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Physician Practice Medical Practice Valuation Putting a Price on Your Practice | Putting a Price on Your Practice |
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| Written by Amy Jorgensen | ||||||
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A second method of medical practice valuation rectifies the problem with the first method. In this
method, your practice's value is calculated by adding up the separate
value of all of your assets – both tangible and intangible – and
arriving at a figure. Tangible assets, such as your medical equipment,
can be valued fairly easily. The trick comes when you try to put a
dollar amount on those intangible assets, such as goodwill. Assessing
the value of goodwill will be discussed later but realize that its one
of the most important assets your practice has.
Besides the obvious assets like your building, your assets also include your cash flow and your accounts receivable. Cash flow shows how much money is coming into the practice regularly. Accounts receivable includes the amount of money you are still owed but have not yet been paid. Both of these will also factor into your practice's value. However, if your accounts receivable contains numerous unpaid balances from patients, this may adversely affect the value of your practice. Potential buyers do not want to involve themselves in a practice which serves non-paying customers. Appraisers may also be more interested in your cash flow expectations in determining your practice's value. In this method, they look at what you are expecting to earn in the coming years. If significant changes in the medical industry may help or hinder the growth of your practice in the near future, these changes are also taken into consideration. Using this information, appraisers are able to estimate the current value of your practice. The drawback of this method is that its the most difficult for you to implement on your own. There are so many factors to consider that relying on a professional appraiser for this type of estimate may be a wiser choice. Assessing the Value of GoodwillGoodwill is a valuable asset in any practice because it includes the strength of your reputation, the likelihood of attracting new clients, the ability to retain clients, etc. All of these factors contribute to the continuing success of your practice whether it remains in your possession or switches hands. The hard part is that some appraisers will not take goodwill into consideration when calculating a practice's value. Because putting a dollar price on goodwill is complicated and debatable, some appraisers prefer to stick to assessing only tangible assets. By doing that, your appraiser is undervaluing your practice. Goodwill can be assessed, however. One method is by referring to the Goodwill Registry. This registry uses a survey of medical practices to determine the average percentage of revenue that can be contributed to goodwill. The problem is that the percentage is not based on a comprehensive country-wide survey, and the information is not updated regularly. In fact, some of the figures in the registry can be more than a decade old.
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