We ask two experts the same question to give you two different answers on a complex issue
"I have been trying to sell my practice for two years and just received a call from a group practice nearby that wants to purchase my patient list. They asked if I had a price in mind. How can I place a value on my patient list?"
Gretchen Ohlmeyer Lovelace, MS, CFP, CPM
There are three approaches to valuing dental practices. Each of these approaches has several different methods. The three accepted approaches are the Asset Approach, the Market Approach, and the Income Approach. Since your question excludes all of the physical assets of your practice, you would eliminate the Asset Approach.
The Market Approach is similar to the market approach used in the housing industry. You need a list of practices sold in your area as well as the income and sale price of each. You then determine what percentage of the gross income has been paid for practices of similar size and location. You then multiply that percentage times your gross practice income. Adjustments are then made to the value based upon whether your practice is above or below an "average" practice. This market percentage varies greatly based on location, number of dentists in the area, and other demographic factors.
All methods under the Income Approach value the worth of the profit generated from your patients. The profit is calculated by subtracting the overhead and one owner's compensation from the gross income. Additional calculations are also involved.
Valuing your active patient base would best be left to someone with training, experience, and access to a database of sold dental practices. A professional valuation will keep you from undervaluing your practice. The additional profit obtained will more than pay for the cost of the valuation by an experienced broker.
Gretchen Ohlmeyer Lovelace, MS, CFP, CPM, is the past national president of ADS, Inc. Gretchen lectures at LSU School of Dentistry and at national, state, and local dental associations. Her primary focus is ethical practice transitions. Contact her at firstname.lastname@example.org or (877) 674-9564.
Tom Snyder, DMD, MBA
There are several ways to value your patient list. One method is to take a weighted average of the last three years' collections and multiply it by a goodwill factor. Often this factor ranges between 30% and 50%. Sometimes a buyer may agree to pay a lump sum for the patient list, but in many instances the purchaser will require a seller holdback. If you receive a higher goodwill ratio, you may have to wait for full payment for one year as the seller wants to be sure your patients will be retained. If you want this cash payout now, be prepared to receive a considerably lower payment as the purchaser has no assurance of patient retention. Sometimes, you may receive a high value for your patient list, but you have to be willing to wait one to two years.
Another way to value your records is to take the same three-year weighted average and divide that number by the number of active patients. For this purpose, active patients would be those patients who visited your practice for a recare appointment over the preceding 12 months. The purchaser usually pays you that record value per patient when the patient visits the new location. This approach provides the least risk to the purchaser but places all of the risk on your patients being retained. Payment in this approach can be made over a two-year period.
Another important point to consider is the impact of HIPAAon any records transfer. Numerous considerations must be addressed both on a federal and state level. This is well beyond the scope of this answer to your question.