Conducting an appraisal is always the first step when listing a practice for sale. It is the blueprint for developing the selling price and the written practice description that are used to sell a practice successfully.

Here are the key components of a professional appraisal, which typically is a seven- to 10-page document.

History of the practice. This section provides background on the dentist and the practice, including the length of time the practice has been in existence; current and previous locations; and any special attributes of the practice, such as specialized procedures performed by the dentist.

Gross income and net earnings. Derived from the tax returns of the practice, this section discloses reported gross income for the previous three years and the year to date. The net earnings are derived by restructuring practice expenses to reflect the true profit and cash flow of the practice. In calculating true profit, noncash deductions (for example, depreciation and amortization) and personal expenses not necessary to run the practice (for example, the owner’s medical insurance or car lease payments) are added back to profits. This part of the appraisal is key to assessing practice value. If the practice is being sold, it will be used by the purchaser’s accountant and financing source to help determine how the purchase price is to be funded and the remaining cash flow for the buyer.

Patient profile. Discussed here are the demographics of the patient base, including age range and relevant socioeconomic factors. The number of patients treated weekly by the dentist and hygienist should be indicated in this section. The number of active patients (that is, patients treated within the last two years) and new patients are important barometers of practice vitality and growth.

Description of the facility. Included here is information about the size and layout of the office, including the number of operatories and staff areas and condition of the equipment. If the space is leased, information should be provided about the lease term and monthly rent. If the facility is owned by the selling dentist, the terms of the lease being offered by the seller or the price to purchase the real estate should be noted.

Community profile. Demographics about the community include descriptions of the type of community—urban, suburban or small town; working class, middle class or upper-middle class—and positive features of the area.

Office hours. This section lists practice office hours for the owner, associates, hygienist and office staff members.

Fee structure. Included is a breakdown of fees by procedures, as well as a breakdown by for-service and reduced fees. If the information is available, the appraiser should note the percentage of the dentist’s income produced by each procedure.