How Does Your Dental Equipment Affect Your Practice Appraisal?

For most dentists, their equipment represents their practices’ largest tangible asset. After cutting those big checks, dentists may assume that the equipment represents a large part of their practices’ value. While it is a big ticket expense, your equipment’s value to the practice may not be what you think. Here is how your dental equipment affects your practice appraisal:

The Value of Your Dental Equipment to You 

First, your equipment has value separate from your practice; it can be sold on the secondary market. Equipment usually only gets sold during a liquidation scenario or when being replaced. 

However, your equipment’s value is highly discounted from the retail price. This value reduction is similar to selling your used phone on eBay, your used vehicle on Craigslist or your treadmill at a rummage sale. While you spent significant funds on these items, you will gain significantly less value selling them in the secondary market.

The true value of your equipment is not its resale value, as discussed above, but rather its in-use value. In other words, your equipment’s highest value comes from using it in your practice. Back to the treadmill example: you benefit far more from running on your treadmill than from selling it.

The Value of Your Dental Equipment to the Buyer

Some dentists are tempted to upgrade their equipment shortly before selling their practices. We strongly recommend against it. Equipment discounts are rare, so you will likely be paying full retail price for your new equipment, and you likely won’t recoup these expenses in your practice sale. 

“Won’t buyers pay more for a practice with new equipment?” dentists often ask. “They won’t need to replace it as soon, which provides them with a future cost-saving opportunity.” This idea holds up in theory but not in practice. Because your equipment decreases in value quickly, buyers are typically unwilling to pay a premium for it.

The Value of Your Dental Equipment to the Appraiser

When it comes to valuing your practice, appraisers simply look to see if you have equipment that can do the job. Your equipment is like plumbing: you need equipment to have a well-functioning practice, and people don’t buy a building without plumbing. However, the price of the plumbing is irrelevant because it can’t be separated from the value of the building as a whole.

The biggest contributor to your practice’s value is not your equipment but rather your cash flow. Buyers are paying for the earning capacity of the practice. Your earning capacity does depend on well-functioning equipment, but also on trained and happy employees, well-served patients and a myriad of other factors.

If you are interested in learning how much your practice is worth, please contact our certified appraisal team.