Physiotherapy practice business valuations
In a professional practice, the value of the intangibles is more likely to constitute most of the overall value than in the case of other businesses and goodwill is more likely to be personal (professional) than in other businesses.
“Professional” goodwill derives from the individual practitioner’s reputation and personal success in the profession, and the trust and respect that the individual practitioner has engendered in his or her clients.
“Practice” goodwill relates to the firm’s ability to continue to generate earnings without the presence of any particular professional. Location, computer systems, staff, operating procedures, and a recurring client base are all elements of practice goodwill.
Physiotherapy practices typically rely on the services of individual professionals. While these are considered service-based businesses, the reliance on the individual professionals and their specialty skills and reputation sets them apart from other service-oriented businesses.
Many times, these professionals have specific education requirements and professional licenses that must be maintained.
In general, the primary factors to consider when valuing a professional practice are:
Type and stability of earnings or cash flows
Compensation of the professionals in relation to market compensation
Qualifications and work habits of the professionals
Age and health of the professionals, including internal transition planning
Reliance on referrals versus contracted work
Type of clients or patients served
Local supply of professionals and competition
Previous ability to transfer clients or patients
The value of a practice will always be based on the specifics of that practice as a business. With that said, the old formulas and multipliers of revenue that were rules of thumb for the value of a practice hold true less and less today than they did 15 or 20 years ago.
Most professional practices share a few key traits that set them apart from other service-oriented businesses. Assessing the practice in light of these traits is important in selecting key valuation inputs.
The valuation methods most commonly used are:
The Market Method
The Asset Method
The Income Method
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