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Goodwill Hunting: What’s your Office Worth?
[Abstracted from the AMedNews, and Dr. David E. Marcinko
; MBA]
There are several measures a physician can take to increase the value of medical practice goodwill, which in turn will make the practice more desirable, and profitable, when selling or taking on a partner.
These are listed below for your consideration:
- Keep good financial records. Know your capital purchases, and have your balance sheet, statement of cash flow and net income statement up to date.
- Continually monitor key financial ratios, such as profitability, creditors, long-term debt management and medical equity value-added.
- Have adequate practice insurance, including property liability coverage, plus have workers’ compensation for staff and life and disability insurance on the key doctors.
- Build a brand identity for the practice rather than an individual brand identity for you as a physician. This helps in developing a business that others could assume and operate.
- Have a practice continuation plan that stipulates how the practice will be sold or continued in the event of a physician’s death or disability. Specify who will buy the practice and for how much. And specify whether the purchase will include land, buildings, inventory, licenses and goodwill. Have a covenant that specifies the procedures to follow when a physician leaves the practice.
- Have strong relationships with everyone who does business with your practice, including supply vendors as well as referring doctors and fellow physicians.
- Be organized when it comes time to present the supporting information. Don’t accept the first valuation given. Numbers can be changed, if you can present substantive reasons.
Conclusion
And so, your thoughts and comments on this Medical Executive-Post are appreciated. How have you reacted to the recent declines in both medical practice [business] and personal [doctor] goodwill? Tell us what you think? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.
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Filed under: Career Development, Glossary Terms, Health Economics, iMBA, Inc., Practice Management, Practice Worth, Research & Development, Subscribe CD-ROM Journal | Tagged: accounting value, book value, business goodwill, david marcinko, goodwill, goodwill valuation, medical practice value, personal goodwill, practice appraisal, Practice Worth |
As a physician considers ways to increase the level of goodwill in the valuation of the medical practice, there are several things to consider.
First of all, in many circumstances it is important to distinguish personal goodwill from enterprise goodwill. These elements can be treated differently from a tax standpoint. Moreover, a buyer may be more willing to pay for the enterprise component of goodwill.
From a tax standpoint, it is advantageous to pay the goodwill in the form of a severance benefit. This type of payment is deductible to the corporation and not taxable to the buyer.
Brian J. Knabe; MD
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