Dental Practice Valuations
Practice valuations. One of the most important documents you can own.
Getting an accurate dental practice valuation is one of the most important tasks to do when you want to sell your dental practice. Having an accurate valuation facilitates a faster transition because the worth of your practice is supported up by recent data, market comparisons and facts Lenders also look for an accurate valuation to determine the probability of the success of their loan to the buyer.
Unfortunately, many so-called brokers will provide low quality dental practice valuations for free just to get you to work with them. Or they purposely and quickly value your practice at a higher value than what they know the practice will likely sell for in an attempt to get you locked into a contract with them. Don’t get sucked into these sales tactics. Having an inaccurate practice valuation can be a costly mistake. You could end up selling your practice for significantly less than it’s worth or you could list it for significantly more than it’s worth and end up losing potential buyers, wasting time and money marketing your practice when it will never sell at that price. Obtaining full financing and effective communication between the buyer and seller also decreases if parties involved have differing opinions of a practice’s value.
So how do you know if you’re getting an accurate dental valuation? First you need to understand the different methods of valuing a practice. Here are some of the most common methods for dental practice valuations:
- Rules of Thumb - This method uses generalizations to guess what the value of a practice is (ie: a dental practice is worth 70% of it’s last years gross earnings). We say guess because that’s essentially what this is. It’s a terribly inaccurate method which assumes that every practice is the same, when in actuality, every dental practice is different.
- Market Comparison - Market comparison compares your practice with other practices in your area that have sold. The theory behind this method is that a buyer was willing and able to pay a certain amount of money for a practice in that area. This is still subject to the issue of practices being different but comparing the current marketplace is important data to utilize when valuing a practice.
- Capitalization of Earnings - This method is the process of determining the value of your business’ net income. The process is fairly complex, but is one of the most consistent and reproducible valuation processes available.
The best dental practice valuations take into consideration your market, capitalization and subjective differences of each practice such as your brand recognition, patient loyalty, etc. As you can see, accurately valuing a dental practice is an extensive process that should not be rushed as it is crucial to the success of your practice transition. Anyone can create an estimated valuation, but a qualified accurate and professional valuation requires experience and hard work evaluating the details of the practice. Request an accurate dental practice valuation today.