Valuing Goodwill for Solo Practice in Southern CA?

[foureyes]

Does goodwill still exist? How would you value good will for a solo practice in coastal Southern CA?

There is a small solo practice in a desirable location- however, the non-surgical practice is small (less than 900 sq feet) and does not have modern equipment (papercharts, no SD-OCT, no HVF, no Lenstar), single working lane, and would need to be updated.

The goal would be to keep the surgical patients in house and build and expand practice.

% of last years collections? 30 day AR? Depreciated assets? (no modern equipment, no real estate included)

Has anyone who has acquired a practice had owners not provide Balance Sheet, Income Statements, and Statement of Cashflows? Only have list of revenue and partial expenses.

Thanks in advance.

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[MullerCell]

Does goodwill still exist? How would you value good will for a solo practice in coastal Southern CA?

There is a small solo practice in a desirable location- however, the non-surgical practice is small (less than 900 sq feet) and does not have modern equipment (papercharts, no SD-OCT, no HVF, no Lenstar), single working lane, and would need to be updated.

The goal would be to keep the surgical patients in house and build and expand practice.

% of last years collections? 30 day AR? Depreciated assets? (no modern equipment, no real estate included)

Has anyone who has acquired a practice had owners not provide Balance Sheet, Income Statements, and Statement of Cashflows? Only have list of revenue and partial expenses.

Thanks in advance.

Seems a bit bizarre that they would not offer you detailed financial information. I would have a CPA that specializes in practice valuation perform an evaluation for you. If they are interested in selling, they should likely pay at least a portion of the cost. This would require several detailed financial statements (all quick books, 3 years of tax returns, 3 years billing/collections reports, current AR report, 3+ years balance sheets, 3+ years profit/loss statements). Without this, would not even consider purchasing and I'm not sure how you could make an informed decision.

 

[Bgladney]

Goodwill still exists....however, not in amounts of the past. How much goodwill is always the question.

I would highly recommend having a CPA or an experienced practice evaluator to review the practice. They will be able to run you a few different models to provide you with an "average practice value". While it will not give you an exact price, it will give you an idea of the value of the practice and a good base to start price negotiations.

I would be very leery of any practice that is not willing to give up financial statements when discussing a purchase. May not be any ill intent involved or the practice might be hiding things. At minimum, any evaluator will ask for the past 3 year tax returns as well as other financial statements.

PM me if you would like some referrals for evaluators. Good Luck!

 

[foureyes]

Thanks for the responses- I should clarify that I did receive 5 years worth of S Corp tax returns from the CPA, but they were incomplete/missing Statement #2 (Other deductions), the bottom with actual taxes paid, and signature were not filled out.

After asking for additional information (Income Statement and Statement of Cashflows)/clarification, the owner provided a little more breakdown about the expenses (but still not actual statements). The owner talked to the CPA- they determined that I didn't need any additional financial statements to make a determination (which I disagree).

Glad that I'm being reasonable in my due diligence.

 

[Bgladney]

My guess is that he is running a ton of personal expenses through the practice and it will show that the business is running at a loss or at a misstated profit. A good evaluator can see through the personal expenses and provide a true financial picture of the practice.

 

[LightBox]

One word: RUN

 

[schistosomiasis]

Here’s a detailed post about how to calculate practice value: Practice valuations

Equipment: A new lane costs about $30,000. Perhaps the equipment is in this situation is worth maybe $15,000 and you’ll still have to buy a VF, lenstar and OCT.

Accounts receivable: about two weeks worth of collections for a well run practice. Annual collections divided by 26.

Goodwill: usually around 30% of annual collections, higher in competitive areas like SoCal, but I would argue for many reasons in this situation it should be lower. Goodwill is the price you pay for not having to start your own practice, having a well run system in place. Doesn’t sound like this place has this.

If the practice is credentialed with plans hard to get on, or referral sources, that might be worth something, but you will still need to buy EHR and computers, all equipment, create a website, as well as build a surgical reputation because the current doc doesn’t do surgery?

Most alarmingly, 900 sq ft is very small.
Here’s a article about space: Space


I don’t know what they layout is but if you skipped a private office you might be able to fit two lanes. This might work out fine if you only want to see 15-20 patients per day. I wouldn’t necessarily say RUN- this might make a nice little satellite office for someone who already has a practice depending on location, or you might buy it if you can get it at the right price, and move into a larger office or use it as a satellite after opening a main office. But I wouldn’t pay a ton of goodwill for this situation. Calculate the revenue you’d generate versus what you’re paying for it and make sure you are making something out of it otherwise you’re working for free!
Remind the owner I’d they can’t find someone to buy the charts they will be paying for storage!

Here are some questions to ask before you buy:
Should I buy a practice or start my own from scratch?