I have a close friend that passed away last week unexpectedly. He had a heart attack at age 54 with no prior symptoms. It really was a bummer. His wife has a prospect to buy the practice. He’s a good guy and it could work out perfectly. The big question is the value of the practice.
I’ve heard one formula for determining “good will” is to take the annual gross average for the past three years and multiply times 40% for the value of the “good will” of the practice. Equipment, etc. is not included with this value.
Please chime in thoughts and comments. We need to get this deal “up and running” for the sake of this family ASAP.
There are many formulas and rules of thumb. However, instead of relying on the rule of thumb methods and potentially leaving a lot of value on the table, the spouse should hire someone who can assess the reasonable “range of value” without needing or having to pay for a full blown valuation report. There are many transition professionals that can provide this service, even brokers. If you decide to try a broker, simply let them know that at this time all you need is to have them assess the range of value, assuming you’re pretty sure you have a buyer. If for some reason this buyer falls through, at least you’ve already have a relationship with a broker who may be able to find you another buyer quickly.
Could you do the valuation from the P&L and balance sheet, without seeing the practice?
Yes, I can determine a “range of value” from good financial information. It’s what I do for our buyer representation clients. I’ve never stepped foot in the office of most of my buyer representative clients, what do I know about the working condition of the equipment? I’m not an equipment vendor or specialist.