Your standards for practice appraisal should be sky high.
You may come to pivotal moments in your career when it’s critical to put an accurate dollar value on your practice. That number will protect you and ensure you get the most out of any life- changing event. You’re a chiropractor who serves the public and may never have thought about this until now.
You will need an appraisal when another party (the opposition) wants to strengthen its negotiating position. If you’re selling your practice, bringing in a partner, separating from a partner, obtaining financing, or settling with a divorcing spouse, a poor-quality appraisal—or no appraisal at all—can produce disaster. When you negotiate with a professional practice appraisal behind you, you put yourself in a position of power and knowledge.
Choosing an appraiser
Many people hold certifications as appraisers, but their expertise may lie in valuing other kinds of businesses. General certified appraisers will use the same methods to evaluate your practice as they would a restaurant or laundromat. Work with a seasoned professional who has experience in the many facets of a healthcare practice and the business of chiropractic.
You need a practice appraiser who has:
- practiced for many years;
- bought, sold, and negotiated in the buy-sell process; and
- performed and defended chiropractic appraisals in
No two facilities are alike, and only someone who knows the subtleties of the field can present and defend an appraised value.
An airtight evaluation requires significant legwork. The appraiser will gather a wide range of information including hard assets such as equipment and intangible assets that reflect the personality of the practice. All financial, statistical, and demographic information will be included and used to generate a logical appraised value.
Additional knowledge acquired will include referral sources, quality of staff, and an important factor—the lease. The higher the degree of accuracy in the information presented to the appraiser, the higher the quality of the appraisal, and the stronger your negotiating position will be.
The standard by which an appraisal is performed was developed by the IRS, as described below:
“Appraisals should be conducted in accordance with the provisions of the Internal Revenue Code of 1954. The regulations define ‘fair market value’ as follows: ‘The price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, or both having reasonable knowledge of fact, not to be determined by a forced sale price.’ ”
Appraisers use one of three commonly accepted methods to evaluate an asset: the market approach, income approach, or asset approach.
Market approach. The appraiser compares one similar asset to another recently sold in a given market. This approach might work for a typical house, but not for a unique practice with a distinctive personality.
Asset approach. This approach applies when the business is doing poorly, generating little or no profit. The true value therefore equals the value of the hard assets. The hard assets, if sold, would include chiropractic tables, X-ray devices, chiropractic tools, computers, etc.
Income approach. The income approach is the most applicable for a chiropractic practice; it bases the appraised value on the practice’s net income. The net income, which is the chiropractor’s income, is then multiplied by a number generated by placing a value based on a number of factors regarding the individual practice.
The equation is as follows: “Net income” times “multiple” equals “appraised value.”
The numerical range for the multiple in evaluating a practice is 0.75 through 2.25. Therefore, a typical practice with a net income of $100,000 may have a multiple of 1.5 times earnings and an appraised value of $150,000.
This example is simplistic but illustrative. Many factors are involved in deriving the value of the multiple, and a well-qualified appraiser will acknowledge and evaluate each component to deliver an accurate appraisal.
Whatever your need is for a chiropractic appraisal, take the time to choose a professional who will gather the pertinent information, deliver a quality evaluation, and be able to justify the practice value to you and your opposition.
The time and expense required to prepare the appraisal are worth it, as they bring about a return many times the cost.
David Foster, DC, has practiced for the past 24 years and has co-owned 12 practices. He has consulted chiropractors in the areas of appraisals, buy-sell negotiation, obtaining financing, marketing a practice for sale, and associate and independent contract agreements for 15 years in addition to issues related to chiropractic. Foster is also a Discovery Coach at Alignlife. He can be reached at 973-885-8078, firstname.lastname@example.org, or through backofficeconsults.com