Dental Practice Valuations: How to Take the Guesswork Out of Pricing Your Life’s Work
Often when we talk to sellers who have attempted to sell their own dental practices, they tell us how they arrived at the asking price:
- They read a few manuals.
- They asked a few friends.
- They glossed through posts on message boards such as Dentaltown.
- They set an arbitrary “percentage of gross” value of some kind.
While these methods can be successful sometimes, in many cases when the dental practice is actually sold, the buyer may have paid too much, or the seller may have received too little. These scenarios illustrate the fact that neither party felt it necessary to consult a dental practice valuation expert or have a professional valuation report prepared.
Successful Transitions Need Professional Dental Practice Valuations
A proper evaluation of the value of a dental practice is important for every transaction, most notably when planning for retirement. Since your dental practice is very likely the most valuable asset you will ever own, it is imperative that it be accurately evaluated by professional dental practice transition experts.
We see this ring true, over and over and over. If you don’t know what your asset is worth, how do you effectively plan for the rest of your life? That is a lot of money to leave to a “guesstimate.”
Don’t Misread the Dental Practice Buyer’s Market
The same can be said when selling a dental practice. Why trust a guesstimate that may or may not be financeable, or may or may not even be palatable or workable to a purchaser? Why take the chance of misreading the market and leaving money on the table or overpaying in taxes, closing costs or even legal/accounting fees? It just doesn’t make sense when you’re talking about the culmination of your life’s work.
Legal Precautions About Improper Dental Practice Valuations
Beyond the benefit of ensuring that equipment and intangible assets are properly valued in a sale to a third party or for gift and estate tax purposes, in the event of a sale to a family member, it is also important to review Treasury Regulation, Subchapter B, Sec. 25.2512-3, which discusses the importance of dental practice valuations and the ramifications of an improper valuation. If the valuation claimed is less a certain percentage of the actual value, a varying (significant) penalty will be imposed on the amount of the understated value.
If you are considering the transfer or sale of your practice (especially in the case of selling to a family member), you need to acquire a true dental practice valuation. Read our previous article, When Is an ‘Appraisal’ Not an Appraisal? Why Sellers Need to Know the Difference, or at least consult a true expert to determine a real value for your dental practice.
Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for dental practice management and fees, selling and buying dental practices, assessing partnership and associateship opportunities, and performing dental practice valuations and appraisals.