How much is a dental practice worth? A dental practice's value depends on far more than its annual collections. Factors such as location, insurance mix, profitability, lease terms, revenue trends, goodwill, treatment mix, hygiene production, and buyer demand all influence its market value. Because every practice is unique, online calculators and generic valuation formulas often produce inaccurate results. A professional appraisal analyzes all of these factors together using real market data and comparable transactions to determine what your practice is truly worth.
Introduction
Are you considering retirement? Are you in discussions with an associate dentist about buying into your practice? Are you wondering how brokers arrive at selling prices? Or have you heard stories about unusually high DSO payouts and want to know what number may be realistic for you?
Whatever your reason, your practice is more than a source of income for you and your family. It also has intrinsic goodwill and an equity stake. Getting the valuation wrong, even by 10–15%, can cost you hundreds of thousands of dollars.
In today’s information era, articles are plentiful. AI calculators, valuation rules of thumb, and even well-intentioned advice from colleagues are all readily available.
None of these routes, as well-intentioned as they may be, are based on an actual volume of transactions, 40 years of experience, or the pulse of the current market. For that, you can rely on Lou Bermudez.
Lou will provide you not only with a free practice valuation, but also an honest and straightforward assessment of the areas you may need to address to improve the value of your business—whether you plan to sell now or several years from now.
Broad estimates may provide a possible range of value, but as with any across-the-board calculation, they can easily be wrong. The problem is that no two dental practices are the same.
A generic formula that treats a private practice the same as a Denti-Cal-driven office is misleading. It would be similar to concluding that a house in East Los Angeles should be valued the same as an identical house located in Santa Monica.
The reality is that dental practice values depend on a wide range of factors, and each factor can have a significant effect on the final value of your practice.
Important Dental Practice Valuation Terms
Before reviewing the factors that affect value, there are several definitions of great importance and relevance in dental practice appraisals.
Goodwill
Goodwill is the likelihood that patients will continue returning to the practice for treatment. It reflects the probability that practice revenues will continue at a predictable level, the value of the practice’s reputation, and the ongoing relationship between the dentist and patients.
Marketability
Marketability refers to the percentage of prospective buyers who may be attracted to acquiring a particular practice. It is influenced by how ordinary, familiar, and standardized the practice’s operations are within the marketplace.
Practice Potential
Practice potential refers to the opportunities a prospective buyer may be able to capitalize upon after the purchase. Reduced operating hours, limited services, low advertising expenditures, and conservative treatment planning are examples of features buyers may consider when evaluating the future potential of a practice.
Value
The value of a dental practice is guided by market conditions and by what a willing and informed buyer is prepared to pay. For this reason, practices in outlying areas may be more difficult to sell and may sell for less because there are fewer prospective buyers.
Factors That Can Affect a Dental Practice’s Value
Gross Collections
Gross collections are often the first consideration, but valuation also depends on how your tax returns and financial records are presented.
Consulting with Lou is one of the best ways to address this issue. Given his extensive accounting background, Lou can provide sensible advice regarding tax-return presentation, profit-and-loss reporting, and other financial records.
Location
Similar to the housing market, where your dental practice is located matters enormously. Buyer demand, demographics, competition, accessibility, and the local economy can all influence market value.
Insurance Mix
Fee-for-service practices may command a higher valuation because buyers often believe the revenues are more sustainable and that their clinical time will be compensated at a higher rate.
However, all valuation factors work together and must be considered collectively rather than independently.
Rental Rates and Lease Terms
Rental costs have become an increasingly sensitive issue as commercial rental rates in California have increased. The monthly rent, whether the lease is triple net, the availability of renewal options, and other lease provisions can all influence practice valuation.
Revenue Trend
Are your collections growing, stable, or declining? A practice with declining collections may not tell the complete story to a buyer, just as a stable or growing practice may have other factors that affect its value.
Growing practices may attract more buyers and command higher prices, but this is not always the case.
Treatment Rendered or Referred
The types of treatment performed within the practice are another significant factor.
Two practices located next to each other may have identical financial records. However, if one provides specialty services in-house while the other refers most specialty treatment outside the practice, the two practices may receive different valuations.
Sources of Revenue
How much production comes from the doctor compared with the hygiene department? Generally speaking, practices with strong hygiene programs are more attractive to buyers because that revenue may continue during the ownership transition.
Additional Valuation Factors
Other factors that may influence pricing and how a buyer evaluates a dental practice include associate-generated production, the number of operatories, staffing stability, years established at one location, office visibility, convenience and accessibility, patient parking, practice reputation, equipment condition and technology, and opportunities for future growth.
Why Generic Online Calculators and AI Miss the Mark
Most online valuation tools ask only one or two questions—usually about annual collections—and then produce a number based on national averages.
National averages do not accurately apply to individual dental practice appraisals. Even within California, there can be significant differences between dental practice valuations in Northern California and Southern California. ZIP-code analysis and other generic factors cannot capture all the characteristics that influence the value of a specific practice. Online calculators generally do not explain why a practice received a particular estimated value.
A number without context is only a guess. You need to understand what is increasing your practice’s value, what may be holding it back, and what changes could improve its future marketability.
Get a Professional Dental Practice Valuation
Only a professional assessment provided by Lou Bermudez can evaluate the actual market value of your specific dental practice based on all the factors described above.
Lou’s assessments are supported by more than 40 years of experience and thousands of dental practice evaluations. There is no substitute for experience, actual transaction knowledge, and current market data.
This experience is why Mr. Bermudez has been approved and appointed as a healthcare practice appraiser throughout the Superior Court system of the State of California.
Contact Lou Bermudez to request a free dental practice valuation and a straightforward assessment of your practice’s current market position.