Be Prepared – Another Reason For Dental Practice Appraisals

Category: Associates, Dental

As seen in Ontario Dentist – November 1998

How many of us are aware of “Be Prepared” – the motto of the boy scouts/girl guides? While your boy scout/girl guide years have long since passed, the motto of being prepared seems to encompass many aspects of adult business and personal life now more than ever before.

Financial planners tell us to plan for retirement as soon as we graduate. Lawyers advise us to draw up a will as soon as we marry or even sooner. Governments recommend we consider a power of attorney for property and financial affairs as soon as we have assets of some value. And doctors recommend a power of attorney for personal health care very early in life.

What then of our dental practice, which can be one of the largest single investments that we will make relating to our dental career? Should someone not recommend that we consider a dental practice appraisal soon after we have built up a substantial patient base and own a large amount of dental and business equipment? Based on recent experiences dealing with dentists who have left the matter of obtaining an appraisal until the “last minute” (that is, immediately prior to retirement, change of plans due to ill health or even death, selling to an associate, etc.), it would appear that both vendor and purchaser would have been better served had an earlier dental practice appraisal been available for review. An update would then be done if it was felt major changes had occurred since the appraisal was carried out.

Purpose of an Appraisal

In addition to planning well before an actual retirement year is being contemplated or the possibility of ill health occurs without advance warning, an appraisal can be used to:

  1. Assist in obtaining bank financing, loans or leases;
  2. Determine tax allocations and classifications for taxation purposes;
  3. Assist the courts in legal disputes for awarding values;
  4. Obtain accountants’ opinions for financial planning purposes;
  5. Permit registration and documentation of instruments for collateral for loans, leases and mortgages;
  6. Determine fair market value of your dental practice and to assist in determining an asking price, if and when required; and,
  7. Provide qualified parties with the required financial and necessary legal information.

Benefits of a Professional Appraisal

While dental practice sales are limited under the Real Estate and Business Brokers Act to qualified and registered individuals (or a lawyer acting on your behalf), dental practice appraisals can be done by anyone, including yourself, based on even a minimal amount of information on the practice. However, since an appraisal document can be the foundation for a factual presentation for numerous financial and legal issues, a professional appraisal should be considered for a number of reasons:

  1. Many hours are required to identify, document and value the various goodwill factors and to accurately record the details (that is; manufacturer, values, serial numbers, age and condition) of all major assets.
  2. Appraisal fees are tax deductible; therefore, if you estimate a loss of income due to hours spent by yourself trying to obtain information and compare this to the after-tax costs of having a professional appraiser provide a report, you are further ahead in engaging a professional appraiser;
  3. The valuation of a dental practice is an extremely intricate process requiring specialized training and specific experience. Without this skill and knowledge, it would be a very frustrating exercise (not to mention the likelihood of an inappropriate result); and,
  4. A professional appraiser’s accreditation and standards, with absolutely no conflict of interest, will assure the dentist of quality work and complete confidentiality.

Contents of an Appraisal

A dental practice appraisal report usually consists of over 50 pages, including appendices and photos. The contents include:

  1. A complete detailed description of the practice, types of treatment, patients, fees, systems and personnel;
  2. Location of facility, plans, premise lease options, renewals, restrictions and area demographics;
  3. Dental practice and management company financial statements, expenses, analysis and cash flow;
  4. A recording of all assets, leasehold improvements, clinical equipment and administrative furniture, instruments and materials, liabilities and accounts receivable;
  5. Details of all major assets including approximate age, condition, manufacturer and serial number with both market and replacement costs; and,
  6. Goodwill calculations and market comparisons with supporting rationale.


A dental practice appraisal is an opinion of fair market value done for the purpose of, and having the contents of, the items discussed above. The key to an opinion of fair market value should be based upon actual arm’s-length sales used for comparative analysis and with supportive rationale.

There are a number of professional appraisers available to carry out an appraisal of your dental practice. When making a choice, remember that the value of an appraisal is directly related to the appraiser’s qualifications, thoroughness and accuracy.

It would appear that the concept of having a dental practice appraisal has joined the ranks of having a will and powers of attorney well before the need for these becomes evident. As with many aspects of business and personal life, “Be Prepared” stands as an excellent motto to embrace.