Practice Valuation

Valuation Overview

Having a thorough valuation (or financial analysis) is critical for you as the seller in presenting a well formulated plan for the transition of your practice.  Most often, the valuation provides a good starting point for transition discussions and negotiations and as you search for a potential buyer (or work with an already interested buyer), a valuation can be an important tool in understanding the financial value of your practice.

NDP provides valuations for general and specialty dental practices nationwide. NDP’s valuations are completed by a trained CVA and CPAs with extensive knowledge of the dental industry and our valuations go through a rigorous review process.  

NDP will assign a market value to your practice based on the consideration of many variables. These include but are not limited to the following:

  • net cash-flow to the buyer
  • practice reputation and area growth expectations
  • competition
  • active patients
  • new patients
  • practice location
  • practice specialty
  • staff and associates (if applicable)
  • value and condition of dental equipment
  • condition of the building and space
  • transition of the goodwill from the established doctor

Our final valuation report includes an explanation of the history and key facts of the practice, an explanation of the valuation process and details on how the ultimate value of the practice was determined. The final valuation of your practice is provided in both hard copy and electronic report format, which can be shared with potential buyers and their team. In addition, the report includes as exhibits, a practice profile completed by you,  the historical financials of the practice utilized in the valuation and a pro forma financial analysis showing the net cash flow to the potential buyer on a historical basis.

What about my overhead?

Overhead is the operating expenses of the practice and the profitability of the practice is a key driver to the valuation. Typically, the overhead will be the total expense of the practice minus any of the following expenses:

  • Owner Doctor’s & Associates Salary (including applicable payroll taxes)
  • Financing Costs (Interest Expense, if applicable)
  • Non- Cash Charges (Amortization, Depreciation)
  • Owner Discretionary Expenses (Travel, Continuing Education, Automobile Expense, Cell Phones, etc.)
  • Excess or additional rent if owner also owns building and are paying themselves a rent above or below the market rate
  • Retirement or Pension Expense
  • Other Personal or Discretionary Expenses

Once these adjustments are made, whatever expenses remain are divided by the collections of the practice and result in the overhead rate of the practice. The overhead rate will typically fall between 30-60% in dentistry.  Typically the lower the overhead, the higher the resulting valuation (all things equal).  

Assets: How do they impact a valuation?

Although cash flow is critical, the value and condition of dental equipment can influence the value of a practice. By way of example, a practice that invests $200,000 in updating the equipment and finish out  may value higher than a practice with outdated equipment due to the risk of a new buyer needing to invest in new equipment.  While new equipment does impact the value of a practice,  it’s critical to understand that the impact of investment in new assets on the valuation will not be a dollar for dollar increase. 

In a valuation, the assets of your business are seen as those that help you generate profitability and therefore  it may be a few years before the return on investment is seen.  


Contact us to discuss the potential value of your practice or the value of a practice you are considering and how NDP can assist.