How Does Your Dental Practice Debt Affect Your Appraisal?

From student loans to car payments to mortgages to credit cards, many dentists are familiar with personal debt. Most dentists who buy a practice are also familiar with dental practice debt, as most practice purchases are 100 percent financed with no equity involved. 

As a certified practice appraiser, I review the practice’s financial information to determine its value. During this process, many dentists often ask if the practice’s current debt load affects its market value.

The short answer is that dental practice debt does not affect valuations at all… with a caveat. 

This answer might seem counterintuitive given the large expense that interest can often be. However, dental practice sales are almost always asset purchases. Buyers are not purchasing your business entity, which includes your liabilities. Instead, they are only buying your assets, which include the equipment, supplies and goodwill of the practice.

Since a potential buyer is only buying your assets, only the value of the assets matters for your appraisal. 

On the other hand, the value to you, the owner, is very much determined by the debt load. 

You can think of this exactly as you would a vehicle or a house. When consumers buy these items, they only buy the assets, not any of the debt connected to them. But the seller’s final value is the market value of the vehicle or home minus the debt incurred on it.

To recap, neither an appraiser nor a prospective buyer will consider your debt when considering your practice’s value. However, the value a seller receives is the market value minus the remaining debt. 

Practice appraisals are important when preparing to sell your practice to ensure you determine a fair sales price. You can also benefit from knowing the value of your business for estate planning, tax planning or partnership negotiation purposes. Contact our team today to request a certified practice appraisal.