How To Value A Dental Practice

Learning how to value a dental practice can be tricky for dentists looking to sell their practice. Most dentists are experts at tending to patients and running their practice, but the valuation of a practice can be a potential hurdle. It truly requires a high degree of financial competency and business acumen to properly evaluate a dental practice. And while dentists are highly skilled within their profession, using EBITDA and free cash flow to properly value a dental practice is something entirely new and different. 

At Triumphant Transition Partners, we know the dental practice valuation process from front to back. Plus, our healthcare-specific CPAs on staff are experts on the subject, given that they perform healthcare practice valuations daily. All that to say, we’d love to share some of our thoughts and advice, Please note that all recommendations here are not fool-proof bits of business advice. A custom dental practice valuation is always best practice.

Learn About How To Value A Dental Practice

What Goes Into A Dental Practice Valuation?

The truth is that there is no sure-fire, copy-and-paste way to value a dental practice. Every practice, market, situation, and business model is different and requires a unique valuation. The reason why is relatively simple. The more accurately you value your dental practice, the better you are primed to make good decisions about selling or buying said practice. As a dentist looking to sell or buy a practice, you don’t want to undersell or overpay, and an accurate dental practice valuation is the best way to counteract this. 

There are several different ways of valuing dental practices, and unfortunately, some of the rules of thumb circulating in the dental management community aren’t useful. The 1.5 net income rule and the 75% of the last few years of collections rule are helpful for quick estimates, but they are just that: estimates. 

There are many ways to value a dental practice, and a quick and easy rule-of-thumb is not a solid cornerstone for a business decision. The sale or purchase of a dental practice is likely to be one of, if not the biggest, decisions of your professional life. Don’t rely on simple guesswork. instead, pursue a comprehensive dental practice valuation.

Understand How You Want To Valuate

There are several different ways of determining a dental practice’s value.  Like many elements of economics, this can be confusing and helpful. There are several different ways of valuing a dental practice, so you have different methodologies to check your work. Utilizing three or four different methods of valuing a practice is likelier to produce an accurate result than one. However, the variety of valuation methodologies can be confusing for dentists, so we have compiled some of the more common methods here. 

Income-Based Valuation

Income-based valuations of a dental practice tend to produce the best results. The reason why is that these methods look ahead to projected future net incomes and/or backward to the prior year’s net income. This paradigm gives you an accurate view of the practice’s financial health. If you have a knack for finance and economics, you might discuss whether a capitalized earnings or a discounted cash flow method fits your needs. The better you understand the net income of a dental practice, the better you understand the practice’s business situation. 

Market-Based Valuation

A market-based valuation looks at the market a practice operates in and compares the practice to similar dental practices. The goal is to use the historical collection data of these practices to inform the seller or buyer of the value of the practice in question. While this is a useful endeavor, it’s not a foolproof methodology. We tend to be a little skeptical of relying only on this method. 

  • Not all practices are the same. If you assume the practice in question is the same as those in the area, you leave the door open for unintended errors. Every practice in your market has at least one unique variable that raises or lowers its value. Assuming every practice in the market is exactly the same could be problematic.
  • Intangibles are difficult to measure. Brand perception, patient base, future growth, and patient trust are almost impossible to measure in a market-based paradigm. While these are still difficult to gauge in an income-based view, an income-based view at least values the practice on its own. A market-based valuation compares your practice to others without a failsafe way to evaluate these intangibles.
  • This method doesn’t capture profit. Looking at a practice’s collections versus others in the area doesn’t properly consider the practice’s profitability. Without that piece, a market-based evaluation can be inaccurate. 

Asset-Based Valuation

An asset-based valuation ought to be the most accurate way of valuing a dental practice, right? The value of all assets should be a surefire way to take stock of a dental practice since it’s a pure stock of tangible assets.

Well, yes and no. Asset-based evaluations are still flawed. For instance, older practices might have less valuable equipment, but these practices likely have the best brand recognition, patient base, and income potential in an area. A young practice without a loyal patient base but blessed with expensive assets might be valued higher than an established practice, even though the expected earnings of that young practice are likely much lower than the established practice. Asset-based valuations can be helpful for practices that hold a large amount of real estate, and they can still be insightful if used alongside other methods. However, we would never depend entirely on an asset-based valuation.

Valuing A Dental Practice 

Valuing a dental practice can become complicated, especially if you aren’t an expert in business models or selling a business. As a result of that complexity, it’s imperative that you are able to properly value a dental practice in order to inform your business decisions. It’s just too important a piece of data to estimate.

That’s where the experts at Triumphant Transition Partners enter the picture. We know how to value dental practices and equip you with the most accurate information possible. We’re here to help you through the process and be your trusted partner. Valuing, selling, listing, and closing on a dental practice is a complicated process. Turn to a team with expertise in the area to help you navigate the deal cycle and help you sell your dental practice!

Ready to learn more? Reach out to your trusted Triumphant Advisor today for a courtesy consultation. Fill out the contact form below or give us a call to get started.

How to Sell Your Dental Practice

If you want to learn how to sell your dental practice, you are in the right place! 

There are a million reasons why you might have opened a dental practice and a million reasons why you might be selling. Maybe you’re retiring. Maybe you’re transitioning to a different passion. Maybe you have an opportunity in a different market. Regardless of your unique reason why you are leaving, one thing is sure; the process can be confusing.

