If you’re a dentist, your practice is likely a significant portion of your retirement savings, and it took years of hard work to build. While you’re an expert at caring for your patients and running your practice, selling your practice is a unique event that requires careful consideration. Accurate information is essential to making informed decisions that will impact your future.

As you begin to plan for your exit strategy, you’ll need to consider aspects of your practice that you may not have explored before. One of the most critical questions you’ll face is, “What is the value of my practice?” The answer to this question depends on various factors, including many topics discussed in previous blogs, such as reliable practice data.

However, there are additional questions that dentists often ask before making any decisions about listing or selling their practice. Based on our years of experience, here are four common questions we hear regarding practice valuations, along with our insights:

Is it necessary to pay for a practice valuation? Won’t it just end up being 70% of collections at the end?

Slight differences can significantly impact business finances, particularly in terms of overhead. For instance, the distinction between 75% overhead and 70% overhead over 20 years can result in millions of dollars in savings. However, many dentists fail to recognize the significance of these incremental variations.

While it may be worth 70% of collections, it could also be worth 75%. In the case of a million-dollar practice, this is equivalent to $50,000. What are the implications of an additional $50,000 in savings?

How many items on your bucket list can you cross off due to this extra money? Furthermore, a formal valuation can increase a buyer’s confidence in the practice’s financials and asking price. There is less room for doubt or price negotiation when presenting a comprehensive third-party valuation to potential buyers. This credibility can be critical in establishing trust and transparency, which estimations cannot achieve.

A formal valuation can also increase your confidence as the seller. You do not want to rely on estimates to discover you missed the mark when the buyer’s lender requests a valuation. Collaborate with your financial planner to determine if you will achieve your targets with sale proceeds. And if you have time, begin this process three to five years before the expected sale to impact income projections.

Is it appropriate for my accountant to conduct a valuation for me?

Many dentists rely on their trusted CPAs to handle critical financial tasks, and you may consider them a practical resource for conducting valuations. However, while finances are a vital valuation component, they are not the only factor. Location, branding, service mix, and other elements also require a unique set of skills to assess accurately.

Hiring an independent third-party valuation expert raises the bar and ensures the process remains in the hands of specialized professionals. This impartial approach fosters transparency and objectivity, making it more appealing to potential buyers. When obtaining a valuation for your life’s work, it’s essential to eliminate any doubts about the final number and the process’s credibility.

While a CPA’s role is valuable in providing precise data and reports to the valuation experts, they can also offer critical perspectives on tax implications and contribute to a sound financial plan.

What factors determine the value range of dental practices today?

Dental practices are complex businesses that cannot be evaluated using a simple calculator. However, valuations usually range from 65% to 85% of the previous 12 month’s collections. While various methods exist to evaluate practices, the income-based approach is the most common.

Dental practices must be well-managed and present clear reports on key metrics to achieve a higher valuation. A seller’s focus includes operations, branding, and financial management; proper planning and a clear understanding of the process help you manage details that may make the difference between your practice and someone else’s on the buyer’s list.

Can my broker perform a valuation for my practice?

While brokers may be experts in their field, valuations require specialized knowledge and attention to detail. Practice transition specialists familiar with your region may be trusted advisors in the process, but valuations are best left to certified valuation analysts.

Just as you wouldn’t trust your broker to handle your taxes, it’s essential to seek a third-party expert to compute the fair market value of your life’s work. This approach ensures a reliable outcome that can bring you closer to achieving your goals.

Take action today and learn more about your options.

At DDSmatch, we understand that dentists face essential decisions throughout their careers, and that’s why we’re here to help at any stage of your practice. Don’t let uncertainty hold you back as you make one of the most significant moves in your career. Establishing the value you deserve is crucial, as every dollar translates into more opportunities to achieve your goals.

You don’t have to navigate this process alone. We have the expertise and resources to help you take your practice to the next level. So why wait? Reach out to us today to start the conversation!