Your Practice Value – Perhaps One Of Your Most Valuable Assets
The potential value that lies within a dental practice is a powerful one affecting every practice expansion and transition opportunity a dentist will consider during the course of his or her career. Unlike the value of many other small businesses, the bulk of dental practice value for most dentists remains in a “locked” position until retirement. Making advance preparations to successfully transfer practice value can enhance the reward received by the seller-dentist. As dentists begin to learn how to “unlock” practice value, they will learn how to protect it, in the process.
Fragile—Handle With Care! Dental practice value is fragile because the close personal relationship between the dentist and the patient is at its heart. This relationship is generally not present in other businesses. Practice value stays in a perishable state until it is sold and transferred to a successor. For this reason, it is crucial that dentists plan in advance for cashing-in this value
The Practice Valuation Process
Many theories and methods address practice-value determination. Your choice of a valuation method, and how you structure the terms of the transition based on that valuation, are two components which most dramatically affect the final selling price. Choosing the correct valuation method (and purchase terms) and blending those choices with market knowledge of actual practice sales throughout the country may well be the most important part of the valuation process. Once the value has been determined, maximizing and preserving this value along with various methods of “cashing-in” this value can be explored.
Practice Valuation Methods
Some common practice valuation methods used in the industry today include:
- Capitalization of Earnings
- Summation of Assets
- Gross Income Multiplier Formulas
- Net Income Multiplier Formulas
- Comparable Sales
Although these methods are important keys to the practice valuation process, they should always be balanced with real market knowledge.. Real market knowledge allows for consideration of factors such as (a) the actual selling prices of dental practices in the marketplace; (2) the terms (down payment, interest rate, etc) commonly seen in dental practice sales, and (3) how cash versus seller financing, allocations of the price for tax purposes, outright sale vs buy-in, and any post-sale working relationship with the seller impacts the market price.
Feel free to contact us to help you through the maze of considerations when trying to determine the value of your practice