As a dental practice owner, maintaining and increasing your practice’s value is always something that is on your mind. You’ve worked hard to build your business, and it’s essential to ensure the value is fair, especially when the time is right for you to sell your practice. While cash flow is a key element of this, the practice’s assets also play a big role in your overall value.
Valuations help establish the practice value by assessing the current and historical financial position, and an important piece to this analysis is factoring in the tangible and intangible assets.
Tangible assets are the fixed assets that you can see and feel. This includes items such as dental equipment, dental supplies, computer equipment, furniture and fixtures. The quality, condition and amount of dental equipment can all influence the value of a practice. As high-end, high-tech equipment can increase efficiency and productivity, the appearance and functionality of these assets are also important factors to a prospective buyer.
A practice that invests $200,000 in updating the equipment and keeping it well-maintained may value higher than a practice with outdated equipment. This is because there’s risk for a new buyer needing to invest in new equipment.
While new equipment can increase the value of a practice, the impact of that investment will not be a dollar-for-dollar increase. In a valuation, the assets of your business are viewed as helping you generate profitability, so it may be a few years before there’s a visible return on investment.
Intangible assets, like patient records, non-compete agreements or goodwill, can have an even greater impact on the practice value. Typically, between 70-80% of the total value is allocated to intangible assets, and the primary portion of that is goodwill. This non-physical asset encompasses factors like the providers reputation, marketing materials, location, patient record quality, practice processes and working relationship with the patients and staff.
These factors are not as simple to duplicate as, for example, a new computer. Goodwill does not exist independently of the practice, nor can it be sold or purchased separately of the practice. It requires time and effort to build goodwill, so an established practice with a loyal following of patients and efficient business operations has more value to a buyer than a brand-new practice.
How do your assets factor into your practice value?
NDP’s Certified Valuation Analysts provide thorough dental practice valuations to compile all of these factors together to accurately and quantitatively determine the value of your unique practice. Learn more about our valuation services or contact a member of our team to get your questions answered today.