PRACTICE VALUATION - using discounted cash flow methodology

Most dentists focus on two figures when determining a practice value: current revenues and current net income. While other data such as patient numbers and practice assets are taken into account, revenue and net income are typically the key drivers of practice value. Frequently, rules of thumb are a...

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Bibliographic Details
Published inDental Economics Vol. 96; no. 10; p. 116
Main Authors Tanzi, Giancarlo, Tanzi, Jill A
Format Trade Publication Article
LanguageEnglish
Published Tulsa Endeavor Business Media 01.10.2006
Subjects
Business valuation
Dentistry
Dentists
Discount rates
Discounted cash flow
Investments
Methods
Net income
Professional practice
Profitability
Profits
Valuation
United States > US
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Summary:Most dentists focus on two figures when determining a practice value: current revenues and current net income. While other data such as patient numbers and practice assets are taken into account, revenue and net income are typically the key drivers of practice value. Frequently, rules of thumb are applied to translate these figures into a practice value. In addition to being arbitrary and subjective, valuation methods based on current financial figures do not consider the true source of value for any business - future profitability. Valuation techniques used by corporate financial analysts in evaluating business opportunities also are relevant to dentistry. In corporate finance, decision makers most commonly rely on a discounted cash flow (DCF) approach to evaluate business entities. To be clear, DCF-based valuation methodology is more complicated than the rule-of-thumb methods discussed above. However, the superior accuracy and information provided by a DCF is well worth the effort.
ISSN:0011-8583