patients.

When I sit in a waiting room (which is hopefully not very long), I have yet to see information on the continuing education that my dentists or their staffs are completing or pursuing. No plaques on the wall, no binder of photos or certificates, no log of class attendance...nothing.

Your clients may not know their perio from their endo, and frankly, they probably don't care. But I guarantee you that they do care that you and your staff know.

If you and/or your staff attend a dental conference, take a continuing education course, or go to a society meeting, bring back a certificate--or print one up--and display it somewhere in your waiting room. It will increase your patients' confidence in your care and, who knows, may even serve as conversation fodder.

Color Your World

When was the last time you painted the inside of your office? If it's been more than a few years, then the next time you step into your waiting room, try to see it as a new patient or visitor would.

Are the colors fresh and welcoming? Or, are they dated, stale, or worse yet, dark and foreboding?

• Consider a neutral background color;


• Add eye catching accents (a search for the right ones could start simply with Googling "popular colors";


• Avoid colors that some patients and visitors might consider too bold;


• If you use nontoxic, environmentally friendly paint, make sure to tell your patients (signs at the front desk, website, newsletter, etc.). You'll strengthen the loyalty to your practice of more than a few mothers and fathers of young children.

Once you've given your office a mini-makeover, your next step will be to make sure your marketing materials that have pictures of your office interior (brochures, your website, newsletter, appointment cards, Facebook pages) receive the same Tx.

Practice Appraisal Software Limitations

Like Rules of Thumb, software programs designed to simplify in-depth projects that involve complex reasoning and reduce them into simple and cost-effective, step-by-step processes can often provide unexpected results with unexplained outliers for answers.

Using a software package to create a practice appraisal will certainly be more affordable than employing a professional appraiser. However, since such programs have not years reached the point of human reasoning, they might appear to provide little better than the old Rule of Thumb appraisal technique of equating the practice value with 60% of the previous year's production. Compare two practices with equivalent production, one with a 95% collection rate and the other with a collection rate in the mid-70%, and you'll quickly see the limitations of this Rule of Thumb.

While appraisal software is (and should be) much more involved than this, it can never answer the question of what the real value of a practice is. And that answer is... whatever someone else is willing to pay for the practice. Plain and simple.

Current technology cannot gage a market nor engage potential buyers to determine the practice's true monetary value. Such vital questions can only be answered through human interaction.

By all means, take advantage of appraisal programs. They're affordable, interesting and, I dare say, fun! But be aware of their limitations. For important appraisal needs (sales, partnership formations, associate-to-partner opportunities), please call an experienced professional.

Personal Financial Goals for Dentists and their Spouses

You've likely got a mission statement (or at least you should) for your practice. But have you written down your "personal practice goals?"

I'm not talking about how many new patients you want each month or what production level you need to achieve. I'm talking about writing down what YOU want to achieve and do... personally.

Why did you go into dentistry? Besides the pleasure of being your own boss and the satisfaction that comes from the artistry and challenges of the work, you most likely also considered the financial rewards of the profession.

Here are a few goals that, if you haven't done so already, you should absolutely have written down and even carry with you:

1. What do you want to do in the next 6 months that will require money? In the next 18 months? In the next 5 years? These are UNRELATED to your practice. These are personal goals that will motivate you to create and stick to a spending plan. If you're married, you and your spouse should discuss them together and both agree to them. Again, post them where you both can see them. It's the single most important thing you can do to find common ground and "stay on track" financially.

2. How much of the money required from goal #1 will need to come from your practice? Let your personal goals guide your practice goals.

Too often, we let our business goals detract us from or even set our personal goals. We falsely assume that if we're making as much money as our practice possibly can, we'll find financial satisfaction in our personal lives. But without the written personal goals to guide us and to measure our progress, such satisfaction will frequently remain illusory.

I may be a practice appraiser, but I am also a certified personal finance counselor. As such, I will also use this blog from time to time to provide you with ideas and suggestions for increasing and determining not only your practice's value but also your net worth.

Best wishes for practical success!

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