You likely are an expert in all things pertaining to dentistry, patient care, and practice marketing, but the actual sale of a practice can be a whole different beast. Luckily, you have resources to help you navigate the stressors and pitfalls of selling a dental practice. First and foremost, you need to understand what to be on the lookout for when selling and how actually to sell your practice for a profit.

The experts at Triumphant Transition Partners put together their thoughts on selling a dental practice to serve as your thought starter. Every dental practice is different and unique; for a custom consultation, consult the team at Triumphant Transition Partners. 

Read on to Learn More About Selling a Dental Practice

Dental Practice Sale Tip 1: Know That One Size Doesn’t Fit All

It’s important to think about your unique goals and preferences when you decide to sell. No two dental practices are the same, but oftentimes, dentists think of the process as a “set-in-stone” prescriptive process. In our experience, the opposite is true. Your practice’s particulars, post-sale exit strategy, local market, and personal goals can all impact the sale process. This can be a neglected portion of the process. We cannot tell you exactly how to evaluate your unique situation but know that the better you understand your situation, the better the sale of your dental practice will go. 

Dental Practice Sale Tip 2: Understand What You Are Worth

This might come as a surprise, but most dentists are not experts on evaluating their practice’s worth. Most dentists are great at running and growing their practice, but the mechanics of running a successful practice differ from knowing what that practice is worth. In our experience, this is one of the key steps that can often be overlooked. Many dentists want to know if they can find a buyer and also what the legal fees will be. The actual dental practice valuation, in our experience, needs to be done first. It is impossible to successfully field offers or hunt for a buyer when you don’t have a baseline for what your practice is worth. 

Dental Practice Sale Tip 3: Manage Buyers

The mere fact that an entity or person has expressed interest often doesn’t correlate well with their viability as a buyer. In our experience, many dental practices need to separate “tire-kickers” from valid potential buyers. Often, your practice will receive attention from those who might look qualified but really are just investigating. These “buyers” often take up a lot of time without actually ever nearing close. Alternatively, your dental practice might encounter buyers who, on paper, look to be perfect candidates. However, as the deal progresses, it becomes clear that some unforeseen pitfall will disqualify these buyers. Maybe it’s the terms of the deal, the buyer’s maximum offer, or some other variable. 

If you are going to sell your dental practice, it’s critical to determine how to evaluate potential buyers. The better you can evaluate and either vet or disqualify a potential dental practice buyer, the sooner you can sell. Moreover, figuring out how to vet buyers will reduce the time and effort invested on your end. 

Dental Practice Sale Tip 4: Navigate the Closing Process

Unfortunately, the closing process can often be a little daunting if you are new to the process. The mere receipt of a valid and fair Letter of Intent (LOI) is just the beginning. If you’ve handled the sale of your practice properly, you should be comparing and contrasting multiple Letters of Intent and leveraging competition between the prospective buyers for maximum value.  This stage can require a lot of counteroffers and negotiation, but even a mutually-satisfactory LOI is not the end. From here, you are onto the last stage of the deal, but close can often be the most difficult part of the process.

In our experience, equipping your attorneys with the most well-researched and compelling data is an often-forgotten piece of the deal cycle. The more you understand your EBITDA and earnings details backward and forwards, the better your attorneys will be equipped to advocate on your behalf through the complex and often stressful closing process. 

Dental Practice Sale Tip 5: Know Your Role 

This can be an overlooked part of the dental practice sale process. It can be customary for the seller to be expected to share some of the responsibilities of managing the practice after closing. If you don’t prepare accordingly, the details of your role post-sale might not be properly defined. That can be a pain point if not properly prepared for. 

You don’t necessarily need to stay on after the sale of your dental practice. Some dentists are perfectly willing to exit the picture, and that’s completely ok. However, others want to be involved with their former practice in some facet. There really is no right or wrong answer here; it’s just imperative that you know what you would like to do and prepare accordingly in the deal process. 

Dental Practice Sale Tip 6: Consider Your Why

While we often see dentists sell their practices when they are ready to retire, there can certainly be other reasons to sell your dental practice. Stress and burnout, for example, are solid reasons to consider selling your practice. Additionally, some dentists are after a higher quality of life. You may choose to sell your practice to a DSO or DPO to maximize the equity in your practice or offset the administrative responsibilities and expenses. Whatever the reason, we can help the process to go smoothly. 

Finish the Deal With Triumphant Transition Partners

Selling a dental practice is a lot of work. Many dentists often find that they just don’t have the time and expertise to successfully evaluate their practice, manage potential buyers and get the deal across the finish line. 

That’s where Triumphant Transition Partners enters the picture.

We know that selling your dental practice can be difficult. As a nationwide mergers and acquisitions advisory firm, we represent buyers, sellers, and groups, and we pride ourselves on bringing a relational component to an often transactional industry. Our expertise, network of buyers and sellers, and metrics formula make us a unique choice to guide you through the sale of your dental practice.

Our merger and acquisition experts are here for ….

  • Initial Discovery
  • Healthcare-Specific CPA Underwriting
  • Marketing to Our Pre-Screened & Pre-Qualified Private Buyer Network
  • Screening Offers 
  • Negotiating Deals
  • Handling the Close Process

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