Dedicated customer service. A profitable practice. Increasing property values. While you believe you have a good idea of what your practice is worth, demonstrating that value to potential investors or buyers is not as simple as it sounds. It’s impossible to convey the emotional investment you have made in your practice, and it’s difficult to quantify intangible benefits of the customer base you have established.
Simply put, value means different things to different people. The key is to find a valuation method that is complete, accurate, and considers all aspects of your practice.
If you’re transferring or selling your practice, it’s vital that you utilize the services of someone who understands the importance of an accurate appraisal. Most often, this includes a tri-layered valuation. There are several different valuation methods. The key to determining an accurate assessment is to use more than one set of valuation procedures. A practice advisor is well-aware of how the combination of these methods can help you get a fair selling price.
Comparing apples to apples?
Assumptions play a role in valuation. For example, an accountant may place more of an emphasis on the historic profitability of a practice, while a potential buyer may place more emphasis on a steady client base and the quality-of-life of the surrounding area. A tri-layered valuation is an attempt to take all these assumptions and place them on the same “page.”
MANY FACTORS CAN AFFECT WHAT A BUSINESS IS WORTH:
- Historic income
- Community clientele/impact
- Economic factors (both local and regional)
- Circumstances of the business sale (a well-planned strategy vs. an “auction”)
Three business valuation methods.
There are three main approaches to measuring a business’s worth: asset, market and income.
- A market approach is typically used to value publicly traded firms and large corporations. Essentially, this estimates what the business would sell for if placed on the market.
- An income approach, as the name implies, evaluates the profitability of the company, taking into account the projected income and risk.
- An asset-based approach focuses on how much it would cost to recreate the business by examining the assets minus the liabilities.
Of course, these brief explanations are dramatically over-simplifying the process. The core takeaway is that when it comes to your business, realize different perspectives concentrate on different facets of value. Speak with a practice advisor that offers these extensive valuation services to learn more.
