How to Ensure an Evidence-Based Valuation for Your Dental Practice Sale
Selling your dental practice can be a complex process that requires careful consideration and planning. One of the most important aspects of selling your practice is obtaining a realistic and evidence-based valuation. An accurate valuation can help ensure that you attract the right buyers and receive offers that are in line with your asking price. In addition, an incorrect valuation can lead to significant problems down the line, potentially putting the entire transaction in jeopardy.
Why an Evidence-Based Valuation Matters
When it comes to valuing your dental practice, there are two critical reasons why it should be evidence-based. Firstly, an overestimated or inaccurate valuation can make it difficult to attract interest in your sale or receive offers that match your asking price. This can result in your practice staying on the market for a longer period than necessary. Secondly, an incorrect valuation can lead to problems later on. Banks typically require an independent valuation of the practice to ensure that it aligns with the purchase price. If the valuation is lower than the purchase price, the bank may refuse to lend, putting the entire transaction at risk.
Gathering Evidence for Your Valuation
To ensure that your valuation is as accurate and evidence-based as possible, it's essential to gather relevant information before your practice goes on the market. A dedicated dental practice broker can help you with this process, ensuring that you have all the necessary data to make informed decisions.
One of the first steps in valuing your practice is calculating your earnings before interest, tax, depreciation, and amortization (EBITDA) and making any necessary adjustments to the profit and loss account. This process involves removing any personal costs, such as personal motor expenses, and accounting for any one-off costs in a given year, such as a new IT system or treatment centre.
Incorporating Anticipated Financial Changes
To ensure an evidence-based valuation, it's important to incorporate anticipated financial changes before they happen. For example, adjustments to the minimum wage, changes in staff pension contributions, or inflationary increases for practices with NHS contracts.
Commercial Property Rates
If you're planning to retain the freehold of your practice building, a broker can compile a comprehensive, evidence-based report on commercial property rates in your local area. This can help ensure that your rental expectations are realistic and in line with market rates.
Different Valuations for Different Buyers
Depending on whether your practice is being purchased by an individual dentist or a group/corporate provider, there may be different operational costs and valuations associated with the sale. A broker can take these factors into account when determining your valuation.
Determining the Valuation Multiple
Once the necessary adjustments have been made to your figures, a valuation multiple is applied to determine the overall value of your practice.
To ensure an evidence-based valuation, several different factors are taken into account, including:
- Bank valuations: It's essential to understand how banks value practices since most transactions require some degree of bank funding. A broker can keep in regular contact with major banks' specialist lending teams and underwriters to understand the levels of lending they're willing to provide and mitigate the risk of the transaction falling through.
- Market data: Comparing your practice's location with recently sold practices in the surrounding area can provide valuable insights into how many buyers were interested, the number of viewings, and the level of offers received.
- Benchmarking: Comparing your practice's performance to other similar practices nearby can help identify areas of overspending or underspending.
- Buyer intelligence: Regular meetings with group/corporate buyers can provide insight into their buying criteria based on their strategies and targets.
- Trend analysis: Monitoring the average prices and level of goodwill for NHS, mixed, and private practices across the country can help identify changes in goodwill
Why not call us today to get the conversation started?