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Practice Valuations for the Buyer

Are you buying a practice without a broker?

There are many reasons to use a seasoned professional practice broker when buying a practice. It is my recommendation that every buyer seek counsel from a professional practice broker, legal, tax, and other professionals. However, you may find yourself in a situation where you are buying a practice directly from the seller and choose to "go it alone." Before you make the leap, get a second opinion.

Are you paying too much?

Often, selling doctors have an over inflated value of their practice. Quite simply, they ask more than it is worth in today's market. The old rule of thumb "a practice is worth one year's gross" simply isn't true any more. Using any one formula or rule to value a practice is a setting you up for a potentially costly mistake.

Do you know what to look for?

Unless you have had exposure to numerous practice financials, sales data, and industry trends, it is unlikely a buyer will be aware of all the nuances of practice acquisition. You might have to spend hundreds of hours doing research just to figure out what to look for, and what to ignore. Are you checking for liens against the business as well as the real estate? Did you adjust the purchase price to compensate for the doctor's spouse working part-time for free? Are there inconsistencies between the P&L and the tax return? How do you know if the real estate is overvalued relative to the practice income? Does the practice warrant a top dollar price, or only a middle of the road price?

Don't be burned by outdated pricing rules!

Using any one formula or rule to determine practice value is a setting you up for a potentially costly mistake. There are numerous factors that influence practice value: equipment, goodwill, profitability, financial history, staffing, buyer debt service, etc. The old rule of thumb "a practice is worth one year's gross" simply isn't true any more. Where does your practice stand? If real estate is involved then you have to determine if the practice income can support the fair market value of the real estate.

Can you see the forest for the trees?

Sometimes a person is so close to something it is difficult to form an objective opinion. Medical practices are no exception. Unless you have had exposure to numerous practice financials, sales data, and industry financing trends, it is unlikely a person will be able to determine a fair market value in today's practice marketplace. You might have to spend hundreds of hours doing research just to figure out what factors will make a significance difference to buyers and their lenders. Did you adjust the sales price to compensate for the doctor's spouse working part-time for free? Did you adjust to normalize for the amount of vacation and hours worked? Are the practice financials sufficiently documented to attract a buyer? Do you know if the practice income after debt service will support the value of the real estate? Do you know what "add backs" can be used in your situation to maximize the sales price? How much will a buyer pay for "potential"? Does this practice warrant a top dollar price, or only a middle of the road price, or something less? Can a buyer get financing to buy your practice?

Pick the valuation service you need

We offer a range of valuation services to allow you to choose the most cost effective solution tailored to your needs and budget. The difference between these services is related to the time involved, the extent of the investigation into the business and report detail.

2nd Opinion Service

The 2nd Opinion Service ($1,875) is for someone that wants an economical “ballpark” practice value. This report reflects the appraiser’s limited opinion as to practice value. It is considered a preliminary report under the Standards of the Institute of Business Appraisers, by which the analysis and investigation is intentionally limited as a cost and time saving measure. This service includes a 7-15 page written opinion of what the practice would likely sell for on today's market, and a description of selected practice characteristics and where the practice is over performing or under performing. We use the last 2-3 years of business financial data and information from proprietary questionnaire, and two valuation approaches to determine Fair Market Value. The 2nd Opinion Service is ideal for

smaller practices where more expensive solutions are not cost effective
sale to an associate already familiar with the practice
retirement planning or insurance purposes
periodically tracking practice value
for a buyer/seller simply looking for a third party opinion or sanity check and does not require the greater accuracy provided by the other services
for internal planning (e.g., retirement or estate planning) where you just need to keep a pulse on practice value

Practice Opinion Letter

The Practice Opinion Letter ($3,400) is for someone that wants a more detailed analysis and conclusion, but desires to reduce the cost of valuation by using a short-form report. This 30-35 page report uses the last 5 years of business data and information from a proprietary questionnaire, and uses three valuation approaches (Market, Income, and Asset Approaches) to determine value. The normal standard of value used is Fair Market Value, but may be requested for other standards of value that might be appropriate for divorce, oppressed shareholder, or strategic investor purposes. Additionally, upon request we provide (1) a 20+ page demographics report, and (2) a due diligence checklist outlining important steps needed as part of a practice sale, and (3) a list of common mistakes in buying/selling a practice and how to avoid them. The Practice Opinion Letter is ideal for

those looking to sell or buy a practice where they are not currently an associate
those who need a more detailed analysis for decision making
those who might want review and input from an advisor or CPA
non-contentious divorce or partnership situations

Comprehensive Practice Value

The Comprehensive Practice Value ($5,000 - $ 10,000) is for someone that wants a long-form report with detail sufficient to permit the reader to reasonably replicate the appraiser's procedures. This 80 – 120 page report is based on essentially the same analysis as that used in the Practice Opinion Letter, but the report fully documents the analysis and intermediate steps and rationale behind decisions. Additionally, this service usually includes a personal site visit and owner/management interview process, whereas the 2nd Opinion Service and Practice Opinion Letter do not include a site visit in the advertised price. For those wanting a Comprehensive Practice Value we prefer to discuss the situation with both you and your attorney/CPA to ensure the report will meet your needs. In general, we prefer not to take engagements where we will be required to testify in court. If you anticipate this need, contact us to discuss our availability and expert witness support fees. The Comprehensive Practice Value is recommended for

purchase/sale of practices exceeding $2M in gross revenue
those needing a valuation for divorce, estate, tax purposes, litigation, partnership dispute
those needing the replicable detail not provided by the other services

Hourly Consulting

We also offer Hourly Consulting for those when our standard services or reports don’t fit your situation; or if you don’t require a formal report. Our hourly consulting rate is $275/hour.

Valuation Critique

Valuation Critique ($1,450): We will review and critique another written valuation report. Perfect if you have been given a valuation report and want a second opinion. This is not an independent opinion of value, but rather a sanity check on what has been done before. We'll tell you if we find the conclusions and methods cited in the report to be reasonable or off track. Is the valuation credible? Did they review the right information from which to draw their conclusions? Why wonder? Get a second opinion today!

Get your opinion of value today!
Call now. Before it is too late! This is too important for guesses.
Contact MPB to discuss your valuation need