Dental Practice Valuation: How to Value a Dental Practice Before Selling
Dental practice valuation. It’s one of the most important aspects of selling a dental practice.
Dental practice valuation involves determining the worth of a dentist’s business so it can be packaged and offered for sale at a price that reflects a fair market value and attracts buyers.
How to Value a Dental Practice
The process begins with a dental practice appraisal, whereby the selling dentist (in this case, our client) and PPS work together to arrive at the asking price. Dental practice valuations are based on a wide variety of detailed information that must be reviewed and analyzed.
Understanding how to value a dental practice begins with an understanding of components such as:
- Practice’s philosophy
- Patient mix
- Patient flows
- Payer mix
- In Network or Out-of-Network
- Provider relationship with Delta, specifically Premier or PPO
- Service mix (including hygiene)
- Staffing strengths/weaknesses
- Office design
- The nature of the delivery systems
- Nature of the technology employed
- The total capital investment in the practice
- Overall curb appeal of practice
- The current management systems
- Accounts receivable management
- Cash flows
- Real profits
- Overhead management
- Areas where performance can be improved
- The community where the practice is located and the larger neighborhood
- The anticipated buyer interest in the practice
- Similar practices which have sold in the recent past
- Any relevant conditions in the marketplace which could have an impact upon the sale
- Prevailing cost of capital to purchase a practice
- Current economic conditions and prevailing consumer attitudes
At PPS, our experience has proven that the proper data makes all the difference. We know that the sales timeline is greatly shortened, and the value is significantly higher when buyers get the right properly packaged information. Accordingly, our dental practice valuation process is detailed and thorough. When we’re finished, the end result is:
- A more effective marketing package
- A quicker buyer response
- Buyers complete their “due diligence” swiftly
- Multiple competitive purchase offers are produced
- A ratified purchase offer is realized sooner
- Financing gets approved in short order
- The purchase contract is finalized and the sale gets closed with few, if any, hiccups
Based on our approach of how to value a dental practice, our clients generally enjoy a completed sale within 90-to-150 days. Without such information, it can take a lot longer to sell a practice. Why? Over time, a “For Sale” practice runs the risk of being stigmatized as ‘stale.’ This leads to offers less than the asking price. In addition, such a practice runs the risk of having its “For Sale” status becoming public information, which then creates other issues for the owner.
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Industry Experts Comments
Extremely Detailed Appraisals
“During my 30+ years of working in the dental industry, I have the pleasure of meeting and working with many professionals. Ray Irving is one of the best. Ray’s appraisals are extremely detailed and his customer service even better!”
—JoAnne Tanner, MBA, Tanner Management, Granite Bay
Consistent Professionalism Makes Him Stand Out
“I have been working with dentists in one capacity or another since 1980 ranging from practice start-up’s and transitions, to management consulting, accounting and tax. I have helped many dentists purchase practices over the years and found every transaction to be a new learning experience, each with its own challenges and learning opportunities.
“Over this almost 40-year period, I have become very familiar with many dental practice brokers. They have come and gone but since the beginning of my career one in particular has stood out as being consistent. Whenever Ray Irving of Professional Practice Sales represents a seller, anyone looking at that practice receives a detailed offering summary of all the pertinent information and necessary facts to make an informed decision concerning the possible purchase of that practice. Ray digs deep into every practice.
He studies the demographics of the community, searches out the best financing alternatives, explores the premise lease terms and more. The investigating buyer shall understand top line and bottom line performance, the debt service dictated by the practice’s purchase and what is available to pay themselves for their efforts. This information is always laid out in an easy to read and understandable manner.
“Ray gets to know his sellers and gives them honest assessments of the value of their practices. He also makes sure that his sellers understand the journey they are about to embark on from the nuts and bolts of the necessary steps through the emotions they shall experience along the way and afterward.
“In my opinion this is where a broker creates real value for both his client the seller, and the buyer, because if any party to a practice transition is uninformed, the likelihood of that sale being completed is very low. With full disclosure to the seller before accepting an engagement, and extraordinary disclosure to buyers during the marketing phase, Ray ensures that the right buyer purchases his client’s practice and that both parties walk away feeling good about the deal. In being able to accomplish this deal-after-deal, Ray Irving has stood out in my mind as the complete broker and one that any dentist should feel good about working with.”
—J. Haden Werhan, CPA/PFS, Partner, Thomas Wirig Doll Group of Firms, Member of the Academy of Dental CPA’s