THE ADA PRACTICAL GUIDE TO VALUING A PRACTICE 3 Although dental practice valuation is not a precise science, there are several methods that are typically used to determine the value of a practice. Knowing the difference between fair market value, fair value, investment value, intrinsic value, and other concepts of value is the first step in gaining an understanding of dental practice valuation. Concepts of Value Fair market value is usually defined as the cash, or cash equivalent price, for which property would change hands between a willing buyer and a willing seller, both being adequately informed of the relevant facts and neither being compelled to buy or sell. Fair market value also assumes prevailing economic and market conditions. Fair market value can also be thought of as the most likely price upon which a typical and rational buyer and seller will agree. Fair value is a term used to express a value defined by legal statute. Each state or jurisdiction may have a different definition of fair value. The process of determining fair value is typically confined to a legal preceding and should by defined by the jurisdictional statute of the legal venue. Fair value is used in such legal matters as shareholder/member dissent as well as commercial damages cases. Investment value is best defined as the value of an investment to a specific investor based on his or her expectations and requirements. It is different from market value, which is detached from personal interests. Investment value may include synergies Learning Objectives • Understand the definition of fair market value and factors that influence it • Learn the ways a dental practice can be apportioned and sold • Familiarize yourself with the various types of practice sale agreements • Discuss how the sale price of a dental practice is allocated to various practice assets and the terms of the sale • Examine the relationship between sale price and sale terms Chapter 1: Practice Value