Get Your Paperwork in Order for Your Practice Valuation

Posted by Dr. Suzanne Ebert, ADA Advisor on 10/7/19 9:05 AM
Dr. Suzanne Ebert, ADA Advisor

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Do not forget the primary rule: your practice is worth whatever someone will pay for it.

It is natural to think your practice, the one that you have put your heart into, is the most valuable in the area. However, a professional appraiser can estimate a fair market value based on your practice statistics.

If you are in a rural area with less competition, you may find that an accountant well-versed in local business values can provide a solid appraisal.

You should know the value of your practice any time you are considering a practice transition. A professional valuation can help you understand your practice’s current value – which is vital whether you are planning a full sale, a partial sale, or bringing on another dentist. That estimate gives you a good starting point for negotiations. (See what happens when a buyer and seller disagree on a practice's value.)

You should know the value of your practice any time you are considering a practice transition.

Periodic valuations can also help you gauge the long-term impact of hires and other changes. Find a local expert by asking colleagues or your state dental society, or feel free to work with your existing financial team.

Valuators often use multiple methods to determine a value and then average the results together. No matter the method, you will likely need:

Practice statistics: Document at least three years, preferably five, of new patient flow, collections, and production. Calculate the number of active and inactive patients. (An active patient is generally defined as having been to the office for an appointment at least once in the last 18 months.)

Equipment and fixtures: Prepare a list of all your equipment and fixtures that will be included in the sale. For each item, include the date of purchase, the price paid, and any maintenance or repair records.

Tax returns and financial statements: Compile five years of essential financial documents.

Employee list: Include job descriptions, dates of hire, and compensation.

Insurance usage: List which types of insurance are accepted.

Mortgage or lease information: Include renewal amendments or refinancing details. (Note that if you own the building, you may choose to exclude it from the practice sale.)

Community demographics and market: A professional can provide insight into whether the community is growing, how average income is changing, and changes in the business landscape.

Keeping good records can make it easier to determine a realistic value.

You might also need:

  • Case acceptance and recare rates
  • Current fee schedule, accounts receivable, and collection rate
  • Dentist and hygiene production and monthly hours worked
  • Description of services offered and those referred
  • Floor plan and photos of the current facility

Your appraiser will examine all this data and compare it with other practices in the area. In more rural areas, the appraiser may look at similar types of businesses, such as physician’s offices, for comparable data.

You can make the entire process easier by keeping good records long before you need them. If your records are messy, invest some time to set things straight – such organization reflects well on your practice and will help your valuator develop a realistic estimate.

ADA Practice Transitions can also help you prepare for the process. Join the platform today to get customized advice and hands-on guidance.

Topics: owner dentist, selling a practice


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