Which Practice Valuation Formula to Choose Based on Where You Are in Your Career
Why do doctors obsess over the results from Dental Practice Valuation formulas? Doctors search for the term more than any other in the practice transition space. Plus, we’re seeing doctors and dentists explore their practice valuations earlier and earlier in their careers.
The obsession – if we had to guess – is with the future. A practice transition, for many of our clients, defines the single largest financial transaction of their lifetime. The transaction often accounts for more than their home purchase or sale. The payout is usually bigger than the investment they made to start their practice in the first place.
So when it comes to exploring a practice transition, clients reasonably want to know a ballpark range of financial packages they could walk away with. And a practice valuation formula helps them get there.
For example, if a practice valuation formula comes back with a low-value result, the doctor may keep plugging away another five or 10 years. A high result may help you realize you’ve got something special. In that case, perhaps you decide to expand instead of sell.
The decision to stay, expand, or sell are significant life changes. Or at the very least significant financial changes. And all based on a number generated by a black box.
But you don’t have to make such big decisions if you use a practice valuation formula at the right time in your career progression.
Practice Transitions Group offers three different pathways for doctors and dentists ready to explore the transition process:
- Practice Valuation Calculator,
- First Look or
- Broker’s Opinion of Value.
Read on for an overview of each practice valuation formula and when it’s right for you.
1. Practice Valuation Calculator
What it is: A complimentary practice valuation range
Who it’s for: A practice owner with an offer in hand OR a practice owner just getting their feet wet in the transitions space
What you need: To get a dental practice valuation, you’ll need high-level financials, like:
- Approximate yearly revenue
- Revenue trend (is your business growing or declining?)
- Percent of hygiene
Have ballpark estimates of these numbers?
How it works: With our the practice valuation formula used in our calculator, you can get a ballpark valuation, or price, for your practice. After completing the dental, medical, or MedSpa practice valuation calculator, our team sends you a price range. While the price is simply an estimate, the range can offer clarity.
If a doctor has an offer in hand, the doctor can use the valuation range to compare it with the offer. Of course, this is a short-sighted approach because an offer from an operator doesn’t include the terms that will make or break the doctor’s future. But the comparison can be used as a simple point of reference.
The practice valuation formula used in our calculators is most useful for doctors wading into their practice sale strategy. The range offers just enough information to spark conversations with a broker, their accountant, and their family.
What happens next: After you submit the information into the calculator, the results are emailed directly to your inbox. An advisor will follow up with more resources in the event that you’re interested in learning more about the practice valuation formula we used, what the market looks like, etc.
2. First Look
What it is: A complimentary practice valuation
Who it’s for: A Curious Seller, Open to feedback, likely to list his or her practice in three to six months
What you need: To work with Practice Transitions Group on a First Look, you’ll need
- 12 months of financials,
- Payroll reports, and
- Select EMR/Practice Software reports.
How it works: To initiate a First Look, you will submit one year of financials, payroll reports, and production reports. Our underwriting team, including a former practice manager and CPA, runs the reports through an expedited, higher-level underwriting process.
What happens next: After underwriting, our advisors will analyze the results and define a valuation. Then, the advisor will connect with you on Zoom to walk you through the practice valuation formula we used. The advisor will also offer a general appraised value of the practice. In addition, you will receive a custom action plan with the next steps so that you can improve your practice’s value and marketability.
Oftentimes, dentists want the highest price they can earn. With our custom action plan, dentists have the choice to work on their practice in specific ways. The strategies we share have been proven to increase valuations, earning our clients the most “bang for their buck” (vs what one might assume, like new equipment for example).
At the end of the call, the advisor will let the seller know, based on their needs, if we’re the right brokerage and a good fit to move forward.
Overheard
Our CEO Thomas Allen talks about what’s happened since PTG started offering a First Look.
“I’ve done more and more First Looks before signing exclusivity agreements with clients, and it’s a good goal setter for everyone. The doctor gets a transparent evaluation of the practice and exactly what they need to do for the exact return they want. It’s a win win and it’s free to the client. I’m not sure we offer a better service, expect of course, the eventual return we get them when we sell their practice for more than they thought possible.”
3. Broker’s Opinion of Value
What it is: A valuation of a business driven primarily by a broker’s understanding of the current marketplace for and marketability of a given business.
Who it’s for: A practice owner needing the most accurate estimate of market value we provide, typically needing to ensure the sale will meet specific financial goals
What you need: To get a Broker’s Opinion of Value, you’ll need
- 36 months of financials,
- Payroll reports and
- Select EMR/Practice Software reports.
How it works: A broker’s opinion of value from PTG requires that we get under the metaphorical hood of the practice. We look for any points of risk that buyers may uncover, and ensure we identify all areas of value in your practice. Our team will dig deep and provide our “go to market” EBITDA/SDE, and test that against our existing market comparable data.
What happens next: An experienced advisor will take those inputs and provide a single value that we feel the practice has an 80% or higher chance of fetching in the market. That value plus any notes, highlights, or areas for improvement will be highlighted in a formal report for the client.
In summary
A valuation is a way to put a price tag on a practice with the market in mind, and Practice Transitions Group offers multiple options depending on how close you are to actually listing your practice.
Curious about what your practice is worth in the current market? Get a practice valuation from the most trusted M&A underwriting team in the U.S.
