How An Accurate Appraisal Can Impact Your Dental Practice Transition

There are many factors to consider when valuing a dental practice. It is imperative that you have an accurate appraisal whether you are buying or selling a dental practice.

In order to make your dental practice transition a hassle-free one, it is a good idea to understand the importance of a dental practice valuation. There are three types of value to consider when conducting a dental practice valuation: Asset Value, Market Value, and Income Value. Each has its own specific considerations and each one is important to the final appraisal.

Let’s examine the three different methods:

1. Asset Value: This method of valuation is primarily concerned with the tangible assets such as equipment, materials, the building itself (if owned), and any furniture or supplies that are part of the office. When valuing a dental practice by assets, the inherent worth of intangible assets is also part of the total calculation. As you can imagine, the intangible assets are much more difficult to quantify. The asset value method is most helpful if there are a number of newly-acquired, latest-technology-type recent acquisitions in the form of equipment, materials, etc. Of the three methods, the asset value usually has the littlest bearing on the final dental practice valuation.
2. Market Value: This method is similar to a method conducting when appraising residential real estate. Comparable practices will be used to gauge the value of the practice for sale. Again, like residential real estate, this is when an NAPB practice broker is invaluable—literally. Your broker has access to applicable comps and they know what to look for when comparing practices. While it may seem that market value is the ultimate deciding factor, it’s only second in the line of importance when appraising a dental practice.
3. Income Value: Income value is the most important means of measurement for dental practice valuation. Income value is a measurement of exactly what it sounds like—the dentist’s income. When examining the income value, the appraiser will measure the dentist’s personal income from the practice (above and beyond what they would earn as a partner or participant in a similar practice). The appraiser will also look at total net cash flow coming into the practice after paying the salaries of the dentist(s), salaries of the staff, and any and all other expenses to keep the practice up-and-running. This value carries the most weight when assessing the value of a dental practice.

It’s never too soon to consider the factors in a dental practice appraisal. If you are selling, being proactive provides you with time to ensure that you make choices that increase the practice’s value. If you are buying, starting sooner rather than later gives you time to form a relationship with a dental practice broker Being proactive also ensures that you are ahead of the game as far as what to look for when you do a formal dental practice valuation.