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Saturday, November 6th, 2021 | by Christine Elliott

If something happened to you, who would know the value of your practice?

We are emerging from the most surreal time that we are likely to ever encounter in our lifetime. All of us have paused to reflect on what has happened and what to expect next. For many of us, it has been the unexpected deaths of loved ones. The dental profession has been touched by these losses as well.

The core of a dental practice is the dentist. So, what happens when the owner dentist is no longer able to operate their practice? Patients are not being seen and treated, and what was once a thriving practice can quickly become merely a closed office.

Have you given much thought to how your loss would affect your survivors? If something happened to you tomorrow, would your loved ones be prepared to take the appropriate steps to efficiently and quickly sell your practice for its highest value?

Knowing the value of your practice is not only essential for planning your practice sale and retirement, but also for estate planning, and most critically for being prepared in the event of a death or disability of the owner.

Having your practice valued for the first time will be a daunting task. The amount of information that is needed for a professional valuation is considerable. You will be gathering tax returns, profit and loss statements, equipment lists, employee information, insurance plan details and much more information about your practice. It is literally a cone beam analysis of your practice. Also, this information will be required to market the practice most effectively by buyers, their advisors and lenders in order to be able to bring a sale to its conclusion.

In the event of an unexpected loss of an owner dentist, if there is not a current valuation, at least within the calendar year or preferably semi-annually, this critical process must be accomplished by survivors who don’t know what to look for, where to look or who to call for help. Their attention is focused on grieving and making arrangements, so it’s no wonder many valuable dental practices are sold at fire sale prices, if at all!

Paper with a list and check marks
I recently had this exact situation happen when the surviving spouse reached out to me, not knowing what to do. Another dentist in the area offered her what she felt was a ridiculous price for her husband’s practice. She had no idea what the practice should be worth, much less what the gross collections were. In addition, the practice had been closed due to the loss for weeks with no plan in place to re-open and the employees had already found other employment. As it turns out, the offer she received was actually a decent offer, due to the current status of the practice. If her husband had a valuation performed and updated yearly, and provided a contact to sell the practice, search for locum tenens dentists, and market the practice broadly, the outcome would have been much better for her.

Some practice transition consultants will offer a “Free Appraisal” or “Free Valuation” of dental practices. This is most likely an Opinion of Value based on a Rule of Thumb method rather than an actual valuation. Therefore, it’s important to understand the difference between the two.

To arrive at a value, a Rule of Thumb uses limited information accomplished my multiplying the gross revenues by an arbitrary percentage. “The practice is worth 70 percent of gross revenue,” or “The practice is worth one times net income,” are the most prevalent rules of thumb. Neither of these methods accurately reflect the worth of any practice, much less all practices.
A dental practice valuation is based on a great deal of extensive practice information and is presented in a professionally written report.

When you reflect on Who am I, really?, What worries me most about the future?, or What matters most in my life?, as uncomfortable as it is, reflect on What would happen if all of a sudden I am not here? Get a professional valuation performed by a professional transition specialist and have it updated at least annually. Having all of this information on hand and instantly available will relieve your survivors of a tremendous amount of stress and frustration.

Christine Elliott, Lic. R.E. Broker, is a dental transition broker with The Transition Group, LLC and a member of ADS Transitions.

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