Whether you’re buying or selling a practice, asset allocation is a vital part of assessing the value of the business. Buying a practice is not just buying one thing: a practice. The IRS requires sellers to assign a value to the many different items within the business that make it unique. 

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However, it isn’t just things like equipment and furniture; there are many invisible factors that set the asking price.

What Is Asset Allocation?

Every asset that is transferred during the sale of a dental practice is said to be allocated, or accounted for. Asset allocation is an accounting term for how much value is assigned to different items within the practice. When a dental practice is bought or sold, some or all assets may transfer ownership from buyer to seller.

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What Assets Do Dental Practices Have?

Many types of assets are taken into consideration during the sale of a dental practice. Generally, assets are divided into two categories, tangible and intangible. Tangible assets are physical objects with an easily identifiable value. They include things like:

• Technology
• Equipment
• Office supplies
• Leasehold improvements
• Waiting room and clinical furnishings
• Website and domain
• Patient records

Intangible assets are those with perceived, rather than physical value. They can be even more important than tangible items, in some cases. Intangible assets include:

• Non-compete covenants
• The practice’s reputation
• Goodwill (anything not considered fair market value)
• Practice location

How Are Dental Practice Asset Values Assigned? 

Assigning value to the different parts of any business is not as straightforward as you might imagine. The value of many items depreciates over time, depending on the item, how long it is owned, and the span of its useful life. The IRS has strict guidelines on how assets are depreciated. 

How Can I Get the Most Out Asset Allocation?

Proper asset allocation can make the sale of a practice mutually beneficial for the buyer and seller. The best way to determine value is with the help of an experienced dental broker. 

 Asset allocation is an important part of the dental transition process. When done properly, it provides an accurate estimate of a practice’s value, keeps the transaction fair, and satisfies the rules of the Internal Revenue Service. 

If you want to ensure a practice is valued properly, contact our experienced team at Schiff Dental Brokerage today. We have more than 35 years of experience with buying and selling dental practices.