It goes without saying that dentists are in high demand. According to the United States Bureau of Labor Statistics, the field is projected to grow by 6% by 2031. That means that many people are buying practices while others are selling them. So, how exactly do you find a dental practice valuation? In this blog, we’ll go over the basic information you need to know about a practice valuation.
Capitalized Earning Method
This method of dental practice valuation has you take the previous year’s earnings and divide it by a cap rate set by the market, typically between 25% and 31%. This is an easy way and can show how the figure was arrived at.
Discounted Cash Flows Method
This one looks to the future rather than the past. They calculate 10 years of possible future income, and then they calculate the present income, along with collections and practice capital.
Market-Based Valuation
This valuation takes the data of other dental practices in your area. This might not be the best method, since the figures might not be comparable. The other two would be a much better way of coming up with the right numbers. Otherwise, you could be paying a lot more or getting a lot less in return.
Other Factors
There are a lot of other things that are taken into consideration. What kind of area is the practice set in? Are there a lot of similar places that will offer competition in that same area? What is the neighborhood like? Are the people affluent, middle-class, or low-income? All of those things come into play, too, since it can determine how much money you will bring in.
Other factors include the services that you provide, and what kind of reputation you have. Are you a place known for excellent service or do people complain that there are long waits? When it’s all said and done, you will likely get the valuation you deserve.
It seems like a lot of dentists may just put their faith in the broker when it comes to the dental practice valuation. While that may often turn out for the best, there’s always the chance that they could wind up leaving money on the table or just plain out either paying too much or not getting enough in return. Being familiar with these ways of calculating the valuation can really help them.
Are you looking for a fair valuation for your practice? We can help you. Contact our team at Professional Practice Sales today!
