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More on USPAP and the IRS
Dr. David E. Marcinko; MBA, CMP™
Hope R. Hetico; RN, MHA, CMP™
Medical practice valuation is essentially a future prophesy and must be based on facts available at the required date of appraisal.
-Modified from: IRS Revenue Ruling 59-60
Some physicians may rightfully agree with the above statement, while others may not. Nevertheless, closely held businesses like medical practices, clinics, and surgery and wound care centers produce economic benefits for their owners.
Unfortunately, the value of these entities cannot always be directly observed by activity in thinly traded private markets.
Introduction
And so, medical practice valuation professionals use USPAP principles to estimate practice value by applying valuation theory. The value of financial assets, whether traded or not is generally based upon the following:
§ The level of expected distributable future cash flows
§ The timing of those expected distributable cash flows
§ The uncertainty in receiving expected future cash flows
Assessment
Valuing a medical practice may also require consideration of many other factors that influence value.
For example, a thorough valuation analysis might include a study of the economics of the health care industry, reimbursement trends, competitive market conditions, historical earnings trends, as well as management experience and an on-site visit.
What is USPAP?
The Uniform Standards of Professional Appraisal Practice (USPAP) is generally accepted standards for professional appraisal practice in North America. USPAP contains standards for all types of appraisal services. Standards are included for real estate, personal property, business and mass appraisal, too.
Conclusion
These factors, when collectively considered, may influence the future prospects of your medical practice and, ultimately its estimate of value as an on-going-concern.
And so, what is your experience with the above USPAP and IRS regulations, and/or are they new to you?
NOTE: For comprehensive institutional information on this topic, please subscribe to our premium, 1,200 pages, 2-volume quarterly print subscription guide: Healthcare Organizations [Financial Management Strategies] http://www.stpub.com/pubs/ho.htm OR www.HealthcareFinancials.com
Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com
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