The Practice Manager's Guide to Buying a Practice - McMasters ...

A real life example may help explain the valuation process. The example used in the followingparagraphs is based on an actual client situation and the figures involved are realistic. They havebeen altered to simplify the presentation and to preserve client confidentiality.The practice is well located in an upper-middle class area in Melbourne. It has five owners, who havea history of amicability, and resolving issues cordially and fairly. The practice owns its own building,is a training practice, has a team of four full time practice nurses, has five full time equivalent nonownerdoctors, (ranging from part time male doctors in their seventies to part time female doctorsin their early thirties), and covers the full range of general practice sub-specialties. The ownerdoctors work four days a week, including rostered evenings and Saturday mornings.The practice is a business for tax purposes and is run via a practice trust, with all the owner doctors’rewards derived through their family trusts, and paid to superannuation funds, relatives, andcompany beneficiaries in a tax efficient manner.The practice is regarded by other local doctors as excellent, the best in the area. It is also wellregarded by patients: so much so that it no longer accepts new patients, unless they are familymembers of existing patients.The practice’s finances are well resourced, and it privately bills (some exceptions) with a strict payon the day policy. The practice has a very competent practice manager, who runs a small team ofstaff, and the owner doctors have little to do with the day to day management of the practice. Theymeet once a fortnight, as owners, to discuss clinical matters, and once a month to discussadministrative matters. The practice manager attends the management meeting (unless requestedby the partners).One of the owner doctors wants to leave the practice to re-join her family interstate. It is veryamicable, and regretted by the remaining owner doctors. We were asked to value her interest in thepractice to obtain a sale price for an in-coming owner doctor. The prospective new owner doctor hasworked at the practice (run her own practice and paid a management fee of 35% of billings) for thelast five years, and has a lot of energy and time invested in the practice. She likes the practice andwants to make her career there.Market ValueMarket value has been defined as the price that a willing but not anxious buyer, and a willing but notanxious seller, will agree on as the price of a particular business. This definition assumes the buyerand the seller each have the same information regarding the asset, and each of them have otheralternatives that they may pursue if the sale is not completed. That is, it assumes that, both thebuyer and the seller come to the negotiation table with equal knowledge and bargaining power.21