You will be lucky to get two years of net profit as a sales price.
Tom Hedge
Tom Hedge
Peter, my guess as to why dental practices are valued differently than others are due to the fact that in a dental practice the dentists hands have to bring in each and every dollar. If the dentist isn't there, there is no money made.Imagine a McDonald's where the owner has to make every burger, a builder who has to hammer every nail, a retail store where no money was made unless the owner was there and manning the register.That's my guess why the % is less... Less ability to scale the business.
Sent from my iPhoneRod Strickland--So you're using a 5x multiple based on net profit. Valuations in other industries vary from 3x to 7x. Sometimes even higher. I have never understood the valuation of a practice based on a % of gross. There ARE many factors that go in to it.I know that most practices have an overhead of around 65%. So if a practice grossed 1,000,000 then there should be $350,000 net.
350,000 x 5 times net = $1,750,000. So that would mean the "Million Dollar practice" should have a value of 1.75M based on the 65% overhead.This is NOT the case with most dental practice valuations done. They all seem to be a portion of GROSS. Seems like 90% of Gross is the highest sale price I've heard recently. So in this model, let's assume 90% of a 1M practice is purchased for 900K. This is only getting a 2.5x multiple.Pretty crappy.This is why Private equity groups are coming in an buying dental practices now. THERE ARE SOME DEALS!!!!!!!!!!!!!!!!--On Sat, Aug 31, 2013 at 9:01 AM, Bill Greenberg <billgreenberg101@gmail.com> wrote:Please, tell me if this is reasonable:--The most important factor in the value of a practice is the amount of profit it generates.I know there are multiple other issue that tweek the value, but let's assume there are no pressing capitol investment needs and the location/community are stable and the future is likely to be consistent with the past.Let's define profit this way: I pay myself as though I were an associate, which reflects the value of the dentistry I perform. Any money left over after all the bills are paid is profit.The profit is used to fund the purchase. A 5 year loan seems to be most common. If, for example, there is $100,000 annual profit, then that equals a value of $500,000, $200,000 would = 1M, and so on.Seems to me to be more practical than a percentage of gross, which doesn't take into consideration the overhead, or percentage of net which could be totally from the dentistry performed so a potential buyer might do just as well as an associate.I am in a practice with a couple associates and a handful of hygienists.TIA for any opinions.Bill Greenberg
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--My profiles:Peter Boulden, DMD, FACE, FAGD, FIADFE, FACDS
Member of Master8 Dental Group
Board Member of Academy of Comprehensive Esthetics
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