Key Principles For Assessing Practice Value
- Volume 21 - Issue 12 - December 2008
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Moreover, be very wary if the valuation is not done in an independent manner or, worse, performed for both parties simultaneously.
Essential Insights On Professional Fees And What You Can Expect
Of course, it is almost impossible to answer concerns regarding fees without specific information. The cost of a valuation can range from $0 to $50,000 for an onsite team of experts for behemoth practices and ambulatory surgery centers. Keep in mind that in most cases you want to ensure the value determination will stand up to IRS scrutiny so the $0 rule of thumb approach is not an option.
However, most reputable firms use a blended fee schedule of fixed and hourly rates (plus expenses). Podiatrists should expect to spend approximately $5,000 to $10,000 for an average sized practice and a limited appraisal that is completely suitable for most internal activities.
External appraisals or poorly aggregated financial information, onsite reviews and litigation support services incur additional costs. However, most doctors find the money well spent. Expect to pay a retainer and sign a formal professional engagement letter.
Finally, once the practice price is agreed upon, sales contract terms and agreements present a plethora of financing challenges for both parties to consider. For example, one must negotiate bank loans (if they are even available), payment rates and length, personal promissory guarantees, down payment offsets, earn-out arrangements and Uniform Commercial Codes.
Do not be surprised if a sales broker does not consider the aforementioned issues as the modern health era emerges. Most agent-appraisers are predominantly concerned with earning commissions by working both transaction parties and may not represent your best interests. Also be aware that they are usually not obliged to disclose conflicts of interest and do not provide testimony as a court approved expert witness.
However, it is a fait accompli that medical practice worth is presently deteriorating. As the population ages and third-party reimbursements plummet, doctors are commoditized and traditional retail medicine is replaced by more efficient wholesale business models like workplace health clinics. The recent subprime mortgage default fiasco, credit freeze, potential tax reform law expiration and the political specter of a nationalized healthcare system only add fuel to the macroeconomic fires of uncertainty.
As a result, a good medical practice is no longer good business necessarily and retiring doctors can no longer automatically expect to extract premium sales prices. Moreover, uninformed young physicians should not be goaded to overpay.
Dr. Marcinko is a nationally known speaker and the founding partner of www.MedicalBusinessAdvisors.com. He is also the Academic Provost for www.Certified MedicalPlanner.com and is the Editor-in-Chief of www.Health CareFinancials.com.
Ms. Hetico is a Visiting Adjunct Professor in health care administration for the University of Phoenix Graduate School of Business Management in Atlanta. She is the Managing Editor for www.Health DictionarySeries.com and a Senior Educational Advisor for www.PodiatryPrep.com.
The authors acknowledge the assistance of Rachel Pentinmaki, RN, MHA,CMP and Mackenzie H. Marcinko in the preparation of this article.