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The Importance of Practice Appraisals in Associate Buy-Ins

Blonde man holds dental practice appraisal report

Hiring associate dentists with the intention of setting up a buy-in can be a strategic move for dental practice owners. This article discusses the importance of practice appraisals in such transitions and how they benefit both the practice owner and the associate dentist involved.

When to Get an Appraisal

Obtaining a certified practice appraisal before hiring an associate dentist, as well as another appraisal before the associate becomes a partial or full owner, is a wise decision. By comparing these valuations, practice owners gain valuable insights into the impact the associate has had on the practice, without the need to disclose specific numbers to the associate.

“Sweat Equity” and Employment Contracts

Some practice owners offer “sweat equity” as part of the associate dentist’s employment contract. This credit, typically around 25 percent, accounts for the growth contributed by the associate. However, other owners prefer to maintain flexibility in their options. To navigate these complexities, we advise you to consult with an experienced attorney. Attorneys can assist practice owners in structuring employment contracts that align with the best interests of both parties.

Mitigating Disputes and Establishing Baseline Valuation

Appraisals play a crucial role in mitigating potential disputes during the transition. They provide an independent and objective baseline valuation, minimizing disagreements about practice worth. Additionally, appraisers help normalize financials by incorporating adjustments for owner-discretionary and non-essential spending. These adjustments ensure that the starting valuation maximizes the owner’s interests while giving the associate due credit for the profits they contribute.

The Importance of Expert Guidance

Navigating the complexities of hiring an associate and facilitating a successful transition requires careful consideration. Practice owners are encouraged to seek guidance from transitions consultants experienced in these processes. They can provide invaluable advice and support to ensure a smooth and correct transition. For those considering selling their practice to an associate, Menlo Dental Transitions offers practice appraisals conducted by dental-specialized Certified Valuation Analysts.

Practice appraisals serve as a vital tool in dental practice transitions involving associate dentists. They provide clarity on the associate’s impact, help structure employment contracts, minimize disputes, and establish a fair starting point for valuations. For a successful transition process, it is crucial to seek expert guidance and ensure that all steps are executed correctly.

Contact Menlo Dental Transitions today to explore how a practice appraisal can benefit your dental practice transition.