By John Shirts, CVA, CPA, CFA, Vice President of Appraisals and Data Analytics
When conducting practice valuations, dentists often ask us, “What is my dental practice’s biggest asset?”
The answer is that the biggest asset in nearly all practices is not the building or equipment, but rather it is the practice’s goodwill.
Goodwill is the value of everything in your practice that you can’t easily put a price tag on, such as:
All these factors produce value, which is why goodwill is sometimes referred to as “excess value.” Essentially, anything and everything that drives cash flow contributes to your goodwill.
From a more technical perspective, goodwill represents the value of the business after taking into account all the tangible assets, such as equipment, accounts receivable and supplies. Your appraiser will calculate the value of your business based on revenue and cash flows. If you subtract the value of your tangible assets, then–voila!–goodwill is what’s left.
Another way to think about it is if a practice doesn’t have goodwill, the business value does not exceed the market value of the tangible assets. In other words, if you don’t have goodwill, you would be better off closing your doors and auctioning off the rest of your assets. Fortunately, we rarely see a practice without goodwill.
To summarize, your dental practice’s biggest asset is your goodwill. If you’re interested in learning how much your practice is worth, please contact one of our Certified Valuation Analysts.