Ophthalmology Business

APR 2013

Ophthalmology Business is focused on business topics relevant to the entrepreneurial ophthalmologist. It offers editorial, opinion, and practical tips for physicians running an ophthalmic practice. It is a companion publication of EyeWorld.

Issue link: http://digital.ophthalmologybusiness.org/i/115526

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continued from page 25 • a breakdown of patient visits, by year, over the past three years • a breakdown of revenue by service line, by year, over the past three years • a breakdown of volume by procedure code, by year, over the past three years • a background of key staff members: • who will be staying • who may be leaving • job description • number of years with the practice • compensation and benefits • an overview of contracts to be assumed (i.e., leases, service contracts, etc.) The point is to "tangiblize" the intangible, to paint a picture of business operations that does not appear in the financial statements and show that the ownership transfer can be relatively "turn key." • Institute of Business Appraisers: Certified Business Appraiser (CBA) • National Association of Certified Valuation Analyst: Certified Valuation Analyst (CVA) Using a valuator who is certified doesn't guarantee a report will be sound. A valuator can be certified but have little to no experience with medical practices (or specifically with ophthalmology) so the report can contain errors in judgement or assumptions. Placing a value on any business, especially a service business like a medical practice, is as much an art as a science. Even among experienced, certified professional evaluators, there can be disagreement as to the value of a given practice. However, a professional valuation is a strong step, not only for establishing the sale price, but also for the purchasing physician to use in qualifying for a loan or in the case of IRS review. Identify a reasonable sale price Don't try valuing the practice yourself. First, most physicians and administrators have little or no background in practice valuations. Second, the lack of experience and personal interest in the outcome will render the self-valuation almost useless. An independent professional will provide more credibility and the experience to utilize different techniques to establish the fair market value. However, a valuation report is only as legitimate as the person conducting the valuation. Practice valuation is an unlicensed profession and, as such, can lend itself to abuse. Almost anyone can claim to be a practice valuator, so the abilities and competencies can greatly vary depending on the training and experience. When it comes to business valuations, the major credentialing agencies and their certifications are: • American Society of Appraisers: Accredited Senior Appraiser (ASA) Understand the tax consequences One of the most important factors to consider, but often the last one addressed, is the tax consequences resulting from the sale. Once you identify a reasonable sale price, you can make an estimate as to the likely allocation and your possible tax obligations. For more on this, see "The tax consequences of selling your practice," in the February issue of Ophthalmology Business eZine. 26 Use a specialist The sale of a practice is one of the largest transactions in which most will likely engage. Furthermore, for some, the proceeds of a sale will go a long way toward funding their retirement. Because of this, if you use a broker, it should be one who specializes in eyecare and focuses on practice sales. Just as a general business valuator may not be qualified to value a medical practice, a general business broker may also lack the expertise Ophthalmology Business • April 2013 and database of contacts to sell a medical practice. Even if a broker has some medical practice sale experience, the profession of ophthalmology can differ greatly from that of other medical professions (for example, general surgery, otolaryngology, etc.). Because of this, one should use a broker who has substantial experience in eyecare, one who understands the nuances of the specialty. Additionally, some recruitment agencies—enticed by the potential fees—have begun holding themselves out as practice brokers. The sale of a practice is substantially more complex than the recruitment of an associate. An experienced broker knows how to put together a proper prospectus, screen and qualify a buyer for the ability to purchase, analyze and break down the financials for presentation to a buyer, be able to thoroughly discuss the financials and answer a buyer's questions, negotiate all the terms of the sale (and any post-sale employment), deal with the buyer and/or the representative, work with the buyer's lender to facilitate the loan, etc. One should not entrust the sale of the practice to an agency that cannot reasonably perform all the services necessary. Summary No one can guarantee the sale of a practice or guarantee the price one may receive. However, if you follow these eight simple steps, you will have put yourself in a position to better sell your practice and achieve the best possible price. OB Mr. Ruden is a Certified Valuation Analyst, MedPro Consulting & Marketing Services, Scottsdale, Ariz. He can be contacted at 602-274-1668 or bruden@medprocms.com

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