If you are considering selling your practice, you need a 3rd party valuation firm that specializes in valuing businesses to determine the selling price of your practice. Most other professionals such as business brokers, attorneys and CPA’s either don’t have experience with or access to nation-wide sold practices transaction data, the methodology used for asset based, income based and market based valuation calculations, or they are not in daily touch with the current lending market. The price and profitability of your practice must be an amount sufficient to support any acquisition debt service, a new owner’s compensation package and periodic additions to the working capital needs of the practice for growth.

A valuation identifies the total fair market value or selling price of your practice.  

You will receive separate values for the tangible and intangible assets of your practice. Since tangible assets are usually depreciated for tax proposes, the fair market value of all assets to be included in a sale is based upon today’s prices; not original purchase cost like accountants use. The intangible assets represent the “sweat equity” of the practice including goodwill, patient files and referral sources and the efficiency and profitability of your practice. The sum of tangible and intangible assets included in the sale equals the fair market value or selling price of your ‘practice.

A valuation helps you make an educated decision regarding the sale of your practice.

You may have a “hunch” about the selling price of your practice based upon speaking with colleagues and other professionals or reading about revenue/profitability multipliers but a “hunch” is not a reliable method for making the decision to sell or not to sell. You need a solid number concerning the amount of money for which your practice will sell in today’s market. Then you can make a fully informed decision to sell or not to sell your practice.

A valuation enables you to price your practice with confidence.

Once you know the selling price of your practice — you are in a very strong negotiating position. If you receive offers below your price, you can confidently stand your ground — knowing that the owner’s cash flow will support acquisition debt service and give the potential buyer a solid return on their investment, as compared to other investment opportunities the buyer may be evaluating.

Article contributed by Jeannette Engel, Business Broker at unionbaygroup.com, or (206) 783-1717.

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