Information Needed for a Practice Appraisal and Reasons Why
When new clients call to have their practice appraised or sold they almost immediately want to know what it’s worth. I can’t tell you the number of times doctors have started to rattle off their recent collections and expect an immediate answer as to the worth of the practice. If only it were so simple! Valuating your practice is an extremely important endeavor and can cause irreparable damage if done haphazardly-you could sell it for too low of a value, expect way too much and not be able to sell it or greatly sway your future financial planning if the value is wrong. Given that, wouldn’t you rather have someone thoroughly evaluate your practice instead of throwing out a number off the top of their head based on only one aspect of the practice?
In order to appropriately appraise your practice, PI needs detailed information about the practice. Just knowing your recent collections is not enough. Your practice and the one down the street could have roughly the same collections during the last few years, but that does not mean that they are worth the same amount or that a buyer would pay the same for either practice. One practice could have more operatories, newer equipment in better condition, or technology such as a Cerec machine which would increase the value of the practice. One of the practice could also have been declining the last few years and be in need of a greatly expanded marketing program. A buyer who will have to pump additional money into the practice right away to upgrade it will want to pay less money for the practice. Just as in real estate, you pay less for a fixer upper than for a move-in ready house.
The profitability of the practice is also a determining factor in the value of the practice. The more profitable the practice is, the higher the value and therefore amount that a buyer will pay to purchase the practice. Some of the factors that influence your profitability are: the debt you have on the practice, the amount you pay your staff, your lab costs and general overhead costs and even what kind of dentistry you are performing. A Fee for Service practice will be valued and sell for a higher practice than one that is mainly Medicaid.
Some of the typical information that we need to evaluate your practice are the following:
- Tax Returns and Financial Statements: these allow PI to evaluate your collections, expenses and the overall financial health of the practice
- Production and Collection Reports: these reports let us see what type of procedures you are doing, how much you are collecting vs producing
- List and age of all equipment: PI needs this in order to evaluate the value of your equipment; also potential buyers will want a list of the equipment so they know what they are purchasing and what needs to be added or upgraded
- Fee Schedule: this allows PI and potential buyers to see what you are currently charging, to see how it compares to other dentists in the area and whether or not there is room for an increase in fees.
- Practice Impact’s Practice Profile: this questionnaire asks for information such as the number of active patients; details of staff, staff salaries and benefits; list of PPO’s and capitation programs you participate in, etc. Although lengthy, this questionnaire will answer additional questions we have about the practice and contains additional information that will be included in your marketing information given to potential buyers.
- A copy of your building lease: this helps to determine the different scenarios for a buyer-new lease, lease assignment, merger opportunities and also shows the potential buyers what terms they should anticipate for their own lease in the practice is purchased.
- An On-Site Visit: A PI representative visits all of the practices that we evaluate. This gives us a general feel for the area, allows us to see the condition of the office and building, accessibility to the office, how visible the office is from the street, etc. These factors also influence the price that a buyer will pay for the office. An office in a nice area, with good signage and easy accessibility will be more attractive to potential buyers and new patients.
We know how inconvenient it is to send us all of this information, but we would not ask if it were not necessary. Your practice is truly only worth what someone will pay for it. In order to find out this, we need a great deal of information. Also, a buyer looking at your practice will want to see this information as well and it is easier if we have all of the information up front and have time to look over it before any potential buyers request it. This makes us better informed and able to answer questions about your practice for buyers.