Most dentists are experts in evaluating teeth and gums but ask them about their dental practice’s current value, and they find themselves in no man’s land. Even fewer are aware of how industry experts like accountants, dental practice brokers, and buyers define dental practice evaluation.
Dentists just out of dental school and enthusiastic about purchasing the dental office near me make a decision significant for their professional career. They don’t want to put money on the table or get shortchanged in the deal. With the stakes being high, dentists need to understand which evaluation formula best fits their office and market.
Some sellers of practices think their practice is worth 1 ½ time their net income, while others believe the average of 70 to 80 percent of their last three-year collections is adequate. Unfortunately, both assumptions are incorrect and don’t adequately reflect the fair market value of the practice. Business evaluations are based on cash flow, investment risks, and the buyers’ return on investment. Let us look at the three most common dental practice evaluation methods.
Knowledgeable buyers generally use evaluation methods based on income, either from capitalized earnings or discounted cash flows, when calculating a dental practice’s worth. Income-based evaluation methods are best to establish the fair market value of most dental practices accurately. Buyers of dental practice for sale must consider its cash flow, the investment risks, and the return on investment for themselves.
Evaluation methods on market value rely on market data of other dental practices in the area. This valuation method considers historical practice collection times with a collections multiplier of 60 to 80 percent. Market value-based evaluations are incorrect or misleading because they merely think about collections without taking profits into account. With this method, it can be challenging to arrive at realistic, comparable sales figures of the practice. The chances are high that you may be comparing the wrong essentials.
The net asset dental practice evaluation method is based on an appraisal of the dental practice for sale with all tangible assets, including furniture, equipment, real estate, et cetera. Intangible assets such as practice goodwill are also included.
Net asset dental practice evaluation is beneficial if a practice like Mesa dental has significant real estate holdings or the practice confronts financial issues. It is an excellent method to raise dental financing for the practice, especially for new dentists. However, this method also has some downsides because it is unreliable and can undervalue older practices that may have outdated equipment, and it is often challenging to appraise practice goodwill.
With many intricacies involved in dental practice evaluation, buyers of existing practices must obtain help from professionals from established organizations whenever they decide to invest in any dental practice offered for sale. As with every business, dentists are likely to come across many brokers in the industry knowing dental practices offered for sale without adequate knowledge of how to value the same. It is why dentists must approach established consulting firms capable of helping them in all areas of buying a dental practice.
The consulting firm must evaluate dental practices without considering income, market value, or net assets. The firm must know the history of the seller while also inquiring into the credentials of the buyers. The consultation firm must assist the buyers and the sellers to ensure the practice of shortchanging is eliminated to ensure both benefits from accurate practice evaluation.
Dental practice evaluations performed by Aftco provide sellers a fair value for their practice after considering tangible and intangible assets, net income, and asset holdings. They make every effort to ensure the seller does not feel shortchanged and happily hands over the practice to the buyer on completion of the deal.
Buyers of the practice are also happy with the assistance they receive from a professional consulting firm helping them through the entire process of completing a purchase. Buyers are not required to run around searching for financing, lawyers, et cetera when trying to complete the deal and begin practicing to get a return on investment as soon as possible.
Dental practice evaluation is a tricky subject best handled by the professionals in the business instead of accountants and brokers. A consultation firm with adequate knowledge about dental practices is the best option for buyers to have a dental practice evaluated if they intend to purchase it for themselves.