Buying or selling a practice? Why an appraisal makes sense.

A professional appraisal will provide you with an accurate valuation — and reveal the critical questions that should be asked — when you can still do something about it, before the transaction takes place. If the practice is yours, it's an asset that may sell for hundreds of thousands of dollars. If it's one you're considering for purchase, it may be the most important investment you'll ever make.

What's the best formula for calculating the value of a practice?

That's a question we get asked a lot and there is no quick and easy answer. Doing an appraisal is somewhat like preparing a tax return, a qualified accountant has to work through a variety of computations to determine the right number. Important considerations are cash flow, inventory and to a lesser degree, gross income.

While some appraisers like to use rules of thumb such as 'one year's gross', 'net plus inventory' or 'three times net', these rough guidelines are all based on averages. The problem is, there's no such thing as an average practice.

Case in point, we recently analyzed 20 of our own appraisals to determine the relationship between annual revenue and appraised value. As a group, these practices appraised on average between 60% and 80% of gross income. However, some practices appraised as low as 40% of their gross while others were valued at more than100%.

The only rule of thumb we can really offer is that practices with higher net percentages tend to appraise for more that practices with lower net percentages of the same gross.

How much does an appraisal cost?

We tell our clients that an appraisal doesn't cost anything if it gives you the information you need to buy or sell a practice at the right price. Our typical fee is less than half of one percent of the value of most transactions. We repeat, it pays to know the value of the asset you are negotiating over when its worth hundreds of thousands of dollars.

Contact Hayes Consulting

Hayes Consulting offers valuation and consulting services for eyecare professionals seeking to buy or sell a practice. Simply click here to e-mail or call 800.588.9636 for a prompt, confidential consultation with Senior Consultant Marilee Blackwell.

Marilee Blackwell

Accredited by the Institute of Business Appraisers, Ms. Blackwell is an MBA and former CPA who specializes in consulting with and appraising eyecare practices. Marilee is a member of the AOA's Practice Management University and is a frequent speaker and writer on a variety of financial management issues in the vision care field.

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