Understanding the input in the dental practice valuation and its impact on the final judgement from the court.
There is a common thread among dentists who are already in the process of divorce or who are contemplating it. How much is this going to cost me and how long is the process going to take?
These dentists are not prone to ask what the input is into the valuation or who the evaluator may be. The evaluator’s resume should be one of the most important parts of the approach to deciding upon whom to retain. He or she will be called upon to present the valuation in written form and then must not be afraid to be a witness during the trial or mediation necessary before the trial.
The cooperation with the attorney is a must because in many instances the attorney has not had much experience in working with dentists. Since there are so many points to consider in a divorce, the dentist should make sure that the evaluator of his or her dental practice has plenty of experience in working with dentists. The attorney should rely on the dental expert to help in presenting his or her case on behalf of the dentist.
Qualifications of the dental practice evaluator and his or her input into the valuation:
There are many business evaluators. There are not many dental practice evaluators. Another designation that the top dental practice evaluators have is that of CVA, or certified valuation analyst. Many are also CPAs. A general business evaluator typically is not understanding about the most valuable dental practice asset for all dentists and that is the allocation of goodwill. This asset represents up to 75% of the total asset value of the dental practice. The general business evaluator understands about physical assets such as inventor, supplies and equipment where goodwill is not an important asset. As an example, if a business sells inventory such as an auto parts store, someone can stand behind a counter and when customers come in, the employee can look in a book and find the inventory item, the price at cost and the mark up that the business earns upon the sale. When a patient comes into the dental office, he or she wants to talk to the dentist and get an idea of the timing of the procedure, its cost and the pain that will be inflicted while the process is occurring.
The comparison between the goodwill of the dental practice and the sale of the inventory represents the professional ability and maybe 7 to 9 years of education after high school. The employee selling the inventory may have a high school education and can be replaced by lower paid personnel. Besides not fully understanding goodwill in general, the business evaluator does not understand the difference between personal goodwill (non-marital) and enterprise goodwill (marital). The dentist should be very careful when choosing his or her dental practice evaluator since hundreds of thousands of dollars may be lost with a misunderstanding of goodwill and what is classified as personal and what is enterprise.
Other dental practice assets and the methodology used in performing the valuation:
There are other dental practice assets that should be accounted for in the valuation. The inventory on the shelves so that a patient does not have to come back to finish his or her appointment is an amount that the dentist usually tries to manage by keeping a minimum supply so that he or she can finish the day and finish the patient’s appointment. An average of 2 months’ supply should be sufficient to resolve any issue with the patient and the dentist’s inventory availability.
Typically, the dental supply house will have someone available to work with the dentist to make sure he or she is supplied with what is needed or a little bit more. A supply closet that is loaded with inventory is not what is needed or wanted. Dental instruments are expensive but needed and the dental supply house will also work with the dentist to keep his or her instrument level where it should be. The dental equipment is a major investment, especially when state of the art equipment is appearing each year and getting more sophisticated and expensive. The dentist is always asked the question, “Shall I buy or lease this equipment?” The dental practice evaluator with experience will at least be able to assist the dentist in making this decision. The general business evaluator will not understand dental equipment, its quick depreciation and the new equipment and how soon it will be available.
Outside the box of the dental practice valuation:
Even with the most qualified dental practice evaluator, sometimes that person or his or her firm, do not want to be involved with the courts, lawyers and testimony. General business evaluators have the same issues. It is really important to get a guarantee in writing from the evaluator that he or she will be ready to go to court. Some evaluators get nervous when they are “brow beaten,” by the other attorney. If they get flustered with their presentation on the witness stand, it will make their entire process including the written reports look suspect to credibility. That is not what the dentist wants after getting as far as the court room.
From the beginning of the engagement the dental practice evaluator should project an air of confidence and have a relationship with the attorney where the dentist sees that they are working together on behalf of the dentist. It is incredibly expensive to change attorneys or dental practice evaluators midstream while all of the ground work has already been completed.
In preparation and finalization of the dental practice valuation:
When interviewing the attorney and the dental practice evaluator, find out how much experience they have working with dentists. How many dentists have they represented and how many practice valuations have they prepared or reviewed? A good answer will ensure a flow of trial that should be in the favor of the dentist.