Subject: Formulas to value a practice Date: Sun, 27 Jul 1997 08:12:29 -0400 From: "Don J Lavigne, D.C." Value of Goodwill Monthly net revenue multipier: Total Income Collected divided by 12(months) multiplied by 2.5 to 4.5. For example, if collections were $180,000... divide that by 12= 15,000. Multiply that Number by 2.5 up to 4.5= 37,500 to 67,500. To get the total value of a practice using this formula Equipment, Real Estate etc... must be added. Take last years Gross Income and divide by 4 to obtain a quarterly gross income average. Take this figure and add 10%. For example, if gross income were 60,000... divide that by 4= 15,000 plus 10% (1,500)= 16,500. To get the total value of a practice using this formula Equipment, Real Estate etc... must be added. __________________________________________________ Formulas are used as a guide... There is really no one formula that can be used in all situations. The formulas above are from Handbook of small Business: valuation formulas and rules of thumb and Developing a Chiropractic Practice from tha American Chiropractic Association, respectively. The ACA also gives a formula to value equipment. The fairest to both the buyer and the seller would be somewhere in between Book Value and Replacement Value: Original Cost minus double the (straight line) depreciation life of the item. Small equip depreciates 5yrs and large equipment depreciates 10yrs. Thus ADJUSTED BOOK VALUE = item's original cost minus 1/10th or 1/20th, respectively, for each year since it was purchased. __________________________________________________ Other formulas include: Thanks to Drs. Michael Bartell, Alan Berman, Lee Newman and Bill Risley for their contribution... Pay no more than Net Profit for most recent year. A practice is worth six months of gross receipts (based on a three year average), plus the value of the equipment in the office on the secondary market. If the practice has a 50% percent or lower overhead I would offer 8 months collections and pay up to nine. This would include everything execpt accounts recievalbes which I would offer 40 cents on the dollar. 3 months value of gross business done plus any real estate value plus any equipment value. Don J Lavigne, D.C ------------------------- Subject: Re: Formulas for Buying a practice Date: Fri, 25 Jul 1997 19:03:00 -0700 From: wm & marge risley There are as many formulas for same, as you can count. One I used is: 3 months value of gross business done plus any real estate value plus any equipment value. Many formulas include 6 months gross, $10.00 per new patient per year, and on and on and on. There are many pitfalls, number one of which is you should require the doctor to stay with you for at least 3 to 6 months to gaurantee you will not lose patients when he leaves. Covenants not to compete are critical with the outgoing doctor of course, so that he will not set up down the street and take the patients with him. An ENFORCEABLE covenant, as many are not enforceable. A two mile covenant in a town the length of which is one mile, is not likely to be upheld. Bill Risley ------------------------ Subject: Selling a practice Date: Thu, 21 Aug 1997 11:29:16 -0400 From: "Dr. John L. Bureau, DC" Subject: Selling a practice Date: Thu, 21 Aug 1997 07:16:32 -0500 I know we discussed this topic a few weeks ago but since I,ve got 20+ yrs till I plan on selling, I didn't pay a lot of attention. Now a fellow chiro has asked how to value a practice for sale.I think I remember one formula being 3 months gross billings and another being 1 yrs income.Are these correct? any other ideas? Thanks! George Anthon ================================== George: that may be a time honoured method, but it always sounded cock-eyed to me. Depending on your fees, overhead, and practice style, two practices billing exactly the same amount can be worth vastly different amounts of money. For example: you can bill $10,000 a month seing 10 np's @ $ 100.00 each, and giving 360 treatments @ $25.00 or you can do it seing 40 np's @ 100.00, and 240 treatments @ $25.00. one situation means an average patient retention of 36 visits, the other of 6. IMHO a practice full of better educated patients is worth considerably more. ALSO, you can also operate on a larger or lower overhead, which affects net income. Since THAT is what you buy into, overhead should affect the cost. Additional considerations also include demographics (affluence, employment, population/practitioner ratiot), economics (inflation, interest rates), politics (scope of practice, local public image and awareness), etc. Businesses vastly larger than individual practices routinely change hands based on elaborate actuarial and accounting principles, but I have yet to see a standardized method of practice valuation that takes in account these diverse criteria. Dr_John Bureau, Chiropractor ------------------ From: Mjchael@aol.com Date: Wed, 29 Dec 1999 20:36:31 EST Subject: Re: [c] Practice Pricing Formulas To: doctormark@earthlink.net, chirolist@silcom.com just having recently purchased my practice, I was given several formulae: 1) 50% of the previous year's receivables 2) 50% of the previous year's collections plus the value of any equipment included 3) 70% of the outstanding AR plus the value of any equipment inlcuded 4) last year's payroll times 4 plus the value of all the equipment they ever had, plus your income tax refund for the next 3 years 5) 5% of your firstborn child's IRA, if established before his/her first birthday, 25% if established after he/she started grade school 6) 1000 times the number of grounds you can count in the bottom of a Starbuck's double-shot espresso, in Lire. Good luck, buying or selling. It's a rollercoaster. -----------------