Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Putting a Number On It: Let’s
Value Your Audiology Practice
Gretchen A. Magee, AuD
Private Practice Audiologist
Member of the AAA Business
Enhancement Strategies and
Techniques Committee
1
Show Me the Money!
1.
2.
3.
4.
Identify and understand quality features in their
practice
Apply basic computations to determine the overall
value their own practice
Identify key risks a potential buyer/investor will
assume and take action to reduce those risks and
maximize value.
Align their expectations for a future sale more
closely with market realities
2
Exit Strategies
Plan your exit when you start the business. Final
stages of exit at 3-5 years before sale.
Take time to understand how your chosen exit
affects business planning.
Consider the cost of each strategy.
Be aware that your investors will have their own exit
strategies.
Plan well ahead for a satisfying life when you leave
your current business.
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Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Team Players







Accountant
Lawyer
Business Valuator
Tax Professional
Personal Financial
Advisor
Insurance Professional
Personal Advisors
4
Preparation – Financials/Data
Be Prepared to Have the Following:
3 Years of Financial Data
3 Years of Tax Returns
Year-to-date P&L - 60-90 Days Out
Write-offs and Adjustments
Practice Mixes
Debt and Liabilities
Profit
Community Demographics
5
Is Your Practice an Investment?
Investment
An asset purchased with
the idea that the asset will
provide income in the
future or appreciate and
be sold at a higher price.
Career
An occupation or
profession, especially one
requiring special training,
followed as one’s lifework.
Generates annual income
and a long-term gain
Generates annual income
only.
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2
Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Timing is Everything



Company
Personal
Market
Which makes the
biggest impact?
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Perceived Value of Your Practice
Investment
Owner takes steps to better
understand company value
so that expectations match
reality
Low
Career
Owner does not understand
company’s value and bases
expectations on rumors or
guesses
Value
High
How the market values your practice
How most owners value their practices
8
Take the Buyer’s Perspective
Cash Flow & ROI
Is the business profitable and
growing?
What kind of loan can the cash
flow support?
Staffing
Is the owner a major revenue
producer?
Would office staff stay with the
business?
Ease of Operations
Is Marketing Plan established?
Are office procedures and staff
in place?
How stable are employees?
Risk
What happens if the owner
leaves?
Is there a reliance on certain
payers or revenue streams?
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Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Who Is Your Audience?

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
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
National Corporation
Small Corporation
Individual
Employee
Family Member
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Investment Potential
Low Payer Risk
Low Owner Risk
Low Referral Risk
Attractive Investment
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Income/Cash Approach


An Audiology Practice is worth the amount
you would pay today to receive a stream of
earnings (Cash Flow) in the future.
Looks at Two Components (Time – Risk)
–
–
Timing – Money you receive in 5 Years is Worth
less than Cash in Hand.
The Amount Received & Likelihood of Receiving The Riskier the Future Cash Flow – Lower Value
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4
Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Reducing Risks
Employee Risk
Owner Risk
Financial Risk
Legal Risk
Payer Risk
Economic Risk
Risk of Disruption
Referral Risk
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What has Value?
Tangible Assets
P&L
Equipment
Future Revenue &
Inventory
Cash Flow
Furnished Office Intangible Assets
Files
Name
Contracts
Goodwill
Does any of it have value without you?
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Business Evaluation - Tangibles
Assets
Liabilities
Volume of Sales
Volume of Cases
Billings to Insurance
Carriers
Accounts Receivable
Fixed Costs
Variable Expenses
Add Backs
Lease Terms
Profits
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5
Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Business Evaluation - Intangibles
Location Now and in the Future
Reputation of Owner(s)
Reputation by Referral Sources
Image Presented by the Office Staff
Look and Feel of the Office
16
Value of Tangible Assets



Actual Cost
Book or Depreciation
Value
Replacement Value or
Fair Market Value
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Digital Assets
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Documentation of Digital
Assets
 Domain Name
Registrations/Website
 Server Passwords
 Online Merchant
Accounts
 Patient Files
*Potential use of Legacy
Locker or Cloud
Storage
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Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Property Value
Net Operating Income = (Rental + Non-Rental
Income) – Operating Expenses
Value = Net Operating Income/CAP (10% or
value given by banker/broker in area)
CAP Rate is Return on Investment
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Simplified Method for Determining
CAP/Discount Rate


Businesses in a highly competitive industry that
require little capital to enter, no management depth,
and have a high element of risk, although the past
record may be good. (16-20%)
Small businesses that depend upon the special skills
of one or two people, or larger established
businesses that are highly cyclical in nature. In both
cases, future earnings may be expected to deviate
widely from projections (21-25%)
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Accounting Methods Used for Offers



Asset Value – used when a business has a
large inventory of valuable equipment
Liquidation Value – calculation of the fixed
assets if the business was forced to see in a
year
Comparative Value – what other businesses
sold for in the same area
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7
Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Income Multiplier
Practice Value =
(Pretax Profits + Owner’s
Salary + Add Backs from
Perks + Interest Income +
Depreciation (Allow for
capital expenses)) x
(Multiplier of 1, 2, or 3)
22
Add backs
Add backs to net profit are those expenses that would not
ordinarily be incurred by the new owner.
Owners may take certain “perks” to offset taxable income.
1.
2.
3.
4.
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5.
Automobile Allowances
Higher Owner Salary
Family Member Salary
Continuing Education
Travel
Value
Annual Gross
Revenue
Patient Contact Hours x
$Rate = Value
Establish a Floor and
Ceiling Price
Tangibles + Goodwill) –
Liabilities = Value
Net Annual Earnings
Multiple Method
(Average Gross
Revenue/2) x (1, 2, or
3) = value
Goodwill = Avg Gross
Revenue for a Year –
Expenses
1.
3.
2.
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8
Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Putting a Value on Goodwill
Discounted Percentage of
Net Cash Flow
(Gross Revenue –
Expenses) x
(Percentage of Patients
Likely to Stay with the
Practice) = Goodwill
Capitalization of Practice
Net Earnings Above the
Average Practice in
Specialty and Area
Market Comparables
*May Not Be Available
25
Interest Rates with Value
More Buyers in the Market +
Increased Buyer Motivation = Positive Value


Short-Term Rising Interest Rates Increase
Value
High Interest Rates Lower Business Values
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Financing Options
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Lending institutions
SBA
Owner/Partner
Financing
Manufacturer
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Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Take Action


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Pay attention to proposed changes to tax codes and
interest rates, and the likely implementation dates.
Be flexible, and adjust the timing of your
sale/expantion to capitalize on the right market.
Get to know the major buyers/investors. Learn about
what they look for and what you can do to make
yourself more valuable to them.
Make your business sellable.
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6 Steps to Maximize Value
1)
2)
3)
4)
5)
6)
Time it Right
Price it Properly
Be Open-Minded
Seek Professional Advice
Prepare Clean Financials
Make it Turnkey
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Make Your Practice Turnkey

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Accounting System
Practice Management
System
HR Systems
Business Profitable and
Growing
Strategies and
Processes in Place
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10
Putting a Number On It: Let’s Value
Your Audiology Practice Web
Seminar
Recorded April 16, 2014
Making the Sale
Time Period of Several Months
 Due Diligence
 Confidentiality Agreement
 Letter of Intent
May Lead To . . .
Purchase Agreement
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Q&A
To ask a question, please
type your question into the
chat box in the lower left
corner of the screen and
click on the “Send” button
located right below the box.
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Putting a Number On It:
Let’s Value Your Audiology Practice
[email protected]
*Remember to Reduce Key Risk Factors
and Take Home Top Dollar for Your
Practice
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