Valuing a Dental Practice | American Dental Association

Time to Value Your Dental Practice

Are you considering buying or selling a practice? Valuing a practice is a definite must regardless of whether you’re a purchaser or a seller; and it may be expedient at other times as well. Here are a few phases in the life cycle of a practice when a valuation is appropriate:

Sale of an Entire Practice

This is the most common time that a practice is valued. The seller is helped in setting a realistic sales price through use of a reputable valuation, and the purchaser will benefit by having accurate numbers in making the decision to purchase, as well as when seeking financing.

The ADA Guidelines for Practice Success (GPS) module on Managing Professional Risks - Transitions and Other Changes: What To Do When Selling a Practice has additional helpful information.

Sale of a Portion of a Practice

Another time to obtain a practice appraisal is when an owner wants to “phase down” but not “phase out” quite yet. Both parties benefit by valuing the practice at the start of the process, and doing so will make the total transition to full ownership easier. You can both see the changes that have occurred during the transition period, and price the remaining sale accurately.

Associate Arrangement Leading to a Future Buy-in or Buy-out

Much like the sale of a portion of a practice, valuing the practice at this stage will help the eventual buy-in or total purchase proceed more smoothly. Each side will be more aware of the initial value and the increase during the joint production times.

Financial Planning Needs

A dental practice may be a critical part of a retirement plan of the owner dentist. Having a realistic projection of the value of this asset will help an owner make sound financial plans for retirement. It is particularly important to do this if you assume that your practice is going to provide a large part of retirement funding.

Formation of a Partnership or Solo Group

The idea in valuing the practice at this stage is to establish the baseline value of each existing practice before forming the new entity. If the new partnership or group will own the combined assets, the original valuation will prove useful in the case of dissolution of the partnership or departure of any of the dentists from the group.

Division of Assets in a Divorce Settlement

Various factors impact how a practice’s value is distributed in a divorce but, regardless of the method used, a valuation will be necessary. You’ll want to make sure that the appraiser you use understands what standard of value and what valuation methods are appropriate for your circumstances and for the state in which the practice is located.