“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.”
~Ben Graham
I started performing business valuations and appraisals in the 1980’s era.
It was intriguing to watch so many private sales at the time in our market. Practices were selling for hundreds of thousands and it was very competitive with the cost of setting up a new practice. At the time, you would hang a new shingle in some rural Saskatchewan town and be paying yourself within the first few months.
This is at a time when interest rates were 9-10% at prime. Saskatchewan growth was stagnant. There was a fear there would be no dentists to replace all those that wanted to retire – particularly in rural Saskatchewan. Some clinics actually simply locked the doors the day of retirement!
In the 1980s’ we had a population of 1,028,000 people. There were approximately 350 dentists – or a ratio of 1 dentist for 2,937 people. We needed these types of ratios as many less people were visiting the dentist regularly. Although dentistry was transforming, it was still about a yearly checkup and/or come when it hurts. Particularly rural where the ratio of dentists were 1 to maybe 5,000 people!
Initiatives to fluoridate water, programs in the schools to educate young patients on oral care, provide therapy in the schools to prevent the rampant decay. A large increase in placing sealants to help prevent decay. It was a joke that we would eventually work ourselves out of a profession!!
A generation of highly acidic, sugary diets has not reduced the need for dentists!
The education has paid off in a generation of highly educated patients. A large part of dental care now is oriented around prevention. We see a much larger percentage of the population making regular visits and the exams are proving the strategy of education is working!
In 2018 we now have a population of 1,169,752 (est). There are approximately 425 dentists in our province, a ratio of about 2750 people per dentist. This is still a strong and viable number from a business point of view. Canada overall ratio is 1650 people per dentist! Our business is STRONG relative to the overall business in Canada – and in my opinion a reason that valuations of Saskatchewan Dental Clinics has been underestimated for a very long time.
Canada has one of the healthiest and most educated populations in the world. Approximately 80% of Canadians have a dentist, 86% visit a dentist once per 2 years (considered an active paitent), the majority of patients have some type of dental plan. This is all good news.
This is not a directory of dental statistics – this blog is to point out valuation principals and ideas. Give you some food for thought on why I think dental clinics in Saskatchewan are under valued relative to the market.
In order to understand a few of the guiding principals in my evaluations – please take the time to read statistics on our business. The Canadian Dental Association publishes a report on the state of the industry. You paid for this, so it’s a good idea to read this to help guide your lifetime investment! These are the kind of statistics that large corporations use to guide them in opening new franchises, in making expansion – or holding steady.
When a Multi million dollar franchised business considers opening up a new location, they always consider the population and demographics. In order to open a Sandwich Franchise for example the company will look first to service a particular neighborhood. They would like to see about 10,000 people in the “drawing area”. These businesses will use current, successful store statistics to estimate that a certain percentage of these people will buy a sandwich at their store a certain number of times. These business owners work hard to keep their “secret sauce” private, as this is a part of their franchise success!!
There is MUCH MORE secret sauce than just a certain amount of people! They will research the other restaurants in the area – the competition. They will understand the demographic of the neighborhood. Maybe the neighborhood would need twice as many people demographically to support the premium sandwich? Maybe they have a sandwich that is more affordable and would have a line up around the block for their brand with half as many people?
Understanding statistics and opportunity is just a part of owning business.
The Canadian Dental Association provides INCREDIBLE insight and statistics. Using these stats along with readily available demographic information can help reduce the risk of opening a business dramatically.
It doesn’t take a lot of insight to recognize that Saskatchewan has a LOT going for it as far as Dental Clinics are concerned…..
#4 – According to google searches, the median income of a Canadian dentist is $120K per year – Saskatchewan is among the top of the median income
Now the challenges of owning in Saskatchewan
#1 – Lack of forward planning has resulted in a labour shortage in Western Canada. The result is higher wages and lower production as there are not enough people to fill the jobs. The average Dental Assistant wage in Saskatoon is $25 an hour compared to the national average of $21 an hour
#2 – We continue to graduate large classes of dentists that are now staying in Saskatchewan while fewer owners are retiring resulting in a dilution of patient base. It is also increase the competition to buy clinics, and more specifically the goodwill value.
#3 – The fee guide, particularly for preventive is low compared to actual costs of performing the procedures. The net result is an average of 30% of gross revenue at a low profit margin which makes it more difficult to provide a high quality service. The result is business trying to find ways to reduce costs to provide the service. Reducing the costs of materials used to perform the procedures. Reduce times and availability. Increased aggressiveness to recall appoint to maintain overhead.
The fee guide is a suggested fee guide, and yet anyone who varies from the fee guide gets challenged in the public perception without having an opportunity to publicly promote the reasons why they charge more or less (see point #6 below, marketing)
-is it possible that more aggressive treatment is recommended to compensate for the higher overhead in preventive?
#4 – The mixed demographics. We have an underserved population that pays an even lower fee guide, yet has a higher demand for the services. Can you provide the same quality of care for all people with a reduced fee? Will you encourage progress and public health with different fee guides for the same services?
#5 – Business valuations. It’s easy to evaluate real estate. There is enough volume as well as buyers and sellers to balance a market. Business is different. An intimate understanding of the business, the opportunity and the earnings is vital to properly compare. There are few evaluators that actually serve the Saskatchewan market – the net result is like comparing real estate in Saskatoon to Toronto.
#6 – Marketing. It’s difficult to make investments in a business without being able to market those benefits to the public. If you take time to improve your education, perhaps spending 2 or 3X the amount required, you are not allowed to make it public. How is that a benefit to the public? Continual improvement and investments can only be marketed “internally”. If you provide a procedure or technique that uses technologically proven superior results, you may have challenges to benefit the public with marketing this procedure.
What will change the valuations of clinics?
The killer of most business and rising valuations….perception of opportunity.
-If we continue to limit the ability to improve our business, the opportunity becomes less attractive.
-Interest rates. If it costs too much to get capitalized, and there are safer investments offering the same or better returns.
-Monopolization. If the price of a business is dictated by a shrinking buyers base.
-Affordability. When its riskier to own than it is to be an employee.
-Generation values. Will a new generation value working as many hours to pay down the debt?
Considering that Saskatchewan Dental Clinics have access to a larger more capitalized demographic – the values we are seeing today will likely continue. We have finally started to address the shortage of dental assistants with a new program at the U of S recently. The fee guide is still a challenge – but the challenge to me is to find ways to become more efficient. Make more and better use of the large fixed costs (rent and equipment) by extending the time it is used rather than spending more on larger rent and more equipment….
TIMEfactor your investments and Saskatchewan Dental Clinics are among the most under rated clinics and business opportunities in Canada!