Frequently Asked Questions
Your best investment is a well performing business, but do you know what it’s worth? BizScore is a Nationwide Valuation Service. Our clients and professional extenders find our valuation service to be Reliable, Detailed, Delivered Timely and Reasonable.
Why are Practices and Business Valued?
While the most common reason to value a professional practice or business is to plan for a sale. Valuation engagements are performed for a variety of reasons, including the following:
partner buy-in or buy-out
financing or raising money
mergers & acquisitions
eminent domain actions
litigation and tax purposes
company division spin-off
peace of mind
What’s the difference between a Valuation and Appraisal?
For the most part, the terms valuation and appraisal are used interchangeably for determining the value of a business or practice. In recent years the term ‘valuation’ has become the more accepted term. However, use of either term is acceptable. The term ‘evaluation’ is however an incorrect use of the term, and is often confused with the correct term of ‘valuation.’ A trained professional would never use the term ‘evaluation’, but rather either valuation or appraisal.
What do Practices and Businesses Sell For?
There is no single magical formula to valuing a business. Though many people still want a rule-of-thumb, so here are a couple of examples:
Most practices/businesses will sell for between 1x to 4x annual net earnings.
Most practices/businesses will sell for between 20% to 80% of annual gross collections.
“How do you know if your practice is the norm or the exception?” A rule-of-thumb may or may not apply to you. We typically see practices sell for ±2 standard deviations of the practice average sale price. Depending on practice type, the std. dev. will often run 15% – 30%. This means that practices will often sell for 30% to 60% above or below the average sales price. Will your practice sell for above or below the average? We sometimes see businesses and practices sell below or above even this wide range of 2 std. dev.
Why is the Price Range so Wide?
There are dozens of factors that influence practice value. A key factor influencing value is practice type. Average practice price ratios and ranges differ for a general dentistry practice vs. a chiropractic practice vs. a family practice vs. a cardiology practice vs. an optometry practice, etc. Beyond practice type, numerous factors influence value. Some sample factors are shown below:
Profitability. A practice netting 35% of gross will sell for less than a practice netting 50% of gross. How do you compare with your peers?
Location. Practices in rural or particularly high cost of living areas may sell for less.
Facility. Practices located in larger, modern facilities sell for more than practices in cramped, run-down facilities.
Equipment. Practices with lots of expensive, modern equipment tend to sell for more than those with little or old equipment.
Hours Worked. Are you working 20 hours/week or 90 hours/week to generate $XXXX income?
Reimbursement Projections. What is the fee reimbursement trend for your specialty and common procedures performed?
Technology Advances. Have recent technological advances made your equipment/procedures obsolete?
Staff. Do you have a well-trained staff with good tenure, or poorly trained staff with turnover every 3 months?
Payer Mix. Is yours an all-cash business, all Medicaid practice, a blended mix of traditional insurance, lots of capitation?
Financial History. Is your practice income increasing or decreasing? Is the rate of increase sustainable?
Referral Base. Is your referral base broad and deep? Or does the bulk of your referrals come from one source?
Personal Goodwill. How much of the business is tied to the owner’s individual reputation or personality? Can a new buyer duplicate?
Sale Terms. Will it be a stock sale or an asset sale? What is included or excluded from the sale?
Financing. What type of financing is available? Commercial loan? Seller carry? How much down payment? What are interest rates?
Competition. Did a competitor just open down the street? Are you the only game in town?
At BizScore, we consider over 40 different factors when valuing your practice or business.
Who does valuations?
There are several categories of people that perform valuations:
commercial real estate appraisers
Each category has its advantages and disadvantages. Although, the better appraisers tend to be educated in business valuation and have an understanding of the various issues involved in valuing a business (e.g., brokerage/sales, finance, and accounting). BizScore extends our service to informed professionals nationally.
Why not just have my CPA do it?
Accountants often do not have significant experience or training in performing valuations. The vast majority of CPA’s nationwide have little or no training or expertise in business valuation. While they are very familiar with financial statements, many are uncomfortable making the forecasts that are crucial to valuation. Further, their experience tends to be in tax value, which is usually quite different than Fair Market Value or Fair Value. By adding the expertise of BizScore, CPA’s can now offer a professional and comprehensive Valuation that is well within their clients budget. BizScore enjoys a working relationship with dozens of CPA’s nationally as we extend their menu of services.
How about a general business broker?
General business brokers most often use generic rules of thumb to list and sell businesses. However, rules of thumb can be dangerous as they do not take into consideration the specifics of a particular business. Also, many business brokers lack the financial expertise necessary to properly analyze a company’s financial statements. Our team is experienced and detailed and we are confident you will appreciate the quality work we put into your customized Valuation. Your feedback and input is always welcomed.
Businesses with a variety of requirements call BizScore for our informative reports. These reports paint a realistic picture of your business and allow you to make informative decisions. Additionally, dozens of CPA’s, Bankers, Insurance Agents, Attorneys, Business Brokers and Financial Advisors also depend on BizScore. Call us today to enhance your profit center.