Business Valuation Blog | Understanding Buying / Selling a Company

The Many Steps to Valuing a Medical Practice

Posted by Business Valuation Specialists LLC on Nov 16, 2016 10:00:00 AM


When you run a healthcare office, you know there are a lot of expenses and a lot of areas that are different than other businesses. But how does that affect valuing a medical practice and what you can expect in the end? We've taken a good look at the methodologies used in business valuation of a medical practice as are used by certified business appraisal specialists and have prepared the basic steps for your review in this post.

The many steps to valuing a medical practice

Medical offices have many different concerns. There's expensive equipment. You have highly-trained staff that may not be willing to stay with a practice when it sells. Because healthcare is highly personal, many patients may be willing to stay with your practice if there are fewer changes and a transition period of several months to a year or more. What is that time worth to you and your staff? Have you built a name for yourself in the community? What about cash flow and brand recognition in the region? Do you specialize in a particular area that will make it easier or more difficult to find a buyer? You want more than just the value of your business assets, right? As you can see, it's not as simple as looking at a balance sheet and hoping you'll get what's listed plus a little more.

When it comes to most businesses, business appraisals will look at income, similar businesses that have sold, the value of the business assets and goodwill, and will then adjust those figures accordingly to determine a fair value. But in medical offices, it's not that simple. You'll want to start by contacting an appraiser who has experience in medical office valuation. That way you know they'll have experience in determining your business' value. The appraiser will need to take a good, hard look at your finances and cash flow, which can include lag from insurance company payments and bad debt, so make sure you get your records up to date.

What about equipment and staff? When equipment is aging, its value decreases. Are you going to replace it before you leave? Will you or the new owner be responsible for the cost of replacement? If you've mentioned to your staff that you're considering selling, have some of them mentioned that they'll leave at the same time? Many patients have as much contact, if not more, with your staff than with the doctors who are treating them, so don't undersell that value. 

One area to take into consideration is if your office offers specialty or general services. It's much easier to find someone to take over a general practitioner's office, but a specialist's office will often sell for more due to the higher cost of equipment, higher level of skill for the employees and the higher income that is expected. At the same time, it's important to recognize that many buyers may want to take a general practice office and adapt it to their specialty, especially if it's not currently offered in your geographic area.

As you can see, valuing a medical practice takes a lot of information and specialty knowledge to get you the information you need.

Topics: valuing a medical practice