Goodwill and the Sale of a Dental Practice

When a practice owner begins evaluating the sale of his practice, the typical questions the seller has are “How much can I get?” and “How much can I keep?” Even though Uncle Sam doesn’t have a seat at the closing table, he is going to claim a sizable share of that income. That is why the terms of a practice sale can be just as important as the selling price.

The good news is that goodwill represents the majority of the practice value (sometimes 80-90%), and it is generally taxed at a much lower rate than regular income.

What is goodwill and how can we get more of it? Generally, goodwill is the value assigned to how well you run your practice. Boosters to goodwill include:

  •  Loyal patients
  • Dedicated, highly-skilled employees
  • A good reputation in the community
  •   A good practice location
  •  Well-managed expenses

What do all of these factors have in common? They all support a robust bottom line. And that is what goodwill represents – the value of a continuing stream of income transferable to a buyer. So a practice owner that master the intangibles of practice ownership gets paid multiple times on the same income – once when he earns the income and again, when he sells the practice.