Dr. A was a dentist in his mid-fifties who owned a very successful dental practice. His kids were grown and his home mortgage was paid, so now after practicing for twenty-five years, he wanted to try his hand in the real estate business. He had heard details of AFTCO's Career Alternative Program and decided that it was for him. We sold and merged his practice with another dentist in the same area. He continued to work his practice and was paid based on his production.
I recently had a consultation with a 62 year old dentist who owned a dental practice that had been recently appraised for $750,000 (let’s call him “Dr. A”). The practice was free and clear of any liabilities so this amount represented Dr. A’s net equity in the practice. In addition, Dr. A had accumulated about $1,000,000 in savings over the years, and when that amount was combined with his practice value, the total could enable him to retire in the not too distant future.
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First of all, the practice may be selling for $800,000 and that is reasonable number for most purchasers to consider when starting out in practice...
The most widely used method for determining practice value is fair market value. The commonly accepted definition of fair market value is the price which a professional practice would produce, allowing reasonable time to find a purchaser, with both buyer and seller having access to full disclosure of information about each other.
This is a compounding rule applied to interest and used to determine how many years it takes for an investment to double in value in a tax deferred environment...
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