Practice Valuation

There are a number of ways to value a professional practice.  We utilize the cash flow method based on normalized earnings because an educated buyer won’t agree to pay a purchase price that can’t be supported by the practice cash flow.  Under this method, the normalized earnings need to be enough to pay the debt service on a ten year loan in the amount of the purchase price, on an after-tax basis. Fair compensation to the buyer must be deducted as part of the normalized earnings calculation. The buyer isn’t going to take a pay cut to buy the practice. If real estate is also being sold, its value will be dependent on the amount that the practice can afford to pay to acquire and maintain it.