Certified Public Accountants
Specializing in Healthcare Professionals

Whew!  A lot of info but I know you can help guide us through this process.  Thank you for your extraordinary due diligence! – Marta

Business Valuation Services

Do you know what your practice is worth?

Probably not, because practice valuations can be both time consuming and costly. Even so, there are many instances when it’s important to determine the value of your practice:

• If you are preparing to sell your practice, you need to know where to set your expectations. 

• If you plan to bring new partners into your practice, you need a third party valuation to set a fair buy-in price.

• If you already have partners, you should have a "buy-sell" agreement in place specifying how and when your practice needs to be valued in case one partner wants or needs to sell

• If you want to ensure that your estate planning properly takes into account the amount of estate taxes expected to be paid upon transition of your practice to your successors

Unlike a home, which you can value based on what your neighbors' homes are selling for, determining what your practice is worth isn't quite so easy. Often you need the help of a professional trained in business valuation to analyze the various methods of valuation that would be most appropriate for your type of business. 

How We Can Help:

At Schwartz & Schwartz, we have in-house a Certified Valuation Analyst: Richard Schwartz, CPA and partner. 

Rick has specialized certification and training in the various methods of business valuations, and in the decision tools used to select the proper method or combination of methods to best represent what your practice is worth. 

Rick will meet with you directly, visit your practice, and review all necessary information to compile an accurate valuation for you.

Our services can include the most common methods of business valuations:

• The Capitalization of Earnings Method - The valuer considers historical earnings of a company to be indicative of future earnings and then divides the earnings by a capitalization rate to arrive at an estimate of value.

• The Net Asset Method - The valuer separately identifies and values each individual tangible and intangible asset of the company and then deducts the fair market value of all liabilities to arrive at an estimate of value.

• The Completed Transaction Method - The valuer analyzes sales transactions of comparable businesses to arrive at an estimate of value.  

To learn more about our Business Valuation services, please contact us at 800.471.0045 or use our online request form to schedule an appointment.

Feature Article:

DOING YOUR DUE DILIGENCE: A KEY COMPONENT TO SUCCESSFULLY BUYING A HEALTHCARE PRACTICE

by Richard S. Schwartz, CPA, CVA

The decision to purchase a medical or dental practice will rank as one of the largest that you will make in your lifetime.  Not only are you providing for your income over the next 20 plus years, but you are also depending on this practice to secure you with a nest egg for your retirement. 

Therefore, when buying a practice, healthcare professionals are advised to "Do their Due Diligence”, but often they are not quite sure of the actual meaning of that term, nor of the work involved.  Essentially, this term refers to “doing your homework” – examining the finances, management and operations of a practice before making a final decision on purchasing the practice. 

Remember, don’t lose sight of what you are buying.  We all want new, state of the art equipment and a fancy waiting room.  But those items can be addressed down the road, as long as the current equipment functions to meet your needs of practicing medicine or dentistry.   You must realize that the most valuable asset you are buying is Goodwill – the intangible value of the seller’s practice mainly comprised of the seller’s existing patient base as well as the practice’s location. These two items are the main factors that drive the revenues of the practice. 

Therefore, the importance of reviewing the existing patient files should not be overlooked. Conduct a Chart Audit to determine either the number of active patients in the practice or the demographics of the other providers who routinely refer patients to the practice.

For many practices, an active patient is one who has visited the practice for treatment within the last 12 months.  Make sure to also review patient files for those patients that have not been seen within the past year but have visited for treatment within 2-3 years as there is potential to reactivate these patients and generate increased revenues.

While conducting your Chart Audit, take note of the specific work being performed on the patients.  Are some of the procedures being done by the seller beyond your scope of practice?  If so, your income from the practice may decrease once it is purchased as this work would need to be referred to a specialist.  Or is the opposite true; is the seller referring work out to specialists that you may be able to do as part of your practice, resulting in a potential increase to your revenues.

You should plan a site visit to familiarize yourself with the day to day operations of the practice.  Be aware of the culture of the practice.  Is the staff courteous to the patients?  Do all the staff get along or are there personality conflicts.  Make sure that this office presents the right environment for you to work in and for you to manage.  Additionally, take note of the age and functionality of the equipment.  Will items need to be replaced soon after your purchase of the practice, and if so, at what potential cost?

As noted above, part of the goodwill of the practice is comprised of the office’s location.  Therefore, be sure to inquire as to when the current lease of the office space expires, if there is an option to renew and, if so, then for how long of a term.  Also inquire whether the current lease transfers to a new owner.  If the landlord decides to sell the space in the future, will you have a right of first refusal to purchase the property?  You should have an attorney familiar with real estate leases and contracts involved with this part of your due diligence process.

Finally, make sure you can afford this practice.  Work with a CPA or other professional to calculate the cash flow of the practice.  Determine the practice’s income that remains not only after paying all of the practice’s operating expenses, but also after making your debt payment and paying taxes.  The net income of the seller’s practice per his tax return is not the equivalent pre-tax cash flow to you once you factor in the monthly debt payment required.  Frequently practice loans are paid back over a seven year period making the annual debt payment substantial.  As an example, borrowing $500,000 over seven years at 8% results in an annual payment of $93,500 - or almost $8,000 per month.

In conclusion, when buying a medical or dental practice, what you see is not always what you get.  Thus, the key to making a successful transition from employee to owner is to for you to get an understanding of the practice’s revenues, expenses, patient base, and operations by Doing your Due Diligence.

Richard S Schwartz, CPA, CVA, received a B.A. in Economics from Brandeis University in 1985 and an M.S. in Accounting from the Graduate School of Professional Accounting at Northeastern University in 1990.  Prior to joining his brother at Schwartz and Schwartz,  P.C. in 1993, he worked for the international accounting firm PricewaterhouseCoopers, LLP, in their Emerging Business Services Group.  Since joining Schwartz and Schwartz, P.C. he has worked with individuals providing tax expertise as well as small business owners providing both tax and accounting guidance to help their businesses grow.  In 2006, Rick earned the designation of Certified Valuation Analyst from the National Association of Certified Valuation Analysts (NACVA), which he uses to assist healthcare professionals in their evaluation of whether to purchase a practice