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Buy/Sell Arrangements and Practice Valuations

Healthcare providers that choose to acquire ownership in a professional healthcare practice will at a minimum of twice during their professional careers face the challenge of determining the financial value of ownership of the practice. The first time the professional must deal with this issue is at the acquisition of his or her interest. The professional will also face the economic dilemma the second time when he or she decides to retire or sell all or part of their interest in the practice.

There is not one single approach but many options available in determining practice value for buy-sell arrangements of professional healthcare practices. Typically fair price is determined first through a practice valuation then further negotiations between the buyer and seller. Financial and tax planning issues are often opposed between the buyer and seller when attempting to determine the proper economic component of buy-sell arrangements. Proper tax planning and legal guidance should be sought from specialized healthcare accountants and attorneys.

Formal practice valuations typically are performed to calculate an estimated practice value using industry-accepted standards and methods for valuing the economic aspects of a healthcare practice. We follow valuation industry standards from the American Institute of Certified Public Accountants and the National Association of Valuation Analysts. The following items are examples of key issues appraised as part of the valuation process:

  • The nature and history of the practice
  • The economic outlook in general and the outlook of the healthcare industry in particular
  • The true value and financial condition of the practice
  • The earnings capacity of the practice
  • Whether or not the practice has goodwill or other intangible value

The structure of buy-sell arrangements have long term financial affects that should be carefully planned. Aspen Financial Group, Ltd. can assist you in evaluating the different valuation methodologies, financial, and tax planning aspects of buy-sell arrangements available to determine the appropriate price and economic package for the parties.

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