Re: [ACEsthetics] What's a practice worth?

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 iPhone
Rod Strickland

On Aug 31, 2013, at 5:50 PM, "Peter D. Boulden, DMD" <peterboulden@gmail.com> wrote:

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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 Peter Boulden, DMD, FACE, FAGD, FIADFE, FACDS

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