CAVEAT: This appraisal is not a substitute for a thorough, onsite appraisal by a qualified dental practice broker. A broker appraisal will be far more accurate evaluating the quality and value of the practice’s location, leasehold improvements, equipment, and patient mix. Furthermore, brokers have better access to comparable sales and can better track current market conditions, which in some ways exceeds the “rear view” approach taken by some dental practice lenders. Finally, many brokers charge a reduced rate to prospective clients, and if you list the practice for sale with that broker the fee is usually refunded. Please see the left sidebar for my list of recommended brokers or ask your own broker for further details.
A more direct way to value a practice is to have a qualified dental practice lender analyze the practice to determine how much they would lend to a well-qualified prospective purchaser. I tell my well-qualified buyers that if the lender won’t lend to the full amount of the purchase price, the price is likely to be too high.
So long as the pre-qualification is completed with a lender who understands and is well-matched to the particulars of your practice, I consider the “pre-qualification” method to be the most realistic gauge of practice value, in many ways superior to appraisals by dental practice brokers. Please the left sidebar for my list of recommended lenders for further details.
To request your free dental or orthodontic practice appraisal, you will need to provide the following:
- the practice’s gross and net income over the last three calendar years (orthodontists should provide current contracts receivable and average payment protocol);
- the current fair market value of your equipment;
- the type of professional practice and specialty (if any);
- the type of location (medical building, mall, anything that relates to the presence of walk-up traffic);
- whether or not the seller would continue as a co-owner after the sale; and
- if the seller will not continue as a co-owner, how long the seller has worked previously with the buyer and will remain afterwards for transition assistance.
You should add back to net income any expenses that should be considered extra compensation to the seller (such as large one-time equipment purchases, interest on business loans, excessive or unwarranted spouse’s/children’s salaries, personal pension contributions, and business auto or vacation/education expenses). A copy of your most recent (1120, 1120S or Schedule C) tax return would be very helpful and increase the accuracy of my valuation. All information will be held in the strictest confidence.