Professional Practice Valuation
When dealing with professional practice valuation and professional practices, it is important to understand that they come in many types and vary from the standard approaches to valuation.
Different approaches may be used for the following professions:
Legal Practices - Dental Practices
Medical Practices - Veterinary Practices
Pharmacies - Medical Centres
Accountancy Practices - Real Estate Agents
Architectural Practices - Engineering Practices
Professional Vs Practice Goodwill
In a professional practice, the value of the intangibles is more likely to constitute most of the overall value than in the case of other businesses and goodwill is more likely to be personal (professional) than in other businesses.
“Professional” goodwill derives from the individual practitioner’s reputation and personal success in the profession, and the trust and respect that the individual practitioner has engendered in his or her clients.
“Practice” goodwill relates to the firm’s ability to continue to generate earnings without the presence of any particular professional. Location, computer systems, staff, operating procedures, and a recurring client base are all elements of practice goodwill.
Which Valuation Method?
The value of a practice will always be based on the specifics of that practice as a business. With that said, the old formulas and multipliers of revenue that were rules of thumb for the value of a practice hold true less and less today than they did 15 or 20 years ago. Most professional practices share a few key traits that set them apart from other service-oriented businesses. Assessing the practice in light of these traits is important in selecting key valuation inputs.
The valuation methods most commonly used are:
The Market Method
The Asset Method
The Income Method
The Professional Services Method
With over 30 years experience, you can rest assured that Lee Goldstein will utilise the correct method of valuation for your practice.
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