April 3, 2019

How to Assess Fair Market Value for Your Dental Practice

Assessing the fair market value of your dental practice comes in many forms, but the methods that are most appropriate are market and earnings (capital income). Any valuation will ultimately use one of these approaches, but using a combination of approaches will form a more reliable indicator of value. Here are some factors that will contribute to the fair market value of your dental practice.

Legal definition

According to the Internal Revenue Service, fair market value is defined as the price at which a property would change hands between a willing buyer and a willing seller when the buyer is not under any compulsion to buy and the seller is not under any compulsion to sell, with both parties having reasonable knowledge of the relevant facts.

Valuation

Fair market value includes the going concern value of the practice, including dental and office equipment and furnishings, instruments and supplies, patient records, current location, and telephone numbers assigned to the practice.

Transition information

Fair market value assumes a smooth transition of ownership, including letters of introduction to all active patients and/or referring sources, the seller’s best efforts in assisting in the transfer of the practice, a noncompete agreement and all other tangible and intangible assets of the practice.

Personal worth

Fair market value does not include the accounts receivable of the practice, cash on hand, and any other bank or cash accounts, the practice owner’s personal belongings, marketable securities, real estate or vehicles, if any.

Financial, legal, and management records

Fair market value can be assessed using practice tax returns from previous years, internal bookkeeping data, personal visits from a broker and an analysis of the major management areas of practice, including all client management systems, as well as a visual analysis of the practice location and physical plant.

Sale details

Fair market value can be assessed based on whether selling to an individual or dental service organization (DSO). What’s more, the types of procedures and dentistry that the office performs affect the value.

What’s next?

Contact the experts at Professional Transition Strategies to start the process of assessing fair market value for your dental practice through a prospectus.