Understanding and Evaluating Associateship Opportunities
When Should a Practice be Valued?

Course Author(s): David G. Dunning, MA, PhD; Robert D. Madden, DDS, MBA

When Should a Practice be Valued?

The answer to this crucial question may depend on whether you are the owner-dentist or the associate.37 The owner-dentist, taking on the risk of adding an associate, might prefer to have the practice valued after the associate has worked for a couple of years or longer in the practice. The associate will likely want the practice valued before or right after commencing an associateship. As was discussed earlier in regard to reasons associateships fail, the general consensus is that it is best to have the discussion of practice valuation, and arguably the price, determined before the associateship begins. The chances of a successful transition—namely, the associate becoming an owner, significantly increase if this fundamental issue is settled beforehand. Failure to settle it in advance results in a failure of transition in most cases. Establishing the value of a practice before or right after the associate begins working avoids sticker shock for the associate and serves as a reality check for the owner about the practice’s worth and the fiscal viability of a potential associateship.

When should a Practice be Valued

So long as both parties agree, the value of a practice could reasonably be adjusted to a higher amount when the associate actually buys-in, in order to account for: major tangible equipment upgrades, at a fair market value; and for increases in practice value attributable to the owner’s production or an inflation rate such as the Consumer Price Index.