As you begin to explore selling your practice, you may have heard that you need a certified valuation. You may have also heard the term appraisal, broker’s opinion of value, or valuation.
If you’re a doctor interested in buying or selling a practice and believe that you need a certified valuation from a CPA, read on to find out
- What a certified valuation is
- What a certified valuation is not
- When you need a certified valuation
- Valuations buyers trust
Certified valuation is:
A certified valuation is synonymous with appraisal and usually refers to a practice valuation calculated by an independent CPA. For example, Practice Transitions Group has a CPA on its underwriting team but a buyer may want a CPA unaffiliated with the seller.
A certified valuation is ultimately the CPA’s calculation of what a practice is worth based on the practice’s financial reports. The valuation doesn’t include the context of market forces.
Certified valuation is not:
A certified valuation is not a list price. A doctor selling his or her practice will ultimately decide the list price with their medical brokers, not their CPA.
A certified valuation is not negotiating leverage. Because a practice is ultimately worth what the market will pay for it, sellers are under no obligation to take a buyer’s certified valuation into consideration when weighing offers.
Here’s when you need it:
A buyer may want to fact-check the seller’s broker in which case he or she will hire an external CPA for a certified valuation or appraisal. The cost is usually around $3,000.
A seller may want to fact-check their medical broker’s valuation, in which case they’ll seek out an independent CPA. (We must note here that if you’re a seller that doesn’t trust their dental practice broker’s valuation, you may want to reconsider that partnership.)
BUT here’s what nobody wants to say:
A certified valuation isn’t actually useful during a dental practice transition. It simply doesn’t come into play.
In fact, there are risks with using a certified valuation for a dental practice transition.
- The first risk is paying for a certified valuation and becoming anchored to that number. Because a practice is worth what the market will pay for it, not what a CPA says it’s worth, a certified valuation can be confusing for the seller, even frustrating. You may wonder why your dental practice broker won’t list your practice – and life’s work – for the number the CPA calculated.
- The opposite is true as well. You may get a certified valuation from a conservative CPA, who is simply doing his or her job, but not considering what the market will pay for a practice like yours. In this case, you could go to market with a low list price and leave hundreds of thousands of dollars on the table.
What are buyers actually looking for?
Buyers – both doctors and DSOs – are looking for practices that have been through rigorous underwriting from dental practice brokers they trust. They are looking for valuations that are accurate and take the market into account. While buyers will, of course, do their own due diligence, but they don’t want to be surprised.
So then what kind of valuation do I need?
You need a valuation from dental practice brokers or medical brokers with an expert underwriting team.
How do I get a valuation?
After interviewing several dental practice brokers, you’ll make a choice to go with one team. We recommend going with a team you genuinely enjoy since you will be spending a good deal of time together.
Next, you’ll sign an exclusivity agreement with them. Then, they’ll get immediately to underwriting, where you’ll allow them confidential and secure access to practice financials. Finally, you’ll get a valuation based on those financials and together, with the brokers, come up with a listing price.
Expert dental practice brokers calculate accurate valuations that buyers trust during the underwriting process. Therefore, if you’re selling your dental practice, you don’t need a certified valuation! If you’re buying a dental practice, you can certainly pay for a certified valuation of a dental practice for sale, but the seller is not required to take the valuation into account at the negotiating table.
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