Medical Practice Valuation: A Balanced Approach
Framing the practice intangibles issue.
By HealthCare Appraisers | Reviewed by Subha Nagasubramanian, PT, DPT, MS
In my experience, a majority of the physical therapists I meet express an interest in opening their own practice. Most of them seem to enjoy the autonomy that private practice brings. This is also one of the reasons that I started my own business. I read several blog posts, books, and articles on how to start one, how to run one, etc., but never even considered exit strategies. It looks like the prevailing frame of thought is that folks only thought about it when they were due to retire. Times have changed; planning with the end in mind is imperative. Whether you want to move on to dabbling in other areas after having run a successful practice or are forced to, because of uncertainty in health care reform, knowing the value of your practice is important.
This was a fairly new topic to me so I looked around trying to gain more information on how a medical practice valuation is actually done and how the different dimensions are weighed out.
I ran into an article, “Medical Practice Valuation: A Balanced Approach,” by Healthcare Appraisers, and found it very interesting. There is a key reason for me choosing this particular article to review: consideration of “intangible assets.”
While different practice valuation articles go over what a fair market value is and how a practice is typically valued— for example, (1) the income approach, based on future anticipated economic benefit converted into a single present amount; (2) the market approach, comparing the subject to similar businesses; (3) the asset approach, valuation based on the value of the assets— the author’s argument is that no single approach is standard, and it is difficult to make it a “one size fits all” appraisal. This is where the subject of intangible assets makes decision making multifactorial. An intangible asset is defined by the International Glossary as “nonphysical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical assets) that grant rights and privileges and have value for the owner.”
The article then explores the different valuation approaches through the intangible assets lens, so to speak. In the income approach, if the intangible asset of the relationships the health care provider has built in the community is not taken into consideration, it is like saying that the value of the practice, especially bigger practices, is not beyond the furniture or equipment. In the asset approach, the intangible assets might be a well-trained workforce, trade names, etc.
In conclusion, when an appraisal is done or the value of your practice is determined, any one particular approach might not be the answer. When considering, looking at the intangible asset value using a balanced approach might be the answer.
Subha Nagasubramanian, PT, DPT, MS, is a PPS member and owner of Capitol Physical Therapy LLC, based in Washington, D.C. She can be reached at firstname.lastname@example.org.