Almost daily we are asked by buyers and sellers how value is established and we discuss the different methodologies used as well as why some valuations are not like others. We’ve written about this a lot, just search “valuation” here.

The doctors asking, though, generally refer to one or more of the following resources on establishing value – manuals, friends, posts on message boards such as Dentaltown, articles in dental magazines, general business broker advice or even just setting a “percentage of gross” of some kind. We even know some other transition companies will offer a “rule of thumb” percentage of gross revenues to set purchase prices. While these methods can be successful for some, in many cases, if there is actually a sale, one party may have paid too much or the other may have received too little.

This is entirely unnecessary.

The reality is that proper evaluation of the value of a practice is important for every transaction, most notably when planning for retirement. It has been stated several times that your practice is very likely the most valuable asset you will ever own. We see this ring true, over and over. If you don’t know what that asset is worth, how do you effectively plan for the rest of your life? That is a lot of money to leave to a “guesstimate.”

The same can be said in a sale. Why trust a guesstimate that may or may not be financeable, or may or may not even be palatable to one party or the other? On the Purchaser’s side, is it worth jeopardizing the goodwill of a Seller (archive search “Preserve Goodwill”)?  After all, that’s what you’re purchasing. For Sellers, why take the chance of misreading the market and leaving money on the table or overpaying in taxes, closing costs or even legal/accounting fees?

Beyond the benefit of ensuring that equipment and intangible assets are properly valued in a sale to a third party or, for gift and estate tax purposes in the event of a sale to a family member, it is also important to review Treasury Regulation, Subchapter B, Sec. 25.2512-3, which discusses the importance of a valuation and the ramifications of an improper valuation. If the valuation claimed is less than a certain percentage of the actual value, a varying (significant) penalty will be imposed on the amount of the understated value.

If you are considering the transfer or sale of your practice (especially in the case of selling to a family member), acquire a true practice valuation by consulting a true expert to determine a real value for your practice.

We so strongly believe in the value of a proper valuation, we will extend a $500 discount if you sign-up and pay for one prior to the end of 2015. Get the process started by visiting http://www.ADSflorida.com/valuationreport.

This could be the least expensive peace of mind you ever purchase.