Welcome to No Stupid Questions, our new Real Talk series in which we bring in practice transitions experts to answer your most pressing questions. Have a question for our experts? Ask it in the comments below!
For today’s question, we reached out to Chris Mayer of The Heimat Group, ADAPT's trusted transactions partner. Chris holds the Chartered Financial Analyst designation and has experience valuing dental practices (and other businesses) prior to mergers or acquisitions. Chris graduated with a finance degree from the University of Wisconsin-Madison School of Business where he was a member of the applied equity market research program specializing in fundamental analysis, equity valuation, and market research. During his University of Wisconsin-Madison undergraduate program, Chris was selected to attend the Otto Beischeim School of Management in Vallendar, Germany. He also attended the University of Leipzig, Germany where he worked on his Masters in Finance & Economics.
Question: Why and when should I get a practice valuation? And what is a valuation, exactly?
A dental practice valuation is an independent professional opinion of fair market value that illustrates a variety of information, including financial, operational, and other relevant data. That means that someone uninvolved in the practice’s day-to-day operations provides an estimate of what the practice may be worth.
Practice valuations are typically requested for a few reasons:
- When an owner is considering a potential sale or partnership
- Preceding a transaction or negotiations with a potential buyer or partner
- During a phased buyout, a buyer may request an updated valuation before closing to identify how much value they have added to the practice since joining
- For estate planning purposes, even when no sale is imminent
A practice valuation helps both parties in a sale. Not only does it provide guidance relative to a potential practice value, but it also provides insight into potential financing options for a buyer.
The truth is, no matter what a practice valuation may determine, a dental practice’s true value is what a potential buyer can afford. And since most incoming dentists require some form of acquisition financing, they must be able to prove to their lender that the loan amount is reasonable for the practice. That’s why a smart seller will share a practice valuation with a potential buyer relatively early in the process so that the buyer has all the information their lender needs to determine financing options.
Practice valuations are generally considered current for approximately 6 to 12 months, barring any material change to the practice’s overall financial performance.
Want to learn more about valuations — or any other part of the practice transitions process? Join Chris Mayer and ADAPT’s Dr. Suzanne Ebert for a September 27 Dental Economics webinar, What Is This Practice Actually Worth? You will learn about the entire process and have the opportunity to ask questions.
And subscribe to the blog for more Q&A with Chris and other transitions experts.