You are probably going to want to release your dental practice for cash. The process of selling the dental practice requires an informed approach to ensure the best results. You have to realize that valuing your business isn’t an easy process, even if you are an established dentist. You have to consider various factors in the valuation process to help ensure the best results.
Dental valuation is a technical concept that requires a structured approach to help provide quality information. However, it’s also a crucial process when you want to sell your dental practice in exchange for cash. You have to avoid shortchanging and poor valuations to get the best value for your investment. Doing this process correctly will ensure you get the best valuation metrics for your modern business.
How to Value a Dental Practice for Sale: Top 3 Methods to Consider
Valuing a business is often prone to various shortcomings and challenges. You have to find suitable ways of avoiding such complications if you want accurate valuation results. Most dentists have the option that the value of the practice increases over time, significantly as the number of patients increases. However, there is more to this process, and the techniques below should help you get a reasonable valuation.
Nest Asset Valuation Technique
The net asset of any business is an essential resource in performing the valuation process. It provides information on the average value and is often common among dental practice owners. The nest asset valuation method refers to the tangible assets that the dental practice might be owning. These can include medical equipment, property, vehicles, company gear, and similar resources. A large portion of the value of any dental practice relates to the value of the tangible assets. You also have to realize that the valuation must be relevant to medical industry trends.
One main drawback of the net asset valuation technique is that it doesn’t often provide concise information. It’s only beneficial when you want a basic view of the value that your business might have at a particular point. It’s also a method that can easily hurt the value of your practice. Therefore, ensure you use net asset value as a technique for accessing a broad perspective of the value of your dental practice.
Market-Based Valuation Technique
The market-based valuation technique considers all the historical aspects of your dental practice. It also considers a unique collection multiplier and incorporates the market data of dental practices across the country. The market-based valuation also considers the given business market, your location, and the availability of suitable clients. While this valuation method provides helpful information, it also has various shortcomings. A good example is that it fails to consider the profits that a business has acquired over time.
The other challenging aspect is that getting sales information about a given region isn’t always easy. You must realize that dental practices in urban, metropolitan, and rural areas all have varying stipulations. Your ability to consider all these factors will positively impact the evaluation of the results you can access.
Income-Based Practice Valuation Method
The value of any dental health business also shares a significant relationship with the income that it can produce. The cash flow, risk of investment, and the possible returns the buyer can get are all crucial for the valuation process. Therefore, well-informed dental practice buyers often focus on the income that a particular business can provide. It’s a suitable approach for when you want a business that already ranks as an established service provider with excellent returns. It also considers the cash flows and available earnings that a business might have acquired over time. The major drawback of using the income-based method involves a detailed process. The possible steps involved in this process can include:
- Capitalized earnings technique – it’s one of the best valuation methods for modern business organizations. The process evaluates the income of a business based on factors such as capitalization and more. These details help provide the correct market value for any dental business that you might want to capture.
- Discounted cash flow method refers to a valuation method that tries to protect the income that you practice might have over a particular duration of time. Usually, the duration of time this valuation works can average up to one decade. The valuation will also include the current valuation and average income amount the business might have acquired each year. It will also go through a discounting process, including the cost of capital and a risk premium amount.
Final Thoughts About Dental Practice Appraisal
As you have seen, there are various factors to consider when valuing your dental practice. You have to use an informed approach to ensure your valuation is concise and relevant to market, income, and asset factors. The ability you have to develop accurate valuations depends on your method.
Avoid selling your business based on first impression alone because you risk getting a poor-quality valuation. Ensure you use the formulates provided above because they give you a good perspective on the process. If you are still unsure, consult with a professional service provider such as 2740consulting.
