ABSTRACT
Introduction .................................................................................................................................... 429 Traditional Reasons for a Medical Practice Valuation .............................................................. 429 Estate Planning .......................................................................................................................... 429 Buy-Sell Agreements ................................................................................................................ 430 Physician Partnership Disputes ................................................................................................. 430 Divorce ...................................................................................................................................... 430
Understanding Valuation Definitions ............................................................................................. 431 What Medical Practice Assets Have Value? ................................................................................... 431
Defining the “Standard of Value” .............................................................................................. 433 Health-Care Regulations: What Doctors and Financial Advisors Need to Know.......................... 433
Valuation Regulations That Impact Practice Value ................................................................... 434 The Private Valuation Process ........................................................................................................ 434
IRS Revenue Ruling 59-60 ....................................................................................................... 434 Approaches to Medical Practice Value .......................................................................................... 435
Income Approach ...................................................................................................................... 436 Discounted Cash Flow (DCF) Method...................................................................................... 436 Key DCF Assumptions .............................................................................................................. 436 Determining the Required Rate of Return for DCFA ............................................................... 437 Capitalization of (Excess) Earnings Method............................................................................. 437 Net Income Statement Adjustments .......................................................................................... 438
Nonrecurring Items............................................................................................................... 438 Perquisites ............................................................................................................................ 438 Noncash Expenses ................................................................................................................ 438
Balance Sheet Adjustments ....................................................................................................... 438 Market Transaction Approach ................................................................................................... 439 Asset/Cost Approach ................................................................................................................. 439
Understanding Corporate Deals Structure ..................................................................................... 439 Stock Purchase versus Asset Purchase ......................................................................................440 Restrictive Covenant Value Is Goodwill ...................................................................................440
Buyer Mistakes (“Caveat Emptor”) ...............................................................................................440 Finding Qualified Valuation Professionals ..................................................................................... 441 How Much Money Is a Medical Practice Really Worth? ...............................................................442
