Dental Practice Valuation: 4 Questions You Need to Answer Before a Sale

Your dental practice took years to build and likely holds a significant allocation of your retirement assets. While you understand the nuances of running your practice and caring for patients, a practice sale is usually a one-time event. Nevertheless, a potential transition raises essential questions about the process, and accurate information helps you make measured decisions that impact your future.

As you weigh your exit planning options, you’ll consider certain aspects of your practice that you haven’t explored much before. One of the most critical questions will be, “What’s my practice worth?” This simple inquiry depends on many factors, including those we explored last month.

But there’s more.

We often hear other questions that need to be answered before a dentist makes any definite listing or sale decisions. Here are four of the most common inquiries regarding valuations and our insight based on years of experience:

Do I need to pay for a practice valuation? Isn’t it going to end up being 70% of collections anyway?

Every percent matters when it comes to business finances; the difference between 75% overhead and 70% overhead during 20 years can equal seven figures in savings. Unfortunately, many dentists don’t recognize the significance of these increments.

The same is true for your practice value. Your practice may be worth 70% of collections, but it may also be worth 75%. If you have a million-dollar practice, that’s $50,000. Does $50,000 impact your options when you enter retirement? How many bucket list experiences can you check off with that extra savings?

In addition, a formal valuation increases the buyer’s confidence in the financials and the asking price of the practice. When you present a detailed third-party valuation to prospective buyers, there’s less room for doubt or price negotiation. This credibility can tip the scales by building trust and transparency; estimations simply don’t do that.

A formal valuation can build the same confidence for you, too. You don’t want to estimate value only to find out you missed the mark when the buyer’s lender requires a valuation. Plus, accuracy helps you sit down with your financial planner and determine if you’ll hit the goals you need with sale proceeds. Starting this process 3-5 years before an expected sale significantly affects comprehensive income projections in retirement.

Can my accountant do my valuation?

Most established dentists have a trusted CPA who manages critical financial tasks. So, it’s natural to consider them a good resource for a valuation. Of course, the finances drive the analysis in a valuation process, but they’re not the only piece. Looking at trends, location, branding, service mix, and more takes a unique skill set.

An independent third-party valuation raises the bar and puts the process in the hands of specialized experts. This arm’s-length approach automatically creates an unbiased, transparent process that sits well with buyers. If you’re going to obtain a number on your life’s work, it’s best to leave no doubt about the number and the credibility of the process.

Your CPA fills a valuable role in this process by providing accurate data and reports to the valuation experts. They can also discuss tax implications and help add a critical perspective to your financial plan.

What is the range of values for practices today, and what are the key factors?

Dental practices are unique enterprises whose values don’t fit into a simple calculator. But valuations usually fall into a range of 65-85% of the previous 12 month’s collections. As we’ve explored previously, there are a few ways to value practices, but the most common is an income-based approach.

Well-run practices enjoy more sale options than ever in today’s environment. But that process includes advanced planning and attention to detail in operations, branding, and financial management. This approach can help dentists reach the upper end of the valuation spectrum.

The broker I talked to said they could do a valuation. Will that work?

Everybody has their area of expertise, and financial exercises include complicated nuances that require diligence. For example, a practice transition specialist who knows your region is a trusted quarterback for the process, but valuation belongs in another player’s hands. You wouldn’t have your broker do your taxes, so why let them value your life’s work?

The best approach is to use a Certified Valuation Analyst to compute the fair market value for your practice. This third-party process ensures a trustworthy outcome that gets you closer to your goals.

Don’t wait to learn more.

At DDSmatch, we discuss many questions with our clients, and we’re happy to help dentists explore possibilities at any stage of their practice. Don’t settle for uncertainty as you face one of the most significant moves in your career, and be sure to establish the value you deserve. Remember that every dollar translates into more options to fund your goals, and you have resources to help you get to the next level. Reach out today to start the conversation!

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