Medical Practice Appraisal

Practice appraisals are a crucial first step when planning a practice transition. Before you can confidently place your medical practice on the market, you should acquire an accurate valuation of its worth. At Texas Practice Sales, we understand that many factors contribute to the overall value of your practice. Our comprehensive medical practice appraisal and prospectus provides an analysis of your practice’s total worth by analyzing your staff resources, location, equipment, fee structure, and patient base as well as many other factors. In addition, we run sophisticated income and cash flow analysis of each practice appraised. Using the sales information on previous transitions helps us accurately gauge the market value of your practice. In some cases, we may identify ways to improve your practice value during the appraisal process. Even if you are not yet ready to sell your practice, we also provide a limited valuation that is helpful in planning for a future medical practice transition.

A thorough and accurate practice appraisal requires meticulous data collection, market research and analysis. We caution you against receiving a complimentary appraisal from brokers that require you to sign a listing agreement in return. These complimentary appraisals are often incomplete or inaccurate and could adversely affect your transition objectives. It is important that you know the value of your practice before you sign a listing agreement and before you have a broker market your practice for sale.

Your medical practice transition begins with a trustworthy appraisal of your most valuable professional asset. Contact us today to discuss the valuation of your practice.

Here are a few questions to consider about Medical Practice Appraisals:

Is there a certain ratio or formula to estimate practice value?

There are several factors such as total active patient count, patient payment breakout (e.g., FFS, PPO, Medicaid, etc.), total overhead, and location that cannot be factored into a simple rule of thumb. Knowing the national average sales price (67 percent of last year’s gross collections) does very little to establish a practice value.

What are the different approaches when appraising a medical practice?

There are three formal approaches used to appraise a medical practice: the Asset Approach, the Income Approach, and the Market Approach. Each approach uses different methodologies. The appraiser’s experience, judgment, as well as the unique characteristics of that practice should determine which approach is best suited to establish the final price.

The Asset Approach

assesses both a practice’s tangible and intangible assets. The tangible assets, such as the practice’s equipment, are difficult to accurately appraise due to their multiple values. For instance, a single piece of equipment may hold an acquisition price, a book value, an in-office value, and a street value. The intangible assets, such as a medical practice’s goodwill, are even more difficult to appraise using this approach.

The Income Approach

often uses a Single Period Capitalization Method to determine how much a potential buyer can afford to pay for a medical practice. In this method, the appraiser calculates a purchase price by reviewing the practice’s revenues, expenses, debt service and the purchaser’s income.

The Market Approach

uses sales information on similar practices to determine the market value of a practice. Using the price/gross ratio, the market approach compares a practice’s location, cash flow, equipment, office amenities and fee structure to a database of sales records. To calculate an accurate valuation, the appraiser must have access to a large database with extensive information on comparable practice sales.

Which approach is best for appraising a medical practice?

There is not a single approach that is best for appraising a medical practice. An experienced appraiser will use the appropriate approach based on the age, location, and collections of the practice, as well as the seller’s urgency to sell. The asset approach is usually reserved for an inactive practice or a new practice that has yet to generate significant earnings. The final result for most practice valuations is the lower result of either the market approach or the income approach.