Appraisals and Tax Returns

When it comes to appraising the value your practice, what matters to the potential buyer has got to be the potential income stream that it may generate for them in the near and long terms.

Yes, having the latest equipment is nice. A bright and freshly painted office space is important. But purchasing the practice is pointless if there's little possibility of procuring a projected and periodic pecuniary profit. Get the point?

When I've spoken with dentists about a given practice's appraised value, they often ask to see the tax returns. While I garner much information from the returns myself, I also ask the potential buyers and partners to consider the reckoning behind the numbers.

Practice owners and their accountants have every reason to minimize the practice's income they report to the IRS. Unfortunately, this can also give the impression that the practice's financial benefits to the doctor are less than they actually are.

Beware of any appraisal based soley (or even heavily) upon tax returns. An accountant's handiwork should be just one of many tools used to set the practice’s appraised value.
Practice value is, to a great extent, subjective. To the potential buyer, the practice value may involve the desirability of the office’s physical location, its image, the practice’s patient profile base, how well the practice's procedural profile fits the potential buyer's experience and professional goals, the practice's location relative to a metropolitan area, and, among many other things of course, the compatibility and longevity of the current staff.