Do you know how much your dental practice is currently worth? Find out now with these three business valuation methods…
Knowing how much your dental business is worth is not only important if you’re thinking about selling your practice. It’s also useful if you’re seeking investment or finance, considering bringing in a partner, benchmarking your annual performance, or planning for your retirement.
However, accurately valuing your dental practice isn’t quite as straightforward as you might think. There are several valuation methods you can use, and the best one for your practice really depends on your current financial standing.
Here are our top three valuation methods for dental practices and when you should use them…
1. Income-based business valuation
This valuation method tends to be best for dental practices that are currently in a strong financial position with steady annual revenue over the last several years and projections for solid growth into the future.
It follows the principle that the value of your practice is based on its future earning potential. But to arrive at a valuation, you’ll need to accurately project future revenue, then apply a discount rate to determine the present-day value of that revenue.
This is known as the discounted cash flow method. It requires some relatively complex mathematics, so it can be a good idea to talk to your accountant or a business valuation consultant to ensure you arrive at an accurate figure.
“Income-based valuation tends to be best for dental practices that are currently in a strong financial position.”
2.Market-based business valuation
Rather than valuing your practice based on its projected earnings, a market-based approach instead examines how much your business is currently worth in your local market.
This can be best for dental practices that are located in busy city and inner-city areas, and other places that are experiencing strong population and related business growth.
Market-based business valuation essentially looks at how much other dental and similar healthcare businesses have recently sold for in your area. These practices are then compared to your dental business to determine its current value in your particular market.
“Market-based valuation can be best for dental practices that are located in busy city and inner-city areas.”
3.Asset-based business valuation
The asset-based approach assigns a value to your dental practice based on the tangible and intangible assets you own. Tangible assets include your physical equipment and property, while intangible assets refer to your practice’s goodwill. That is, the value of your brand, customer base and existing employees and processes.
This can be an effective valuation method if you own the building or any high-value speciality equipment or technology, or are particularly well established in your local market.
While it can be difficult to accurately appraise a practice’s goodwill, it can be a helpful valuation method for practices that may have run into financial or cash flow difficulties but remain rich in assets.
“Asset-based valuation can be effective if you own the building or any high-value speciality equipment.”
It’s also important to note that while a certain valuation method may be a better fit for your practice, there’s no need to rely on a single approach. Rather, looking at your practice from all angles is the best way to arrive at an accurate valuation you can bank on.