Are Practice Values Steady, Decreasing, or Increasing?
It’s a question we’re often asked. From our experience in helping dentists sell their practices, we know the answer from observation of our sales. To put the answer in a clear form for our readers and selling clients, we analyzed data on 835 practice sales over a 10-year period (2011 thru 2020). To assure that this analysis represented the overall practice sale market, the data we chose included some of the sales that we brokered, but it also included data from sales by many other practice brokers, accountants, and sale consultants. Sales chosen for the study were for practices collecting between $400,000 and $2 million per year because they represent 85%+ of practice sales in recent years. This selection excludes extremes at both ends of the range of annual collection.
Method of Analysis
We broke the sales into 10 groups, one for each of the 10-years. To judge how prices may have changed over the 10-year period, we analyzed the sales by their “Price to Collections” percentages (P/C%). (Example: A practice that collects $1million per year, and sold for $700,000, would have a P/C% of 70%.) We calculated the average P/C% for all of the sales in each of the 10-year periods.
CHANGES IN PRACTICE VALUES – 10 YEARS
Comments
Although there were years in which prices relative to collections declined, it is obvious that, over the 10-year period sale prices have increased. The average in year 2011 was 65.0% of collections. By year 2020 the average price had increased to 75.3% of collections, over a 10% of collections increase. For practices averaging $500,000 per year in collections, the average value increased by a little over $50,000. For practice’s averaging $1million per year in collections, the average value increased a bit over $100,000. What about years 2020 and 2021? Our practice sale experience with our selling clients during years 2021 and 2022 indicates that values are not declining and appear to be continuing to have incremental increases.
Conclusion
To get the full current value from your practice, when you sell, you (or your chosen practice appraiser) cannot base the value of your practice on sale data from past years. Even more so, you can’t base your practice value on “Rules of Thumb” that have been developed historically over the years. Your value must be based on current practice sale data.
How Much Did Your Practice’s Value Increase From 2011 to 2020?
From information derived from our 10-year study you can see that, from year 2011 to year 2020, average practice values increased by 10.3% of their annual collections. Each practice has different attributes that affect its value, so averages cannot be used to determine the value of any specific practice. However, to get a rough estimate of how much your practice’s value may have increased during the past decade, work the following simple calculation.
Your Year 2021 Collections: $______________
X’s The Percentage Increase: X’s .103 (10.3%)
Estimated Increase In Value: $______________
Your Year 2021 Collections: $______________
X’s The Percentage Increase: X’s .103 (10.3%)
Estimated Increase In Value: $______________
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