//Valuation Considerations for Orthodontics Practices

Valuation Considerations for Orthodontics Practices

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.

By | 2018-01-23T16:31:45-07:00 January 23rd, 2018|Business Valuation Expert Tips and Information|0 Comments

About the Author:

Business Valuation Expert at My Biz Value having valued hundreds of businesses and dental practices nationwide, Rick is an expert in valuing all types of businesses. He has access to multiple national databases of comparable business sales which are used in the Valuation Reports. His business sales experience lends itself well to correctly valuing businesses. See: www.MyBizValue.com Mergers and Acquisitions (M&A) Professional. Head of the M&A division of Business Sales Group. Advisory services are offered to clients in the Rocky Mountain and Midwest regions of the US. BSG occupies the Mid-market space specializing in selling and buying high growth potential businesses with ample runway having Sales of $1 million-$50 million. Rick is a "deal guy"​ who specializes in maneuvering through the "sticky"​ parts of a transaction to accomplish the Seller's objective. See: www.Bsalesgroup.com

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