A Beginner’s Guide To Eye Care Practice Valuation

valuation

Feeling in the dark about practice valuation as you contemplate a buy-in, buy-out, sale, merger, or exit strategy?

Valuation can feel like a blizzard of numbers or a black box, no matter which side of the transaction you’re on, observes Daniel Bernick, JD, MBA of The Health Care Group. Learning some valuation basics can give you the tools you need to choose an appraiser, talk knowledgably with consultants and lawyers, and make business decisions with more confidence, Bernick told AAO2015 attendees.

 ‘The Big 3’

An eye care practice’s value comes from things in three general categories that cost a lot to “make” if you’re starting from scratch, Bernick explains.

1. Hard assets: Also called tangible assets, these include equipment, physical improvements, your building or real estate (if you own it), inventory, supplies and software.

2. Accounts receivable: Money owed to your practice by patients or insurers.

3. Goodwill: Patient base, charts, phone numbers, your practice’s good name and its familiar location, your workforce, and “all systems go” for future earning potential. Goodwill is an intangible asset (something of value that is not material or physical).

Of the valuation ‘Big 3’, goodwill is the most elusive concept but it’s very real, say attorneys Robert Wade and Robert Landau of Wade, Goldstein, Landau & Abruzzo, P.C. “Goodwill typically exists where there are barriers to entry into a given industry such that it is worth one’s while to pay someone, over and above the cost of hard assets and accounts receivable, to get into an existing business,” they explain.

Eyes Open: Some folks may try to downplay or even ignore the value of goodwill if they have a “gloom and doom” view of the health care market because of reimbursement cuts and consolidation in the market. But goodwill is still significant in most ophthalmology transactions, experts say.

 

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