Your Practice’s Free Valuation Could Come At A Hefty Price

Dental Practice Valuations

It has become a popular business model for some companies to contact prospective or existing business clients to offer them a free business valuation report. But what the sales rep won’t tell you is just how expensive these free services can be. In the end, you are just throwing your hard-earned money down the drain.

Owning a dental practice is just as mentally taxing as maintaining any other economically viable business. It’s no wonder you often daydream about innovative ways to cut office expenses and jot down ideas to generate revenue on napkins over dinner. At some point you will come to terms with the fact that, in addition to helping people, your ultimate business goal is to increase your practice’s overall value while making sure you can save enough for your own retirement.

What would you do if someone approached you about conducting a free business valuation on your dental practice? The easy answer is to say “yes,” right? After all, you are probably well aware of how important a business valuation is to the success of your practice – not to mention your own financial future. So, naturally, it doesn’t make sense to turn down this free offer … or does it?

Read Also: What To Expect From Your Career In Dentistry

Is ‘Free’ Worth It?

It has become a popular business model for some companies to contact prospective or existing business clients to offer them a free business valuation report. But what the sales rep won’t tell you is just how expensive these free services can be.

I recently met with an insurance representative who mentioned that he provides clients with free business valuations. This particular company had CPAs and valuation professionals on staff and would prepare these valuations with just the answers they collected from a five-minute questionnaire and three years’ worth of their financial data. Within a few days, their client would (supposedly) have a clear picture of what their business was worth.

After hearing about their method, I had even more questions. After all, having conducted thousands of business valuations myself, I knew something didn’t quite add up. So I asked to have a look at the valuation report this company typically presented to their clients and, within minutes of reviewing the document, the company’s motive became crystal clear.

Not only was this sales rep giving clients inaccurate information, he was grooming them to purchase more insurance than they actually needed. A transaction that would have resulted in you paying much more than you could have anticipated. On the other hand, when you work with a business valuation expert your practice actually stands to make significant gains.

When you hire a business valuation expert, you are hiring a professional who will take the time and energy to really get to know you, your dental practice and its prospects for the future.

Not Free, But Priceless

Email the Bright Dental Team to find out how our business valuation experts can help you grow and better manage your dental practice. The benefits of a Know & Grow Valuation include general business planning, succession planning and financial planning, buy-sell agreement values, exit planning strategies, and more.

By Tim McDaniel, CPA/ABV, ASA, CBA (Dublin office)


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What’s The Difference Between Cash and Profit?

A dental practice’s financial statements have a bunch of different items listed. Most dental practices use the cash basis method on their financial statements. Basically, this means that income is recorded when the cash is collected as opposed to when the work is performed. So why at the end of the year does your remaining cash balance never equal your dental practice’s profit? There are a couple of main reasons and here they are:

  1. Depreciation. If you buy a piece of dental equipment and get a loan to pay for it, you may take an accelerated depreciation method to expense it all in year one of the purchase. So, your cash outflow is only the monthly loan payment, whereas your dental practice expense is the entire cost of the equipment. This isn’t quite as good as it sounds though, as in year two the opposite will occur. You will have to make the monthly loan payment, and won’t be able to take an expense for it (other than the interest on the loan), since you already depreciated the asset in year one.
  2. Loans / Debt. If you’re collecting on a loan receivable, you will have cash coming into the dental practice, but only the interest income affects your profit. The principal payments received don’t get recorded as taxable income on your income statement. Conversely, if you have a loan payable or debt, the interest expense is the only part of the payment that affects your profit.  Therefore, you will have a cash/profit difference at the end of the year.
  3. Tax Adjustments. Some of your cash outflows are not deductible. For instance, only half of your meals and entertainment are a tax deduction. Also, club dues, penalties, and federal taxes are not deductible. So if you are paying these from your dental practice, you have a cash outflow, but not an expense, thus creating a cash and profit differential.
  4. Distributions. If your practice is an S-corporation or a sole proprietorship, you may take a draw or a distribution when you have cash available. If you do this, you are taking cash out of the practice, but this is not an expense on the corporation’s books. Similarly, you do not include this as part of your income on your individual tax return.

Dental Cash and Profit Help

There are other reasons why cash and profit could differ for a cash basis taxpayer, but these are some of the common points. If you need any other help understanding your financial statements, contact our team of Bright Dental CPAs today.

By Alan Hill, CPA (Mentor office)