Value Engineering: 10X the Value of Your Clinic| Audio Book Part 2| Dr. Allen Nazeri DDS MBA

Value engineering strategies to 10x the value of your clinic and dominate the market. Part 2 Chapter 1 Unfortunately, most practice owners don't pay any attention to increasing business value until it becomes time to transfer ownership or an exit. Like achieving any significant milestone, having a high value business takes time and the sooner we understand how to build value, the the better off we are when the time comes to transition. One reason for this is that they correlate their identity with their practice. In other words, they think if they don't have a business or their patient base, they lose their social identity. Thus, some have a strong emotional attachment and refuse to think about an exit. But nothing can be further from the truth. Let me share the stories of two dentists, Dr. Sam and Dr. Ursula. Aged 38 and 55 respectively, Dr. Sam sets up a dental practice in the suburbs of Seattle. After five years of operating a large and highly successful general practice, grossing over $1.4 million per year, he comes across an advertisement for Las Vegas Dental Institute known as LVI to upgrade his cosmetic and full mouth reconstruction skills. Being tired of seeing a volume of insurance patients and producing only an average of $250 per hour, he decides to invest nearly 100,000 dol over the next two years to undergo various LVI programs. His investment in himself mastering the skills needed to provide more comprehensive care to his patients certainly pays off. Within the first year, his hourly revenue increased to $3,500 and the overall practice revenue increased by 150%, grossing nearly $4 million. All was going well until his wife breaks the news to him one early morning at breakfast asking him for a divorce. He has no choice but to sell his practice. He contacts several brokers. Everyone, without exception, flatters his accomplishment of creating such a high revenue and a profitable practice. Every broker falsely raises his expectations and promises to find him a buyer, paying him 75 to 120% of his gross income. The sales proceeds means he and his soon to be ex wife would receive approximately 3 to $4.8 million. Unfortunately, a year goes by, many showings later, he cannot find a buyer who feels confident in replacing him and continuing to have extraordinary success generating such a high revenue. So, out of desperation and the divorce court order, he contacts a fellow dentist with similar clinical capabilities. This dentist agrees to take over his 4 million dollar business for only $800,000 or just 20% of its annual revenue. Reluctantly, he accepts the offer.

The second case involves Dr. Ursula, a 55 year old divorced female dentist who specializes in orthodontics outside of Frankfurt, Germany. She has a successful dental practice with two additional subcontracted orthodontists working as associates in her retirement plan. She begins talking to her associates regarding buying her dental practice over the next 10 years and eventually transitioning to full retirement on Portugal's sunny coast. Despite being a visionary and her deliberate intention and having a proper exit strategy, she becomes involved in a car accident leaving her paralyzed from the neck down. Her children have no choice but to sell off her practice assets for pennies on a dollar to take care of some of her medical and living expenses not covered by insurance. The above two scenarios, as grim as they may appear, are common among practice owners. I estimate 99% of the clinics worldwide face any one of the following five Ds resulting in a premature closure of the business or a sell off at a value far below their fair market appraisal. Divorce, Disability, Distress, death and disruption.

Lack of understanding of value engineering early on in a business life cycle means mediocre financial and operational performance. Learning to improve the valuation has a short term benefits regardless of the timing of an exit. Now let's look at each one of the five D's first one is divorce. Across the globe, many families end up splitting up for various reasons. In the United States, the divorce rate is reported as high as 50%. The percentage is even higher among professionals such as doctors, dentists and lawyers due to job related stress on their families and demanding long working hours. Divorce can take a significant emotional and physical toll on a business and its owners. A practice is not immune to the adverse effects of a divorce. Without a proper strategy in place, it can result in a significant revenue loss. To settle marital finances, the owner is forced to sell the business prematurely at a low price or shut it down completely.

Disability healthcare practices are often dependent on the owners providing the bulk of the service. A disability can range from an emotional to a physical or a combination of both. It can become a business disruptor, forcing owners to exit prematurely. It is one of the major concerns for investors when considering investing in service based industries. The more the company is dependent on key providers, the more risk investors face, Thus, lowering the investment value of the business has in the eyes of an investor. Engineering and implementing operational systems and contingency plans allow foreign founders to mitigate the risk should a key provider become disabled and no longer continue regular and routine work.

Every business faces various issues throughout its life cycle, exerting unwanted stress and and causing the founders to exit early. The root cause of distress can be external factors on the owner such as divorce, disability and family disagreements, distracting the owner's focus on the business leading to distress, but it also could be a result of internal operational factors related to a new customer, acquisition, finances, employee management, lawsuits, taxes, and more. A business with proper systems and processes can better manage unexpected events. Generally, those with documented contingency plans can weather all types of storms and are more sustainable long term Death Death is a dreaded word that no enthusiastic business owner wants to discuss. Yet we all know untimely death can occur, leaving businesses without a captain and at the help, forcing them to be shut down or sold off. Families of founders can often end up in severe financial hardships when no proper plans are in place. In contrast, the families of those with appropriate planning and protection can continue to reap the business's benefits despite the founder's or owner's death.

Disruption Disruption can cause an owner to want to sell a business quickly. Any of the other four Ds discussed above can interrupt a company, but there are others. Disruption can result from macroeconomic factors such as politics, economy, social, technological or environmental factors. As of this writing, the world faces an unprecedented pandemic virus causing many businesses to shut down, people to become unemployed. So thinking we can control an exit's timing is naive. When owning any type of business, wouldn't it be insightful to focus on increasing value early on? When it is time to transition ownership, we can maximize our return. Later in the book, I will discuss how to increase your business's valuation and make it investor friendly and transfer ready. I will show founders how creating value will benefit them while owning and operating their business and how they can achieve financial milestones in expanding and growing their business. Achieving this milestone could be raising capital from a private or public sector such as initial public offering.

All types of businesses, but specifically healthcare. Service based companies such as medical, dental, chiropractic, veterinarian and physical therapy clinics will benefit from this information.

This is the end of Chapter one. Please proceed to Part three. Chapter two.