Practice Sales and Valuations

Medical, Dental, Optometry, Chiropractic, Etc.

Video 1 title

This is an example of a Vimeo video, just edit the change the video link, edit the title and this description and if you like, you can also link the continue button to a web page....

Video 2 title

This is an example of a Vimeo video, just edit the change the video link, edit the title and this description and if you like, you can also link the continue button to a web page....

Video 3 title

This is an example of a Vimeo video, just edit the change the video link, edit the title and this description and if you like, you can also link the continue button to a web page....

Video 4 title

This is an example of a Vimeo video, just edit the change the video link, edit the title and this description and if you like, you can also link the continue button to a web page....

Professional Practice Sales

Medical  Dental  Optometry  Chiropractic  Phys Therapy  etc.

Practice Valuations

Practice appraisals for all purposes  (buy/sell, divorce, tax, retirement planning, etc.)

Healthcare Practice Specialists

We specialize in practice sales and valuations

Time For a Change?

Call today for professional advice

themed object

Latest News

Specializing in Practice Sales and Valuations
Bookmark and Share
get in touch

Practice Valuations

Appraisals for all purposes: Buy/Sell, Divorce, Planning, Partner Buy-in or Buy-out, and more.

 

 

Medical Practice Valuations

MPB offers a variety of valuation reports and services, including litigation support & expert witness testimony for divorce, oppressed shareholder, partnership dispute, and other legal matters. For information on our appraisal services click on the link(s) below:

Why are Practices Valued?

Practice valuations are performed for a variety of reasons, including the following:

  • purchase/sale
  • partner buy-in or buy-out
  • divorce
  • merger with another practice
  • partner/stockholder disputes
  • retirement planning
  • tax purposes
  • bankruptcy
  • eminent domain actions
  • etc.

What's the Difference between a Valuation and an Appraisal?

The terms valuation and appraisal are used interchangeably.  Both refer to determining the value of a business or practice.  In recent years the term ''valuation ' has become more popular.  However, using 'appraisal' is equally acceptable.  The term 'evaluation' is however an incorrect use of the term, and is often confused with the correct terms (i.e., valuation or appraisal).  A trained valuation professional would never use the term 'evaluation', and is usually an indicator of lack of formal valuation education.

What do Practices Sell For?

There is no single magic formula to value any business.  And professional practices are generally more difficult to value than most businesses as they tend to have a wider range of values.  Though people frequently ask for a rule-of-thumb, even knowing they are imprecise and may not apply to your situation.  Here are a couple rules-of-thumb:

  • Most practices will sell for between 1x to 4x annual net earnings.
  • Most practices will sell for between 20% to 80% of annual gross income.

The problem with rules-of-thumb is, "How do you know if your practice is the norm or the rule-of-thumb may not apply to you.  Also, different practice types have significantly different average price ranges.  The average practice range/ratio is significantly different for a primary care medical practice when compared to a medical specialty practice, or a general dentistry practice, or an optometry practice.  Even within a particular practice type, we often see practices sell for ± 2 standard deviations above or below the average sales price.  This means that a practice that might have an average sales price of 30% of annual gross income might have a common price range of 10% to 50% of annual gross income.  Further, there can be outliers even above/below this range.  Will your practice sell above or below the average?

Why is the Price Range so Wide?

There are dozens of factors that influence practice value.  A key factor is practice type.  Average pratice price ratios vary greatly between practice types: medical, dental, chiropractic, optometry, or even between a family practice and a cardiology practice.  Beyond practice type, numerous factors influence value.  Some sample factors are shown below:

  • Profitability.  A practice netting 35% of gross will sell for less than a practice netting 50% of gross.  How do you compare with your industry standard?
  • Location.  Practice in rural or particularly high cost of living areas may sell for less.
  • Facility.  Practices located in larger, modern facilities tend to sell for more than practices located in cramped, run down facilities, on the bad side of town.
  • Equipment.  Practices with lots of new, expensive, modern equipment tend to sell for more than practices with old equipment or very little equipment.  Have you implemented an EMR system yet?
  • Hours worked.  Are you working 20 hours per week or 50 hours per week to generate $XXX,000 of revenue.
  • Reimbursement projections.  How is fee reimbursement trending for your specialty?  What is your procedure mix?
  • Technology advances.  Have recent technological advances made your equipment or procedures performed obsolete?
  • Staff. Do you have well-trained staff with good tenure, or poorly trained staff with high turnover?
  • Payer Mix.  Is yours an all cash practice, or all Medicaid, or a blend of traditional insurance and PPO, or captitation?
  • Financial History. Is your practice income increasing or decreasing?  Is the current growth rate sustainable?
  • Referral Base.  Is your referral base broad and deep? How well will new patient referrals transfer to a new buyer?
  • Personal Goodwill.  How much of the practice revenue is tied to the doctor's individual reputation or personality?  Will patients/referrals accept another doctor?
  • Sale Terms.  Will it be a stock sale or an asset sale? What is included or excluded from the sale?
  • Financing.  What type of financing is available? Commercial loan or seller carry? How much down payment? Interest rates?
  • Competition.  Did a competitor just open down the street? Are you the only game in town?  Is the hospital competing with you?

