Valuations are crucial in dentistry; but what does it all mean? There are several reasons why a valuation might be needed – such as incorporation, divorce, refinancing and so on – but sales and acquisitions are the most common reasons for needing a valuation.
In sales, a dental practice valuation is a document that provides information to various stakeholders participating in the practice sale. For a vendor, it involves calculating the worth of the practice and for the buyer, it means understanding the worth of their business assets. Naturally, the result of the valuation is also of utmost importance to the banks and lenders – after all, they need to know whether the practice is sufficiently valuable for them to lend the requested amount of money against.
In order for a valuation to be accurate and reflective of a practice’s true worth, there are many aspects that need to be taken into consideration. Goodwill, for instance, can impact on the overall value, as can Earnings Before Tax, Depreciation and Amortisation (EBITDA) calculations, market trends and market value on equipment, furniture and other tangible assets.
It is important to remember that because of this, valuations can be costly. Indeed, depending on the valuation and sales agency you use, valuation and marketing fees could potentially add to the overall cost. In instances where a payment is required, it is customary to pay either upfront or on presentation of the report, and there is usually a set price list depending on how much the practice is estimated to be worth. In cases such as this, fees are often non-refundable should a purchase fall through.
Currently, however, there are a number of agencies that are providing free valuations. Although these incentives are becoming increasingly more popular, it is important to note that hidden fees or additional fees can occur – indeed not all ‘free valuations’ are completely free.
For instance, some agencies claim that the valuation fee is refundable, but in reality it is only refundable on completion of the sale. Thus if the sale falls through or you decide to sell with a different agency to the one who completed the valuation, the fee is not without charge after all. The other common hurdle is that if the agency does not receive any instruction from you within 12 weeks after the valuation is completed, it will charge you anywhere up to £1,000. Thus not only is there the threat of fees occurring if you transfer between agencies, but it can happen by changing your mind or by simply not progressing quickly enough.
It is important to be aware that some agencies may also charge you a fee if you decline an offer. Say for instance you choose not to accept because you’ve changed your mind about selling or don’t wish to do business with that particular buyer, if the agency secured you an offer of at least 90% of the original valuation price, you will be billed as if the practice was sold.
Several agencies also charge the buyer additional costs – although in this case it is a known fee, it is worth noting that some agencies bill a 1% premium for early access. This means that potential buyers get two weeks to make an offer before it is released to the rest of the market. Not only does this limit competition, but it could also prevent a better price being offered to the vendor, as the agency is incentivised to promote their interests and not that of the vendors.
Of course there are agencies that genuinely offer a transparent service and do not charge additional or hidden costs that boost revenue at the expense of the vendor or buyer. Dental Elite, for instance, offers a comprehensive and transparent free non-committal valuation service and provides an in-depth Healthcheck Report on a practice’s value – all completely free. Unlike some agencies, which charge the buyer up to 5% of the purchase price and market the service as free to the vendors, Dental Elite only charges one set fee on any practice sold – irrespective of whether they are paid by the buyer or the seller.
The sale and acquisition process can be demanding at the best of times, without the added stress of hidden or additional costs. By seeking advice from an experienced, honest agency, you could minimise expenses and rest assured that you are receiving a transparent and client-centric service.