Valuing an Orthodontics Practice

Dentist

When valuing an Orthodontics Practice, two important considerations need to be made:

  1. Accounts Receivable.
  2. Accrual versus Cash Basis Accounting.

When valuing an Orthodontics practice, especially if it is a startup and less than 2 years old it is important to consider Accounts Receivable in the valuation equation.  For instance, when valuing an orthodontics practice, they typically have AR that can stretch out 24-30 months.  If you are using cash basis financials, it is important to subtract out beginning AR and add in ending AR to gain a true reflection of actual revenue

Calculation from Cash Basis Accounting to Accrual Accounting is as follows:

Revenue                                                                              $1,500,000

Cash Basis Cash Flow                      $400,000                  $400,000

Add: Ending AR                                 $375,000                  $375,000

Less: Beginning AR                          ($179,000)             ($179,000)

Equals Accrual Basis Cash Flow   $596,000              $2,096,000

Adding back the change in Accounts Receivable to Cash Flow and Revenue reflects a more correct picture of Cash Flow and Revenue.  Orthodontics practices are unique due to the fact that their AR may stretch out for 2-3 years, so it is an important consideration to make when valuing an Orthodontics practice.

About Rick Krebs, CPA - Business Valuations, Mergers & Acquisitions

Rick Krebs - Mergers and Acquisitions Professional, Business Broker, CPA. Rick brings a unique blend of sales, entrepreneurial, and financial experience to Business Sales Group. He began his career as a CPA, working in Nevada and Utah where valuable financial experience was gained. He uses those skills every day. He graduated with a Master’s of Science Degree and Bachelor’s Degree from Utah State University. As a business owner he started Liberty Mortgage, a mortgage bank licensed in 23 states nationwide. He eventually sold the successful company to an investor from California. He has been in the M&A space helping people sell their businesses since July, 2010. During his first year as a business broker with BRC, he listed and sold more businesses than the entire office combined. As a sale-side and buy-side advisor for Mergers and Acquisitions transactions Rick's advisory, accounting, and management skills are invaluable when advising sellers as they maneuver the intricate details of the deal through closing. Rick is also a CNA (Certified Negotiation Expert) which helps him negotiate the most favorable terms for clients in a transaction. ​ Rick was quoted by FORBES as an expert sales-side advisor who helps Sellers avoid the pitfalls of selling a business.

Posted on January 23, 2018, in Company News and Announcements. Bookmark the permalink. Leave a comment.

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