At Medical Practice Brokers, LLC we consider over 40 different factors when valuing your practice.

 

Who does Valuations?

There are several categories of people that perform valuations:

  • business appraisers
  • accountants (CPAs)
  • business brokers
  • college professors
  • commercial real estate appraisers
  • investment bankers

Each category has it advantages and disadvantages. Although, the better appraisers tend to be educated in business valuation and also have an understanding of the various issues involved in valuing a business for the stated purpose (e.g., buy/sell, divorce)

Why not just have my CPA do it?

Accountants often do not have significant experience or training in performing valuations.  The vast majority of CPA's nationwide have little or no training or expertise in business valuation.  While they are very familiar with financial statements, many are uncomfortable making the forecasts that crucial to valuation.  Further, their experience tends to be in the tax value, which is usually quite different than Fair Market Value or Fair Value is in divorce.  They usually do not have real world sales experience to understand how terms of sale, or loan requirements, or current buyer trends will alter practice value.

How about a general business broker?

General business brokers most often use generic rules-of-thumb to list and sell businesses.  However, rules-of-thum can be dangerous as they do not take into consideration the specifics of a particular situation.  Also, many business brokers lack the formal valuation education and have limited understanding of business financials.  Finally, most general business brokers are not familia with professional healthcare practices and have difficulty assessing the variations unique to professiona practices.  Most business brokers will just tell you that a practice will sell for X times net or gross--this usually will give you a dramatically wrong answer to practice value.

How about those Valuation Software Programs?

Low-end software-driven products should be approached with caution.  In general, valuation programs are designed to give quick, and not necessarily accurate answers.  Futher, by design, they deny the user the expertise of a qualified appraiser's many years of valuation wisdom.  While valuation software tools can be an effective time saver in the hands of a trained professional, their use is problematic when used by individuals or untrained part-time appraisers who do not understand the appraisal process or the tool itself.  The old axiom of 'Garbage In - Garbage Out' often describes the result.  You may find it interesting to know that most certified business appraisers rarely use purchased valuation software as the crucial element in valuation is the experienced interpretation of information.

Valuation Organizations

There are four organizations in the United States that certify business appraisers:

  1. Institute of Business Appraisers, Inc. (IBA)
  2. American Society of Appraisers (ASA)
  3. National Association of Certified Valuation Analysts (NACVA)
  4. American Institute of Certified Public Accountants (AICPA)

The below table compares/contrasts the certification credentials for each of these organizations. For better quality appraisals, on finds that appraisers hold the more difficult to obtain certifications (i.e., Certified Business Appraiser (CBA) from the Institute of Business Appraisers or the Accredited Senior Appraiser (ASA) in business valuation form the American Society of Appraisers) generally do high quality work and are well regarded in court.

A Comparison of Business Valuation Certifications

Requirement

IBA
CBA

ASA
ASA/AM

NACVA
CVA

AICPA
ABV

Education

College/Equivalent

College/Equivalent

College/Equivalent

College/Equivalent

Continuing Professional Education

Yes, 24 Credits every two years or equivalent

Yes, 100 Credits every five years

Must maintain CPA credential.  Other classes in business valuation are required to maintain designation.

60 Credits and involvement in 5 reports every 3 years

Report Review Requirement

Yes, 2 Reports rigorously reviewed by leading Business Appraisers

Yes, 2 Reports rigorously reviewed by leading Business Appraisers

None other than portion of qualifying exam.

None

Experience

Minimum of two assignments--two peer reviewed reports

5 Years for ASA; 2 years for AM

No Minimum

Involved in 10 Business Valuations

Qualifying Exam

Proctored, Closed Book

Proctored, Closed Book.  Also must pass an Ethics Exam.  A USPAP exam must be passed every five years

Take-Home, Open Book until 1999; Proctored, Closed Book starting in 1999.  Exam includes a report writing portion.

Proctored, Closed Book

Organization has Professional Standards

Yes, for over ten years

Yes, for over ten years

Yes, since 1995

Under Consideration

Our People

Seveal MPB Brokers and affiliates are members of, and/or are accredited by professional valuation organizations listed above.  Additionally, our experience in practice sales/brokerage gives us a rare perspective as to true practice fair market values.  All of our brokers have access to our internal network of sales and valuation expertise.  Our team also includes an appraiser credentialed by the Certified Machinery and Equipment Appraisers (CMEA).

Types of Practice Appraisal Reports and Services

MPB offers a variety of practice valuation services.  For more information click on the appropriate link below:

NEED A VALUATION?  Contact us about our Valuation Services

 

Sign up for our information packed quarterly e-mail newsletter

 

 

back to top