You may be aware of the general concept of business valuation, but may question how an orthodontic practice valuation works. Obtaining a properly performed valuation is the key to maximizing a doctor’s return on their investment of time and effort in the practice. There comes a point in each orthodontist’s career when he/she must determine the value of their practice and the best way to do so it is through a properly performed valuation.

The most important part of any valuation is collecting the practice’s financial information. To determine the fair market value of a practice, a critical assessment of a practice’s current and past operational and financial information is required. We provide an information-gathering package that outlines the information necessary to properly establish the practice value. Various financial and operational data and reports are requested, including the following:  the last three years’ profit & loss statements and the most current interim profit & loss statement; the practice’s tax returns for the past three years, including any other supporting statements; the most recent tax year-end and month-end balance sheets; a list of fixed assets; production and patient starts for the last several years; and a list of active patients that are paid-in-full. The information should be pulled from a number of sources including one’s practice management system, accounting system, and the practice’s accountant, among other sources.

The next important step in the valuation process is an on-site practice visit, which, ideally, should happen on a patient clinical day. During the on-site visit, we verify the fixed assets, examine the physical building and surroundings, ask questions to clarify certain data, observe patient flow and view the staff’s interaction with patients and staff (including the doctor). The visitation helps identify important items that cannot be documented in financial reports, such as the feel of the practice location, location relative to schools, competitors and referrals. It also lets us verify fixed assets in service, strength of staff and many other critical intangibles that could impact the overall value.  The visit is also important as it allows us to review the data sent in prior to the visit, fill in any missing data pieces and to discuss the doctor’s transition preferences that will occur after the valuation is complete.

Once all of the information has been received and the practice has been visited, a valuation can be produced. The valuation report includes not only the value of the practice but summarizes the financial and operational data and provides an overall review of certain demographic information potential buyers will want to understand and consider.