How to Value a Dental Practice for Sale
Do you finally feel like it’s time for you to sell your dental practice and move into something different? The process of selling a dental practice should be taken with as much seriousness as when selling a typical business. You must evaluate the value of your practice in totality without overlooking the assets and liabilities that come with it.
While considering the value of your practice, you must not look at it as identical to any other practice. Each practice is unique with many differentiating factors that you can identify when determining the practice value thereof.
What Is A Dental Practice?
It is a business that revolves around dentistry, providing dental care services to patients. Ideally, it should be viewed as a business like any other, having that dental practices have owners. As an owner of professional services like dental practices, how you go about selling your company is a little different from what happens with typical business owners. While evaluating the worth of your practice may be similar to how other business owners do it, it differs for dental practices because of the patients and the nature of services offered.
Factors to Consider During Dental Practice Evaluations
Before you determine to sell your dental practice, make sure you take some time to ready yourself. There is a lot that happens in dentistry, which is why you must account for the continuity of your practice when you sell it. Some of the factors that can help you evaluate the value of your practice, so you can sell it at a worthy price include:
- Annual collections – these can help you determine the value of your practice, by considering the overhead and net income. At this, use the rough rule of thumb valuation percentage of 80% to determine how much your practice will be worth.
- Asset summation – it should account for the tangible assets of your practice, as well as goodwill. Some examples of tangible assets include office furniture, technology, dental supplies, among other equipment. You can evaluate the price of your equipment by working with the supply company that services your equipment. This is why you must keep essential equipment and facilities up to date, from the instance you have the idea of selling your business. When it comes to calculating the summation of the value of goodwill assets, account for the goodwill rates based on the collections of the last year in your practice. While they may be intangible assets, goodwill does affect the value of your practice.
- Similar practices – you also have to consider your competition. The value of your practice can be weighed by considering similar businesses, particularly those within the same region. However, find the estimate comparable to an average or midpoint between your practice and the others.
- Patient profile – the patients that you have worked with over the years will also play a crucial role in the valuation of your company. Ideally, you must consider the financial resources, educational level, among other factors, to determine your patient profile. For example, if you have invested time and resources in creating a patient-centered practice, you have a higher annual cash flow, which is something you can use to value your practice.
- Location – the placement of your practice also affects the value, since it affects the fundamental law of supply and demand. If for instance, your practice is closer to social amenities and easy to locate, then you often attract more patients and have more business to tend to. In that approach, the location can also help you make an informed decision on the price you should sell your practice.
- Office leases – before you determine to make a sale, ensure that your office leases are stable and easily transferable. This can make or break your sale strategy because it matters to buyers.
Once you are ready to sell your business, ensure you have realistic expectations about what your practice is worth. Putting a very high price may make your company unsellable, especially if the buyers do not appreciate its value. It is why you must start planning high so that you get the correct estimates of what your practice is worth and how much you are willing to settle for on the lower scale.