Knowing the value of your practice may not seem as important as treating patients and hiring dependable, knowledgeable staff, but the day may come when such information becomes critical.

Understanding how to place a dollar amount on a practice you've grown may seem daunting, but there are several methods you can use to arrive at a figure. Using a combination of these methods, as many professional appraisers would do, may be the best route to pinpointing an appropriate value.

Why Medical Practice Valuation is Necessary

Maybe right now your main concern is just carrying on with the day to day operations of your practice, but your future may be different. A successful practice could be targeted for buy-out by a hospital, for example. In such a case, you would need to know what your practice is worth in order to get a fair deal and an appropriate salary.

Medical practices also often merge either to streamline costs or to offer more services to patients. Mergers require each party to understand the value of their practice before entering into a deal, plus if you are the one wanting to pursue a merger then your practice's value could be a bargaining tool.

The value of your medical practice could also become an issue if you get divorced. Although it's not something you may want to think about, physicians do have a high rate of divorce and your practice would be considered an asset. Without knowing how to value your practice, you may end up losing more in the divorce because your spouse's appraiser could over-inflate its value.

In addition to all of these “what if” scenarios, knowing the value of your practice has the practical benefit of giving you a concrete way to evaluate its success. A practice that is doing well should continue to rise in value. If you only base your concept of success on your practice's profits, then you may be missing out on the big picture. After all, profits are only one aspect of your practice's success.

Methods for Determining Practice Valuation

The best way to determine your practice's value is by using a number of different methods, then averaging the results to achieve an appropriate dollar amount. This is important because the results of different methods will probably vary a great deal. Let's look at several of the methods commonly used by appraisers.

The most simplistic method is comparing your practice to others that are on the market in your area. This is similar to how housing costs are calculated by those in the real estate business where the value of one house is determined by the selling prices of other comparable homes in the neighborhood. While this may work for realty, it does not always provide the most accurate results.

The problem is this method does not take into consideration any intangibles which may affect the success of a practice. While your practice may have a good reputation, the ones for sell may not. While your practice may cater to children, the ones on the market may target senior citizens or other patient groups. These are all factors which influence the value of your practice. This is why you should not rely on a single method, particularly not this method. Although it may give you a fair starting point, it does not take into consideration enough of the other important factors.