The Valuation on Your Practice Might Be Wrong. And the Cost of That Could Be $3,000,000.
That number is not a typo. Stay with me.
Every engagement I take on is built around the same foundation. More money and less stress. That sounds simple until you realize how far into the future that objective actually extends. Because the decisions you make today about how your practice is run, what it produces, and what it is worth are not just operational decisions. They are retirement decisions. They are generational wealth decisions.
And right now most practice owners are not treating them that way.
What Happened With a Recent Client
I have reviewed three different practice valuations for three different clients in recent history. And in almost every case the reaction when the number comes back is the same. Disappointment. Either the owner hoped it would be higher or the number just doesn't look right. Something feels off and they can't quite put their finger on why.
There is a reason for that instinct. Valuations are not always accurate and they are not always objective.
One client recently received a valuation on their practice. Their first reaction when they saw that number was colorful enough that I will leave it out of this post entirely. Let's just say the language was not suitable for publication and move on. I analyzed the same practice and came back with a number that will likely be $500,000 higher than what they were originally quoted.
And here is what makes that number even more significant. Whoever purchases this practice is going to get a tremendous deal. There is still enormous opportunity to grow this practice by hundreds of thousands of dollars. The intrinsic value alone, the patient base, the systems, the reputation, the team, is hard to put a price tag on. But that is not the point of this post.
The point is this. A $500,000 difference in your valuation is not just a better deal at closing. It is something far larger than that.
What $500,000 Actually Becomes
Here is the math that should make every practice owner stop and read this twice.
Take that $500,000 difference. Invest it in a broad index fund at the long-term historical average return of the S&P 500, which Warren Buffett has consistently recommended as the benchmark for most investors, and here is what happens.
In 10 years that $500,000 becomes $1,296,871.
In 20 years that $500,000 becomes $3,363,750.
That is 2.6 times your money in a decade and 6.7 times your money in two decades off a single transaction.
For a dentist or oral surgeon selling in their 50s who invests that difference properly, that gap in valuation could mean an additional $3.3 million by their mid-70s. That is the actual cost of accepting a valuation without challenging it. That is the actual cost of not having the right person in your corner at the closing table.
One important note on those numbers. The 10% return is a pre-tax figure. Depending on how the sale proceeds are structured, whether it is an asset sale or a stock sale, whether installment notes are involved, and how the investment is held, the after-tax compounded result will be different. How different depends on your specific situation and that is exactly the kind of conversation worth having with the right advisors before you sign anything.
The Three People You Need in Your Corner Before You Sign Anything
Before you structure or finalize any deal on the sale of your practice there are three conversations that have to happen first. You need a tax strategist, a financial planner, and a legal strategist, meaning a qualified attorney who specializes in business transactions, all in your corner before a single document gets signed.
And I want to be direct about what being in your corner actually means. If someone is being paid by another party they are not your representative. They are someone else's representative. The buyer's attorney is not looking out for you. The broker the buyer brought to the table is not looking out for you. Do not wholeheartedly rely on information, valuations, or recommendations supplied by the buying party or anyone they are compensating. Unless you are writing the check they are not working for you. Full stop.
Find people who are not just familiar with practice sales but who are strong in this specific area. There is a significant difference between a general practice attorney and one who has closed dozens of healthcare or dental practice transactions. There is a significant difference between a CPA who files returns and a tax strategist who understands how to structure a business sale to minimize your tax consequence from the beginning. And there is a significant difference between a financial planner who manages a portfolio and one who understands how to receive, protect, and deploy a significant liquidity event in a way that compounds over the next two decades.
How the deal is structured matters enormously. An asset sale versus a stock sale. Installment notes versus a lump sum. How and where the proceeds are held and invested immediately after closing. Each of those decisions has a direct and significant impact on how much of that valuation number you actually keep. Your tax strategist helps you build a structure around the sale that minimizes what goes to the government. Your financial planner helps you deploy what remains in a way that compounds over time and funds the retirement you actually want. And your attorney makes sure the deal itself is structured to protect your interests, your liability, and your future from the moment the ink is dry.
You can negotiate a great valuation, fight for every dollar of value in your practice, and still leave a significant portion of it on the table because the deal was not structured correctly from the beginning. That is not a closing table problem. It is a planning problem and it has to be addressed well before you get there.
The right team around this transaction does not just protect what you earned. They maximize what you walk away with. And that number will have a direct and lasting bearing on the size of your retirement fund and the freedoms that follow.
Nobody Is Going to Fight for Your Value If You Don't
I want to be direct about something. If you don't fight for the value of your own practice no one else is going to do it for you.
That starts with getting the right person doing the valuation. Someone with a track record of producing accurate, substantiated numbers that can be defended. Not a number that was generated quickly and handed to you as if it were final. A valuation is not final until you decide it is.
Think of it exactly like listing your home for sale. You and your realtor should be doing everything possible to maximize the value of that home before it hits the market so you walk away from the settlement table with the most money possible. Your practice sale should be no different. More so in fact because the numbers are larger and the impact on your retirement is far greater.
The Best Time to Start Is Right Now
I am currently working with a practice owner who is planning to sell in approximately eight years. We are not waiting until year seven to start optimizing. We are building enterprise value today so that when the time comes the practice commands the highest possible number and the buyer sees exactly what they are getting.
Everything you do now to improve production, reduce overhead, strengthen systems, and build a stable team intensifies the value of the asset at sale. Every year you wait to start that process is a year of compounding you do not get back.
The valuation fee, the advisory fee, the second opinion, whatever it costs to get the right people in the right seats around this decision is rounding error against a $3,000,000 outcome. The math is not close.
Whether you are just starting your practice or you are already thinking about what comes next, the time to start planning for your exit is today.
Let's talk.
Written by Kevin Johnson, CEO and Founder of Leverage Consulting.
