Can Your Practice Have Multiple Fair Market Values?

Certainly! The Fair Market Value of a practice can vary wildly, depending up the purpose and use of the valuation. The true value of any practice is only what someone else is willing to pay for it. And "someone else" will judge the practice's value based upon their perceptions. And perceptions are impacted by a great number of circumstances.

Here are just a few:

1. Sale to a potential buyer looking at the practice right now
The buyer sets the true price, though a professional appraisal should provide a practical value range that the seller can use to bolster his or her position. The buyer generally looks at past performance to determine future potential value. However, everything from the color of your equipment to the personalities of your staff members will affect the potential buyer's perceptions of the practice's value.

2. Sale after the death of the owner
With every day that passes after the death of a practice owner, the value of his or her practice decreases sharply. As the news of his or her passing reaches the patient base, uncertainty regarding the practice begins to lead the patients to set appointments with other dentists. Having a practice value established beforehand, and having an emergency transition agreement in place with a professional colleague can minimize the patients' perception of the practice's continuity and provide for an efficient and expeditious transition upon the owner's death.

3. Buy in of a current associate
   Establishing the Fair Market Value of a practice in advance of an associate-to-partner transition can be a complicated equation. On the one hand, the original owner (who naturally wants to maximize the practice value during the transition) perceives that the years of hard work placed into his or her practice includes the potential value the new partner brings into the practice. On the other hand, the potential partner (who naturally wants to minimize the practice value during the transition) perceives that his or her contributions to the practice should be excluded from the practice's current value. It will likely take a skilled and experienced appraiser to help both parties understand where the "Fair" Market Value truly is. It may seem contradictory to say it, but both doctors have valid arguments. The challenge is to reach an agreement perceived by both doctors as "fair," who, after all, want to form a long-term partnership of working together in a positive and constructive relationship.
4. Distribution of Community Property (Divorce)
   In the unique case of divorce, there is generally not an actual buyer for the practice. In such situations, the Fair Market Value is determined by a third-party appraiser and must satisfy the perceived values of the court and all parties. Consequently, the appraisal must be thorough and include reasonable arguments and justifications for the established Fair Market Value.

Getting your practice appraised is an important decision. Make sure that the professional appraiser understands your purposes and the ultimate goals of the valuation.