Market Valuation Analysis
Determining the Value of Your Practice or Group
Understanding the present value of your dental practice empowers you to make informed decisions regarding operational strategies, adjustments, and the future trajectory of your practice. Whether you seek to assess your asset's worth, strategize operational enhancements to maximize its value, or explore potential transitions, being well-informed by a trusted dental transitions partner like Wyndsor can mean a substantial difference, potentially amounting to thousands, if not millions, of dollars. Our Best Business Practices (BBP) emphasize staying current on your dental practice's Fair Market Value.
Valuation Methods
There are several methods to value a practice, with the two most common being:
01
Market Valuation Analysis (MVA):
Conducted annually, a MVA provides a snapshot of your business/practice's financial health. Completed by a Licensed Business Broker like Wyndsor Dental Transitions, a MVA considers various factors influencing practice value, including management reports, financial data, geographic and demographic factors, among others. By projecting the Fair Market Price attainable in the current marketplace. The MVA offers valuable insights into your practice's value trajectory and the opportunity for the buyer.
Call WDT at (847) 242-1203 and find out if you qualify for a complimentary Market Valuation Analysis!
02
EBITDA Valuation Analysis:
Widely used in the financial world, this method calculates a business/practice's value. With the rise of Dental Service Organizations (DSOs) and Private Equity (PE) firms in the dental industry, EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) valuation gains significance. Understanding your EBITDA can pinpoint areas for improvement, thereby enhancing profitability and practice value. When a DSO/PE Firm calculates your EBITDA, the subsequent step involves determining the offered multiple, which hinges on factors like post-sale employment agreements, restrictive covenants, and practice longevity. WDT advises anyone considering selling to a DSO/PE Firm to have their own outside objective EBITDA created in addition to the potential buyer’s EBITDA calculation. There might be a considerable difference and it is well worth the investment to ensure the seller receives fair value for their practice.
The WDT team and their financial analysts can create a third party outside objective EBITDA calculation for you!
Consideration of Multiples
A multiple typically ranges from 4 to 9 for a single GP or Specialist location sale to a DSO/PE Firm. However, when there is a group of multiple practices, the multiples can exceed 15+, reaching beyond what may seem reasonable. A dentist who aligns with the criteria set by DSO/PE Firms, such as committing to practice for 5+ years and agreeing to a restrictive covenant, is likely to receive a significantly higher multiple.
It's crucial to not just focus on the EBITDA, but also on the multiple offered:
Example 1:
Practice Collecting
$1,000,000
EBITDA Calculated
Multiple is 4x
$250,000
Total Practice for Sale
$1,000,000
Example 2:
Practice Collecting
$1,000,000
EBITDA Calculated
Multiple is 7x
$250,000
Total Practice for Sale
$1,750,000
As illustrated above, the difference lies not only in the EBITDA, but also in the multiple applied.