Recently, a wide variety of
folks posted information about how to value a dental practice on Dentaltown. I
can only say my perspective comes from hundreds (if not thousands) of valuations of
practices for purchase.
folks posted information about how to value a dental practice on Dentaltown. I
can only say my perspective comes from hundreds (if not thousands) of valuations of
practices for purchase.
You can
get some really good information from P&Ls, do not ignore them. Always
begin with tax returns and support with P&Ls and PM reports. Many tax preparers
will lump expenses together for tax preparation – P&Ls will likely show the
details.
get some really good information from P&Ls, do not ignore them. Always
begin with tax returns and support with P&Ls and PM reports. Many tax preparers
will lump expenses together for tax preparation – P&Ls will likely show the
details.
A quick example: tax returns had office supplies & expenses of around $60k
on revenue of around $900k. The broker who was selling eliminated $50k
stating “normal” office supplies & expenses should be 1.5%.
P&Ls showed dental supplies of $50k and broker missed it. The tax
preparer had combined them into one item on the return.
Who
wants to tell me how $50k less in profit impacted the asking price?
wants to tell me how $50k less in profit impacted the asking price?
Production
directly impacts overhead, not cash flow. Cash flow is simply the result of
collections minus expenses.
directly impacts overhead, not cash flow. Cash flow is simply the result of
collections minus expenses.
Do not
ignore production information/reports, they should support tax return
collections and provide soooo much more information about how the collections
are generated as well as provide clues on unusual overhead stats.
ignore production information/reports, they should support tax return
collections and provide soooo much more information about how the collections
are generated as well as provide clues on unusual overhead stats.
Another
quick example: assessing a practice tax return collections were $100k higher
than PM reports. As we inquired about the difference we learned seller was
earning $100k/year as an independent contractor, in someone else’s practice, an
hour away! That income was not related to the practice being sold.
quick example: assessing a practice tax return collections were $100k higher
than PM reports. As we inquired about the difference we learned seller was
earning $100k/year as an independent contractor, in someone else’s practice, an
hour away! That income was not related to the practice being sold.
Who
wants to tell me how $100k less in profit impacted the asking price?
wants to tell me how $100k less in profit impacted the asking price?
You see, in both cases the tax returns were truthful, nothing wrong with them,
however, they were used to “price” the practice and nothing else was
looked at.
Gather
your data, analyze it, verify it, support it, verify it again – then confirm
it.
your data, analyze it, verify it, support it, verify it again – then confirm
it.
It’s called due diligence!
Tim Lott, CPA, CVA – Equity Member Dental CPAs