Are you ready to retire and spend time with your family? Are you looking for the best way to determine the fair market value of a dental practice in the USA? Today’s article will cover the best way to determine the value of your dental practice and how you can boost your valuation for your practice.
What Is The Most Commonly Used Method To Determine The Value Of A Dental Practice?
EBITDA or Earnings Before Interest, Tax, Depreciation, and Amortization is typically used when valuing dental practices.
The EBITDA valuation approach used by many investors is a hybrid approach combining market value and income. Investors use it to calculate how much cash is going to be available before deducting debt and capital expenditures.
Why Does EBITDA Matter?
Investors prefer the EBITDA method of valuation because it eliminates fluctuating factors such as taxes and non-cash expenses such as depreciation.
Boosting your EBITDA essentially boosts the valuation of your dental practice. An experienced dental accountant, like Sigma, can help you optimize your business to improve your EBITDA and other ratios.
EBITDA Calculation for Dental Practices
Calculating EBITDA is reasonably straightforward. You’ll need your balance sheet or income statements, preferably for the last 3 or 5 years.
Then, find your total revenue for the year. Subtract all your operating expenses leaving depreciation, amortization, interest, or taxes aside. This will give you your EBITDA
You can chart your EBITDA growth by figuring out your yearly EBITDA for the last 5 years and comparing how it grew year over year.
What You’ll Need For An EBITDA Analysis
- Profit And Loss Statement, Ideally For The Last 3 Or 5 Years
- Revenue Statement, Ideally For The Last 3 Or 5 Years
- Current Balance Sheet
- Owner Salary, Distributions, Benefits, Insurance, Perks Etc.
EBITDA Multiples In America
Investors generally invest or buy a business at a fixed EBITDA multiple. We’ve been observing investments in technology companies at extremely high EBITDA, sometimes even 50x as well.
The EBITDA in the dental industry is far more conservative. Generally, an independent dental practice gets valued at 6x to 8x EBITDA. But, on the other hand, if it’s a chain of dental practices or a group, the EBITDA is usually higher, often 10x your current EBITDA.
Dental Practice Valuation: The Importance Of Competitive Pricing
Dental practices that are profitable are in high demand, and investors are ready to pay a premium for a well-structured, properly managed clinic. However, it’s essential to value your practice fairly if you want to turn over your business quickly.
Jacking up the EBITDA number isn’t that hard. However, it can backfire in the long run. Specialists like the dental CPA team at Sigma help you value your practice fairly while keeping the overall market trend in mind. A specialist dental accountant ensures you always get what you deserve while providing the optimum value to the buying party.
Ways To Improve EBITDA For A Dental Practice
1. Pricing At A Constant Level
Discounting is a sure-shot way of negatively impacting your EBITDA. Therefore, it is generally recommended to keep your pricing constant. Yes, running offers and discounts can be beneficial for the practice, but it positions your business as the place to be for bargain hunters, and we definitely don’t want to do that, do we?
2. Effective Management of Travel & Entertainment Budgets
Your travel and entertainment expenses are an investment into your business. Treat them like it. Any expenses done to improve your business should result in one of two things, an increase in revenue or a reduction in costs. However, most accountants tend to see these just as pure costs. Therefore, it’s crucial to optimize these budgets to ensure we reap the maximum benefit out of the investment.
Uncertain about how you can manage these effectively? Speak to a professional dental CPA in Maryland who can help you get the benefits you truly deserve.
Want To Learn More About Valuing Your Dental Practice?
Our team at Sigma works day and night to ensure we offer the best dental accounting services to dentists in the Tristate area. If you’ve been confused about your business’s accounting or want to plan for your retirement, now is the best time to speak to a dental CPA.
Please feel free to call us or drop by our office for a free consultation to understand how we can bring value to your dental practice and free up your time for the finer things in life. We’re always here for you!