appraisals

FREQUENTLY ASKED QUESTIONS

What is an appraisal?


An appraisal report is a document that establishes the fair market value of a dental practice. It takes into consideration the value of the goodwill (patient list and trade name) as well as the value of the tangible assets (clinical equipment, administrative furniture and fixtures, instruments and supplies, leasehold improvements, computer hardware and software). An appraisal is not an exact science but can help establish an approximate price for selling a dental practice.




What information is included in an appraisal?


An appraisal report of also called a dental valuation is quite a voluminous document (50-70 pages). In that document, you can find different sections that discuss the description of the premises in which the clinic operates, staff and associates work schedule and pay, patient profile and demographics as well as the financials for the dental practice.




Why do I need an appraisal?


An appraisal is needed in order to establish the asking price for a dental practice before selling. Usually, a purchaser will obtain financing from a bank to purchase a dental clinic. Banks will require an appraisal report from an authorized dental appraiser in order to disburse the funds.




Who is responsible for paying for the appraisal of a dental practice?


The appraisal is typically paid for by the Seller. However, in certain cases, when a dentist has agreed to sell the dental practice to one of the associates, they may decide to split the costs of the appraisal.




How much does an appraisal typically cost?


Appraisals vary in price based on the size of a clinic and the number of operatories. The more operatories there are, the higher the price because it requires more work to establish the fair market value of each piece of equipment in the practice. The more equipment there is, the longer it takes to work on the appraisal. As a rule of thumb, appraisals cost between $5,000 and $8,000.




How long does it take to have my dental practice appraised?


Every company has a different time frame for preparing a dental appraisal. Our turnaround time is one of the fastest in the industry ranging between 4-6 weeks once we have received complete documentation from the dentist.




What documents & information are needed from the dentist to complete an appraisal?


Usually, in order to complete an appraisal, we require 3 years of financial history for the dental practice (federal and provincial tax return, trial balance, financial statements). We also ask for a copy of the lease as well as any employment or associate agreements, if any.




Are there other reasons to get an appraisal besides selling my dental practice?


There are more purposes to valuating your dental practice then assessing the purchase price of your clinic when deciding to sell. Other reasons to have your dental appraised include:

  • Allowing purchasers to secure financing from financial institutions to pay for the dental practice;

  • Outside of a purchase and sale transaction, a dentist may wish to transfer assets from his or her sole proprietorship to his or her dental corporation at their Fair Market Value (FMV), thus benefitting from the rollover exception for tax purposes;

  • In the Family Law context, valuating assets and/or shares is often required so that the accurate values may be submitted in various situations;

  • Appraisals are also useful for properly documenting the purchase and sale transaction because they will provide a readily available list of assets found at the dental practice.




What questions should I ask before hiring an appraiser?


1. Where is the appraisal report completed? It is important that the report be completed by experts in Quebec and not located elsewhere in Canada.

2. How long does it take to complete an appraiser report and can they guarantee the turnaround time? It is important to make sure that an appraisal report does not take more than 2 months to complete.

3. Is a future projections valuation method (also known as future income statement) being used to establish the value of the practice? It is difficult to predict the future gross revenues of a dental practice after the sale of the practice since many patients prefer to leave after the sale. It is normal to expect a certain amount of attrition.

4. How many valuation methods are being used? 3 valuation methods should be used and an average should be taken of all 3 results.




What are the steps to getting an appraisal done with Intermedd?


The first step is to organize a meeting with an expert appraiser. The first meeting can take 1-2 hours whereby the dentist will complete a detailed questionnaire about the dental practice. At the end of the meeting, a checklist of documents to submit will be given to the dentist. That checklist includes items such as financial information about the clinic, copies of leases and contracts. Once we have received all of the information, our team of tax and appraisal specialists prepares a detailed valuation report which generally takes between 4-6 weeks to complete.




How is an appraisal with Intermedd different from the competitors?


1. Many of our competitors have their appraisals completed by a team located outside of Quebec. In fact, their experts are usually in Ontario or western Canada. The current market conditions indicate that the fair market value of dental practices in the rest of Canada are much higher than in Quebec. As a consequence, when appraisals are not completed by experts in Quebec, we often see values that do not reflect the Quebec market prices. It is important to understand and properly assess the true value of a dental practice in order to attract the right buyers. 2. Not all appraisers use the same methods for calculating the fair market value of a practice. At Intermedd, we use 3 different methods and take an average to obtain the most precise value for the practice. 3. We have seen other appraisers use a valuation method based on future projections to establish the value of a practice. We do not believe that this method is an accurate method for the dental industry because it assumes that gross revenues will continue to increase after a sale for a ten year period. However, in reality, it is normal to expect a loss of some patients after a sale is completed and the amount of loss is difficult to predict. At Intermedd, we do not retain this valuation method in our appraisal reports.




For how long is an appraisal valid?


Generally, an appraisal reflects the value of a dental practice at a certain moment in time since the appraisal takes into consideration the last 3 years of financial information. An appraisal can still be valid months or even one to 2 years later if there has been no significant change in the financial position of the dental practice. It is also possible to update an appraisal report without having to completely restart the appraisal for a minor fee ($500-$1000).





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