Valuation Methods When Buying a Dental Practice

Before you buy a dental practice, it is essential to understand its true value in order to make the best investment. Figuring out how to value a practice accurately can be confusing with a variety of varying opinions and information available. The method you choose may depend on your unique circumstances. Here are the three commonly used valuation methods to keep in mind when buying a dental practice.

Net Asset Dental Practice Valuation

Net asset valuation takes into consideration all the tangible and intangible assets before buying a dental practice. The majority of value for most dental practices are with intangible assets like patents, copyrights or trademarks. Evaluating a dental practice with this method can become a problem because older practices with outdated equipment and technology can be undervalued. This method should be considered alongside other valuation methods to determine whether or not you should buy a particular dental practice.

Market-Based Dental Practice Valuation

Market-based valuation is accomplished by using a multiplier with the collection history of the dental practice and sales data from other local practices. If there is a lack of sufficient data from other practices, you may not get an accurate valuation before buying a dental practice. Another aspect that is not considered in this method is the profits of the practice.

Income-Based Dental Practice Valuation

Before buying a dental practice, you want to discover the cash flow and return on investment. The income-based valuation can accurately calculate the fair market value through discounted cash flows and capitalized earnings. Income using this method is defined as the cash flow of the practice before taxes. The cap rate on capitalized earnings for a dental practice can be between 20% to 30% on average. Projected discounted cash flows for average dental practices can be in the same percentage range as capitalized earnings.

Expert Educational Tools for Buying a Dental Practice

When buying a dental practice, all factors involved need to be taken into careful consideration. Acquiring the right education on knowing what to look for is crucial for a successful investment. Buy the Right Practice can give you all the tools you need to start and build a successful dental practice. Get your journey started today by joining our free webinar for tips on dental ownership.