Dental Practice Valuation: How Much is Your Practice Worth?
- Mar 2, 2021
- Erick Cutler
What is the value of your dental practice to you or to someone else? If you don’t know, you’re not alone—many dentists are unsure of what their practice is worth. However, if you might be considering a business deal, such as an acquisition, sale, or merger; or working with your accountant on an exit plan, knowing the value of your dental practice is essential to the transaction. So how do you go about determining its true worth?
When it comes to the valuation of a dental practice, you would think that rule of thumb valuations or multiple methods may be quick and simple to use. However, they are not the most accurate way to value your practice because each practice is an entity with unique characteristics. If a practice performs above or below average, its true value simply will not be captured using the rule of thumb method.
Other factors not taken into consideration when using multiples are the associated risks that are unique to the practice. For example, what is the amount of experience in the practice? Is the practice leveraged? What are current interest rates, and what is the current regulatory environment and how profitable is the practice?
Additionally, it will be important to look at your practice as a whole. You’ll want to take into consideration both tangible and intangible assets, cash flow and how you stack up against similar practices in the area. This is especially important when you are transitioning your dental practice by putting it on the market or selling it to an associate. Believe it or not, even factors such as parking availability, reputation, and patient mix are part of the equation.
These are just a few of the individual considerations used to derive a market value of a practice. If you are considering a transactional event such as a buy-in or buy-out, you will want to make certain that you are getting the best return on the practice you have put so much energy into creating.
There really is no one standard methodology for valuing your dental practice. Real-life experience is just as important as an academic accounting approach.
You’ll want to work with a Certified Valuation Analyst (CVA) and a team of financial professionals with specific expertise in the dental profession. They will have a thorough understanding of the dental practice marketplace and the questions to ask to help attain a fair and accurate market value for your practice.
Remember, a rough rule of thumb valuation is only a starting point. Whether you need to assess the value of your dental practice for buy/sell agreements, estate and gift tax planning, litigation support, divorce proceedings and any shareholder disputes, the dental group at Goldin Peiser & Peiser is available to help guide you through the process.
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Erick Cutler is a Partner in the Private Client Services Group, with nearly 25 years of public accounting experience including health care and the real estate industry.
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