Dental practices are the business entity many dentists have invested their time, talent and treasure to for an entire career. Some were initially a start up or a purchase years ago that the nurtured and grew into their income producing, patient caring work environment. As dentists approach retirement they often are expecting the value of their practice to be a significant part of their retirement funds to invest.
As part of the pre-sale strategy, a dentist should be meeting with their financial planners to get a solid overview of their retirement accounts, investments, annuities, real estate, and other available assets that will become part of the retirement financial picture for them and their spouse. Dentists need to plan for long- term health costs, education accounts for grandchildren and other properties that might transfer with their estate someday. Knowing the value of their dental practice for this comprehensive review is a great tool as the retirement financial picture comes into focus.
A transition consultant that delivers practice valuations on a regular basis is a great resource. The consultant should be able to communicate the following:
- Trends in the marketplace
- the demand of practices in the area
- Buyer’s objectives are important factors as a practice is listed for sale.
Practice valuations can be simple or complicated depending on the data points considered and the methodologies utilized. A practice valuation is the most accurate way to determine your practice worth in the current market. A transition consultant can make the best assessment of what valuation methodologies to utilize. Documents to be reviewed include:
- 3 years of tax returns
- Historical and year to date profit and loss statements
- balance sheets,
- depreciation schedules,
- equipment inventories and many other points of practice data and metrics.
Ideally, the valuation of a practice should be a through and comprehensive review of as much data as possible related to the finances and operation of the practice.
Savvy buyers look at many factors when purchasing a practice including the technical reputation of the doctor and the practice metrics, and of course the facility. When real estate is owned by the dentist as well, it becomes another asset to be reviewed and analyzed for a competitive lease rate and terms if the doctor chooses to retain the real estate and become the landlord. Very few buyers are in a financial position to purchase the practice and the real estate at the same time. Leases can contain language that includes a right to purchase or right of first refusal clauses for the buyer in the future.
A practice valuation is a helpful tool in determining the asking price for a practice, but also is useful for other business planning. Buyers, lenders and financial advisors find the practice valuations a necessary tool when gathering information for the retirement financial planning. This large asset certainly plays a role in the outcome and needs to be addressed.
Unfortunately, accidents and illness impact dentists prior to their retirement plans. The untimely death or disability of a dentist suddenly needing to sell their practice has a huge impact on the value of the practice. Having a current valuation in place is a strategic solution to getting the practice on the market as soon as possible in these scenarios. When the family is burdened with caring for the dentist or planning funeral arrangements, it is a very tough time to be trying to gather practice data that they are not familiar with. The dental team is also grieving and are concerned for their jobs. The practice’s value rapidly declines as patients seek other care, the team scatters to other practices and the revenue stream suddenly stops. This could be mitigated with a meeting with a transition consultant for a practice valuation to be completed and an understanding of the marketplace. Doctors will have their complete valuation along with the transition consultant’s contact information as part of their estate documents should tragedy strike. One phone call can move that practice to the market and get the maximum value available for the estate or the doctor facing a disability.
Dental practice appraisals are not alike and need to be prepared according to strict standards and meet your specific needs by an analyst with expertise and experience in the dental industry. Our clients use our expert valuations when seeking a loan to expand or improve their dental practices, planning for their retirement and protecting their asset in the event of a sudden tragedy. Phase II Dental Transitions is a trusted source for practice valuations for restorative and specialty practices across the nation.