When looking at an Ophthalmological Practice Business Valuation it is beneficial to understand that there are various methods of valuation employed to arrive at a practices value. Several methods found by a search of the internet are to all intents and purposes nonsensical. Valuation methods based solely on turnover or some other naïve ‘rule of thumb’ should never be used to value any business, never mind a professional practice.
The single most important factor to base a valuation on, is the income the practice generates. Up to three methods can be utilised in the valuation. Because business valuation is an inexact science, no one method can precisely determine value. Employing multiple methods provides for appropriate checks and balances, each having a somewhat different emphasis in the valuation process.
The three methods used in Ophthalmological practice business valuations are:
- Asset Value
- Discounted Cash Flow
- Capitalisation of Future Earnings
The asset-based approach utilises the Company’s adjusted balance sheet as the primary focus of fair market value. This approach is important where the fair market value of a company’s assets is significantly greater than its book value. The asset-based approach may be considered when valuing a controlling interest with significantly appreciated assets such as real estate.
The theory of Discounted Cash Flow approach is that the value of the business is the present value of the future economic benefits (income stream) it’s expected to provide. The economic benefits can be determined from historical results or future projections. When using the discounted future cash flow method, forecasts are typically prepared for five years and then these economic benefits are converted to the present value using a discount rate.
Capitalisation of Future Earnings refers to the return on investment that is expected by an investor. This method forms an opinion on the business value based on the sustainable profits generated by the business relative to the risk return expected.
Each valuation method requires the making of various assumptions. Hence, there is always a fairly significant element of discretion. It is for these reasons that it is of paramount importance to appoint a valuer that has the experience and qualifiacations to ensure that Ophthalmological practice business valuation report you receive is based on best practice principles. Lee Goldstein has been valuing professional practices for over thirty years To arrange a professional practice valuation, call Lee on
1800 566 872
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