Knowing the value of your practice may not seem as important astreating patie nts and hiring dependable, knowledgeable staff, but theday may come when such information becomes critical.
Understanding howto 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. Usinga combination of these methods, as many professional appraisers would do, may be the best route to pinpointing an appropriate value.
Online Tool: A simple value estimator
Why Medical Practice Valuation is Necessary
Maybe right now your main concern is just carrying on with the day today operations of your practice, but your future may be different. Asuccessful practice could be targeted for buy-out by a hospital, forexample. In such a case, you would need to know what your practice isworth in order to get a fair deal and an appropriate salary.
Medical practices also often merge either to streamline costs or tooffer more services to patients. Mergers require each party tounderstand the value of their practice before entering into a deal,plus if you are the one wanting to pursue a merger then your practice’svalue could be a bargaining tool.
The value of your medical practice could also become an issue if youget divorced. Although it’s not something you may want to think about,physicians do have a high rate of divorce and your practice would beconsidered an asset. Without knowing how to value your practice, youmay end up losing more in the divorce because your spouse’s appraisercould over-inflate its value.
In addition to all of these “what if” scenarios, knowing the value ofyour practice has the practical benefit of giving you a concrete way toevaluate its success. A practice that is doing well should continue torise in value. If you only base your concept of success on yourpractice’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 ofdifferent methods, then averaging the results to achieve an appropriatedollar amount. This is important because the results of differentmethods will probably vary a great deal. Let’s look at several of themethods commonly used by appraisers.
The most simplistic method is comparing your practice to others thatare on the market in your area. This is similar to how housing costsare calculated by those in the real estate business where the value ofone house is determined by the selling prices of other comparable homesin the neighborhood. While this may work for realty, it does not alwaysprovide the most accurate results.
The problem is this method does not take into consideration anyintangibles which may affect the success of a practice. While yourpractice may have a good reputation, the ones for sell may not. Whileyour practice may cater to children, the ones on the market may targetsenior citizens or other patient groups. These are all factors whichinfluence the value of your practice. This is why you should not relyon a single method, particularly not this method. Although it may giveyou a fair starting point, it does not take into consideration enoughof the other important factors.