Dental Practice Valuation Methods
Whether you’re in the process of selling a dental practice, or you are simply considering a sale, you’ll need an appraisal. Understanding how the process works can help you make the most of your practice. We’ve outlined a simple way to do a quick appraisal on your own. We also go into the primary details a formal appraisal will consider.
How to Make an Informal Dental Appraisal
If you’re considering the sale of a dental practice, then you may be looking for rough approximations before you begin the process. Before we continue, please be aware that this rule of thumb is not necessarily accurate. Every dental practice is different, so a thorough dental appraisal is needed before you go on the market.
In the short term, however, if you want to approximate how much you can get from the sale of a practice, you’ll need to look at last year’s collections. According to the rules of this informal evaluation, a practice is worth between 70% and 80%, give or take, of the previous year’s collections. Naturally, there are a lot of secondary factors that alter that price.
You’ll need to consider whether overhead will increase for new owners. Will they be able to pay the same amount for the lease, or will the landlord increase the price? Another critical factor is patient behavior. After all, if the practice’s primary dentist leaves, patients may not like the replacement. Dental patients feel especially vulnerable during exams and procedures. It can take a long time for a dentist to build up the trust and reputation needed to make as much as the seller does.
Finding the True Value of a Dental Practice
Ultimately, the only way to know for sure how much a dental practice will sell for is to actually sell it. However, a professional appraisal considers the vast majority of variables that influence the ultimate value of a dental practice, giving both you and prospective buyers a more thorough picture of the situation. Your appraiser’s experience in the market is invaluable to this process.
Your appraiser will examine how much overhead your practice needs, and compare your spending habits to the market average. Maybe you invest in more staff than a usual practice in order to accommodate more affluent patients. You may enjoy a locked-in lease that hasn’t risen in several years. The cost of maintaining your office and equipment also falls under consideration.
Next, income should be examined. After all, the buyer isn’t just interested in the physical property. A buyer needs to know what kind of income to expect. If a seller has owned and worked in a single practice for a number of years, then reputation and patient loyalty will play a factor in revenue. A new dentist in the same office wouldn’t necessarily receive the benefit of the seller’s reputation by buying the practice and may make less money. However, an office’s favorable location would benefit the buyer just as much as it did the seller. An appraiser digs through all of these details and uses experience and comparable practices to find a real and fair value.
Having your practice appraised probably seems like a hassle. However, when you find yourself in the process of selling, a dental valuation is vital to knowing the value of your dental practice. The methods discussed above should help you understand your valuation and get the most out of your practice.