Discovering the value of your current dental practice is crucial when making the decision to sell, but how do you know what your practice is really worth? A true dental practice valuation relies on these four main accounting methods.
Capitalization of Earnings
This approach takes the last few years of earnings and divides by the current capitalization rate. The goal is to look at the current cash flow of the business, the annual rate of return on those earnings, and the expected value of the practice. There are multiple variables that can affect the capitalization rate such as staffing, patient flow, and many more. It’s imperative that an expert with a firm grasp on how dental practices function perform this valuation so that no important information is overlooked.
Discounted Future Cash Flows
This concept evaluates a current practice with the idea of time value of money. This method is widely used in investment real estate to determine if the cash flow of the property makes it a good investment. These future cash flow projections are discounted to arrive at a determined present value estimate, this is the estimate used to determine the worth of the potential investment.
The Comparable Sales Method
Simply stated, this method takes comparable practices and evaluates the current investment based on their comparable finances and returns. To accurately evaluate a practice based on the Comparable Sales Method, the comparing practices must be similar in both location and time of evaluation.
Summation of Assets
This method takes the summation of both the intangible and tangible assets of a practice. The intangible assets of a practice can represent the Goodwill of the business, such as the longevity of the staff, the patient charts, etc. The Fair Market Value of the practices tangible assets are then calculated, often using a straight-line depreciation model.
Once these four values are identified, they are then added using a weighted system. If you’re reading this and still unsure of where to start, it may be in your best interest to reach out to an expert in practice transitions. The experts at ADS Page Brown & Associates can help you with a FREE practice valuation today!
If you’re ready to take the next step in selling your dental practice, contact an expert at ADS Page Brown & Associates today for your FREE Practice Valuation.