Professional Practice Valuations
Professional practice valuations, including medical, dental, accounting, insurance and other service industry businesses, are performed for a variety of reasons, including the following:
- Purchase/sale
- Partner buy-in or buy-out
- Retirement planning
- Divorce
- Merger with another professional business or practice
- Partner/stockholder disputes
- Tax purposes
- Bankruptcy
- Litigation support
- Gift tax purposes
Buying or Selling a Professional Practice
At some point, the professional practice owner will decide they are ready to leave the business or practice. A key employee, or a competitor, may indicate an interest to buy it, or perhaps a son or daughter will take it over.
The professional practice differs from other business types and presents unique challenges. The value of a professional practice is generally the sum of the physical assets and the intangible assets – which are typically the greatest contribution to the practice value. The intangible assets of a professional practice are called ‘goodwill’ and can be difficult to value.
- If the professional underestimates the value. Professional practice owners who think their practice is worth $X when it is actually worth $2X do not receive value for years of building their reputation and systems.
- If the professional overestimates the value. Professional practice owners who think their practice is worth $X when it is actually worth $1/2X will create a difficult situation for themselves. They overestimate how much will be available for retirement. They also risk killing the sale of their practice by demanding too high a price.
Valuing a Professional Business
There are dozens of factors that influence a practice value. When a valuation or appraisal is performed by a Murphy Valuation Service expert, the multiple unique factors found in your professional practice will be compared to industry benchmarks and taken into account in determining a professional practice value. Some sample factors are shown below:
- Profitability
- Equipment and EHR
- Fee reimbursement trending and procedure mix
- Technology advances
- Staff (off-balance sheet asset to a professional practice)
- Payer Mix
- Financial History
- Referral Base
- Personal Goodwill
- Enterprise Goodwill
- Hours worked
- Location
- Facility
- Competition
