3 Things Determine It
- Buyer’s Income. The higher the purchase price is, the higher the buyer’s annual purchase loan payments will be. Increases in purchase loan payments decrease the pre-tax cashflow income that a buyer can derive from a practice. A sale price cannot be so high that it results in the buyer’s pre-tax cashflow income potential dropping below a level that a buyer would reasonably expect to receive, given the level of annual collections in the practice. In other words, most buyers will not be interested in a practice unless its potential pre-tax cashflow profit is a reasonably expected percentage of the practice’s annual collections.
- Banks’ Cashflow Analysis. When deciding the amount that they will loan for a practice purchase, part of banks’ decision processes is the cashflow analysis that they perform. The cashflow potential from the practice must reasonably meet the buyer’s practice purchase loan payments, living expenses, student loan payments if applicable, payment on credit cards, and payments on the buyer’s current loans (e.g. cars, homes), and the cashflow must do so with a comfortable margin of error. Again, the higher the purchase price is, the greater the annual purchase loan payments, and therefore the amount of cashflow left for the buyer to meet other expenses is reduced. Cashflow sets an upper limit on what a bank will loan.
- Dental Practice Broker – to handle your sale process for you; or,
- Dental Practice Sale Consultant – to guide you, if you want to sell your practice yourself without using a practice broker.
If you choose a practice broker or a practice sale consultant, that has the right experience and knowledge, either one can: (i) perform a cashflow analysis on your practice, determine its value and maximum potential sale price; (ii) guide you and your buyer to the right banks; and, (iii) either seek the correct buyer for your practice, or guide you in how to seek that buyer and qualify the buyer at the beginning of your interaction with the buyer.