When calculating the value of the practice is the value of the equipment on the balance sheet used or the tally of the itemization?
I’m in the middle of a practice acquisition after an agreed upon price…. getting to the final hours and finding out now the hand pieces , supplies, front office furniture are not staying………seller says if you look on the list it’s not on there……
My argument though is that it’s part of the appraisal. It’s the # on the balance sheet that is going to be used for the depreciation schedule… it’s the number the appraisal uses in determining the value of the equipment……..Not the itemization of the equip list; Seller feels like it’s personal effects…..and why he never put it on the equip list….
So we go round and round…. he equates it to when you look at a house you don’t expect to buy the pots/pans, dishes that you see when you buy a house………
I equate it to… I’m buying a business and the ability to do business……
In hopes for further discussion as I feel it’s important since I will want to become a potential seller at some time:
What if the practice was appraised for X amount of dollars using a defined list of equipment used to derive an appraised value which would not be part of the sell which may include fun toys like Cerec, electric hand pieces, and specialized bone grafting tools. How about first class office furniture, let’s say: Snake skinned lounge furniture or a 2K dollar waiting room massage chair from Brookstone, something to that nature. Of course this would be disclosed up front to any buyers what’s not for sale and what isn’t before any offer was made by the potential buyer. Do you think this is an appropriate way to approach this?
I’m curious as I plan to sell my at some point and uncertain to these measures as I personally stockpiled tons of equipment before I created my own practice and unsure if I would want it included in the appraisal value, especially new equipment that I do not intend to sell that hasn’t been part of running a business yet.
Obviously I want be fair and honest about this in the future…
Your input is greatly appreciated
(Jason Patrick Wood responds):
Very simple. You don’t get extra value on a dental practice because you have more bells and whistles than the guy down the block. Banks lend on your production figures, not on whether you use a CEREC machine in your office. Most “big ticket” items are actually harmful to a transition going forward specifically because the Seller believes they should get money out of the practice for these items. However, you buy big ticket items (or you should) to either lower your overhead, increase production, make your life easier or a combination of the three. As a result you are typically already having the value of the practice grant a “value” to that piece of equipment if you have utilized the equipment effectively. It is just a hidden value (i.e. CEREC machine reduced overhead by 5%, as a result my practice is more profitable, as a result I can command a higher value to my practice based upon comparable dental practices).
(Tim Lott responds):
If you have the appraiser’s name, ask the appraiser if their appraisal specifically excluded any assets or supplies. They’re the ones that appraised it.
As Jason said, generally a practice appraisal assumes everything stays. Many times this issue gets addressed during the LOI stage. As one who represents buyers I want to make sure as soon as possible that the price includes ALL assets, supplies, intangibles, websites, web addresses, phone numbers, and even the use of sellers name as buyer sees fit for a period of time, according to state laws.
Most sellers will also state very soon in the process which “personal” items they wish to exclude. As one that values practices one of the questions we ask is if there are any assets excluded from the sale and we’ll state that in our report or practice profile if we’re selling the practice.
This seller is trying to pull a last minute fast one and unless there was ANY indication that these items were to be excluded when the price was agreed to I’d be looking to reduce the price already agreed to.
Thanks for your input and that makes complete sense. Its about clarity for the buyer so I would definitely aim to disclose what would be part of the sale and not for sale during and LOI. Unfortunately I think LOIs are non-binding in the State of Texas, from what I hear.
(Tim Lott responds):
I understand about non-binding. Still, it doesn’t have to be binding to have an understanding. Even in a non-binding LOI, if the seller says the price is $xxx, xxx and it includes all assets, supplies, etc. In the event the seller tries to pull a stunt like this in the legal agreement phase, guess what: the price that was stated in the LOI no longer applies since the assets have changed. It can open up everything that was stated in the LOI for re-negotiation & that’s never good.
This first appeared on Dentaltown.