Asset Allocation During A Dental Transition
Dental Practice Sales & Transitions
The act of selling your dental practice is a complicated transaction, far more than just assigning a single value. When you buy or sell any kind of business, you have to take into account all of the assets that go into a practice in order to get the most value. Read on to find out how it all works.
What Are Practice Assets?
The price of a dental practice is more than just the building itself. You’re paying for the supplies there, all the equipment inside, the client base, and most importantly, the goodwill of the community towards the practice. But why bother assigning a value to all that? Why not just assign an overall value to everything and leave it at that? In short: taxes and the IRS.
Properly making sure the assets of a practice are allocated is vital to making sure you don’t have to pay out the nose when the time comes to file your taxes. Assets fall into two categories: tangible and intangible. Tangible assets include things like equipment, while intangible assets are abstract things like patient goodwill. Both things are taxed differently by the IRS.
For example, if a practice is sold for $500,000 and the assets are valued at 40% intangible and 60% tangible, the seller’s income tax liability would be $147,000. However, if that same $500,000 sales price allocated 80% to intangibles and 20% to the hard assets, the seller’s income tax liability would only be $99,000. That is a $48,000 difference in tax payments, simply by allocating the types of assets differently!
How To Get The Most Out of a Practice Transition
While it seems like this process is weighed heavily in favor of the seller, don’t forget that you still have to pay taxes for the sale. In order to ensure that the practice transition is a fair deal to everyone involved, it’s vital to make sure that the practice assets are allocated properly. A professional team that has handled multiple practice transitions in the past is key to a fair deal. Contact our office today to learn more about asset allocation.