Financial Considerations for Selling Your Business
Making the decision to sell your established medical practice isn’t an easy one. You’ve spent many years building a practice that makes you feel connected to the community, but you’re ready for a new chapter in your life. To find out the true value of your medical practice, you should consider having an Orlando due diligence service do a thorough review. There are numerous financial considerations involved in calculating market value.
How Much is Your Practice Worth?
A simple answer is that your practice is worth as much as a potential buyer is willing to pay but medical practices have distinctive characteristics that need to be taken into consideration. Comparable market data is not readily available for medical practices and therefore many factors play a role in establishing an optimal market value. Key considerations for potential buyers are cash flow and growth potential. Other determining factors are professional goodwill, longevity of the patients, referral network, etc.
The Importance of Cash Flow and Net Profits
Healthy net profit and positive cash flow are key elements for a desired ideal sale price. Medical practice buyers are going to take a hard look at your revenue as well as operating overhead to make sure you are running a tight ship. Cash flow is just as important as your bottom line on your profit and loss statement – it shows your ability to carry out business operations, purchasing power for capital assets as well as ability to service debt.
Urban vs. Rural Geographic Location
The location of your medical practice plays a role in assessing its value. A practice located in a small, medium, or large city is given a higher value than those situated in rural areas, which limit the patient base.
Tangible and Intangible Assets
Your business has a certain amount of built-in tangible assets such as patient accounts receivable, medical equipment, office furnishings, and professional goodwill.
As a group, medical patients are highly valuable, in a financial sense, because their accounts are collectibles that maintain operations. The ability of a new owner to keep most of these patients, and attract new patients, is of interest to buyers.
Medical Equipment and Office Furnishings
Equipment and furnishings depreciate over time, so their value at the time of sale depends on current usability.
Any insurance that you’ve already paid for is put into the asset column for accounting purposes.
The value of goodwill is determined on a case-by-case basis, and a thorough Orlando due diligence financial review is going to reveal whether your practice has enough goodwill to create real value. Note that some buyers don’t place any value on goodwill, but it can be useful in supporting the market price.
Selling your medical practice should be done with a lot of careful consideration and thorough planning. To get a jumpstart on increasing the value of your practice before you put it up for sale, contact CPA Solutions at (407) 650-9088. You can also contact us online any time of day.