A second method of medical practice valuation rectifies the problem with the first method. In thismethod, your practice’s value is calculated by adding up the separatevalue of all of your assets – both tangible and intangible – andarriving at a figure. Tangible assets, such as your medical equipment,can be valued fairly easily. The trick comes when you try to put adollar amount on those intangible assets, such as goodwill. Assessingthe value of goodwill will be discussed later but realize that its oneof the most important assets your practice has.

Besides the obvious assets like your building, your assets also includeyour cash flow and your accounts receivable. Cash flow shows how muchmoney is coming into the practice regularly. Accounts receivableincludes the amount of money you are still owed but have not yet beenpaid. Both of these will also factor into your practice’s value.However, if your accounts receivable contains numerous unpaid balancesfrom patients, this may adversely affect the value of your practice.Potential buyers do not want to involve themselves in a practice whichserves non-paying customers. 

Appraisers may also be more interested in your cash flow expectationsin determining your practice’s value. In this method, they look at whatyou are expecting to earn in the coming years. If significant changesin the medical industry may help or hinder the growth of your practicein the near future, these changes are also taken into consideration.Using this information, appraisers are able to estimate the currentvalue of your practice.

The drawback of this method is that its the most difficult for you toimplement on your own. There are so many factors to consider thatrelying on a professional appraiser for this type of estimate may be awiser choice.

Assessing the Value of Goodwill

Goodwill is a valuable asset in any practice because it includes thestrength of your reputation, the likelihood of attracting new clients,the ability to retain clients, etc. All of these factors contribute tothe continuing success of your practice whether it remains in yourpossession or switches hands. 

The hard part is that some appraisers will not take goodwill intoconsideration when calculating a practice’s value. Because putting adollar price on goodwill is complicated and debatable, some appraisersprefer to stick to assessing only tangible assets. By doing that, yourappraiser is undervaluing your practice.

Goodwill can be assessed, however. One method is by referring to theGoodwill Registry. This registry uses a survey of medical practices todetermine the average percentage of revenue that can be contributed togoodwill. The problem is that the percentage is not based on acomprehensive country-wide survey, and the information is not updatedregularly. In fact, some of the figures in the registry can be morethan a decade old. 

Topics #goodwill #medical practice value #physician practice #valuation