Are you considering the sale of your practice as an important part of your retirement income? Are you considering selling off part or all of your practice? Are you considering purchasing somebody else’s practice? If so, this management pearl may help you to decide the best course of action.
The sale value of the practice is based on two principles: 1) Can it generate enough gross income to pay the bills, and 2) can it generate enough net income for the purchaser’s desired lifestyle. If 1) is not satisfied, which is rare, the practice isn’t worth buying. More importantly, if 2) is not satisfied, the practice is worth less to the purchaser, since the purchaser’s net will be paying for that practice for years.
There are many methods for calculating the value of a practice, but they can be reduced to two: 1) Use a quick and dirty “%” method or a more accurate “Comprehensive” method. Both are heavily based on practice gross and doctor net.
The % method is based on what you (or your lawyers, accountants, consultants, etc.) feel is a typical percentage to use in your area. See the attached Excel spreadsheet and click on the “%-Value” tab at the bottom to do a quick calculation.
The comprehensive method is based on statistics that make your practice more or less valuable to the buyer. See the attached Excel spreadsheet, click on the “Comprehensive-Statistics” tab and fill in the data to obtain an accurate value, which is summarized in the “Comprehensive-Value” tab.
If considering a partner or associate you might find the “Ultimate Practice Transition Kit” of value to find the best partner/associate for you.
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