The answer often depends on who wants to know and why—and is dictated by a valuation of your practice. Regardless of the reason, you can’t afford to not get it right.
As a Certified Valuation Analyst and medical practice consultant, I focus exclusively on healthcare valuations. Here are a few things you should know about the valuation process.
The Reasons for a Medical Practice Valuation
As I mentioned, there are several reasons why you need medical practice valuation. These include the following:
- You’re selling your practice to a third party.
- Your practice is being acquired by a hospital or other entity
- You’re retiring or withdrawing from your practice.
- One of your partners is retiring or withdrawing from the practice.
- You or a partner are getting a divorce.
- Your practice is merging with another practice.
- An associate physician is buying into your practice.
- You’re facing litigation.
- You’re engaging in tax and estate planning.
Physician Practice Valuation Goals
The goal of a physician practice valuation is to place a quantifiable value (i.e., a number) on a practice. The manner in which a medical practice valuation is performed depends on the reason behind it; the number it provides is often a starting point. For instance, in the event of a divorce valuation, the number will be dependent on state laws. For the sale of a practice, the seller would typically add a premium to the valuation number to arrive at a selling price.
A Complete Valuation of Your Physician Practice
While there are set methodologies used to ascertain values, this is only part of the valuation process. It’s important to also address the practice’s unique circumstances that set it apart. In other words, physician practice valuation is an art and not a science.
First, we determine the type of valuation engagement you’ll need: Will you require a calculation of value, or a conclusion of value? A calculation of value is sufficient for when you just need a number, such as for estate planning or associate buy-in. A conclusion of value involves issuing a larger report. This type of valuation is normally used in litigation and practice sale engagements.
Next, I’ll provide you with a data-gathering checklist. After analyzing the requested practice data and current state of the healthcare industry and, if necessary, holding discussions with your physician owner(s) and management, I apply three methods to the valuation to arrive at the appropriate value: the income approach, the asset approach, and the market approach. (For a calculation of value engagement, you and I will work together to determine which valuation methods to follow.)
At the end of any valuation, I make sure you agree with the number.
Proven medical practice valuation solutions for you.
Just as physician practices aren’t your typical business, healthcare valuations aren’t your typical valuations. If you’re facing a valuation issue, I can help. Contact me today.
A valuation involves determining the type of engagement needed, whether it’s a calculation of value for simpler needs or a conclusion of value for comprehensive reports. After gathering necessary practice data and industry information, the data is analyzed, and discussions with physician owners may be held. Three valuation methods—income approach, asset approach, and market approach—are applied, ensuring the final valuation number reflects the practice’s unique circumstances.
The goal of a physician practice valuation is to establish a quantifiable value for the practice, which serves as a starting point for purposes like divorce settlements, sales, or mergers. The context of the valuation influences the final number, with factors like state laws impacting divorce valuations and sellers adding premiums for sales.
Your medical practice might need a valuation for various reasons, such as selling to a third party, being acquired by a hospital, retiring, or dealing with a partner’s retirement. Other reasons include divorce settlements, mergers, associate physician buy-ins, litigation, and tax or estate planning. Accurate valuations are essential to ensure fair outcomes in these scenarios and it is important to work with a valuation expert such as Reed Tinsley.
Typically, a practice will need a valuation only once. However, certain situations, such as buying out a partner’s interest or multiple doctor-owners leaving the practice, could require multiple valuations.
If you need a physician practice valuation, contact me at 281-379-5988, submit the form below, or email me directly at reedt@rtacpa.com.