In addition to providing meaningful information when it comes to metrics and analysis of practice success, cash flow is an integral part of a practice transition. What exactly is cash flow based upon during a practice sale? Cash flow takes into account interest, depreciation, and loan amortization. Anything that will not transfer to a new practice owner is evaluated. This way, the practice’s true profitability and value can be determined.

Your profit and loss statements and quarterly or yearly tax returns can be valuable tools in helping you figure out true cash flow. Add any interest, depreciation, or personal items purchased through the business to the bottom line profit and loss number. This number will help to give you a fairly accurate idea of what your dental practice is worth.

Most savvy buyers will want to see the history of cash flow within the office from previous years. A historical analysis will give buyers the truest picture of how the practice actually performs and its true profitability. If your practice is successful and operating at a high level, there is nothing to be concerned with. This is part of the reason why it is important to have an ongoing analysis of these numbers. Visit our website to see our buyer’s checklist.

Dental practices are usually valued by taking the cash flow of the practice and multiplying it by 2 or 3. For example, if the cash flow is $1 million, the value of the practice would be $2 to $3 million. Although significant, it is not the only number used in determining the value of a practice.

Other factors that help to determine a practice value are gross income, asset value (net tangible assets), patient numbers/profile, and practice location. Gross income and patient numbers will help determine how busy the purchaser may or may not be. Location will help determine what the real estate value and fair market price are for the area.

The best way to help keep a handle on your cash flow and practice metrics is to hire our dental CPA in 21204 and a dental broker when you choose to have your practice valued. A professional can help you calculate the most accurate numbers, saving you a good deal of time and stress. This will also help the process flow smoothly when it comes time to sell your practice. Call our dental brokerage office in Towson, MD today to schedule a consultation and let us help you analyze your numbers.