Determining the value of a practice has provided employment and fees for many. There are almost as many methods of determining value as there are appraisers. Although not quite the fact, when one ventures into this area of the business of eyecare, it may seem that way. There are techniques which rely on the time-tested methods used in valuing most businesses. In other examples, gross income, net income, location, potential, ability to generate funds to pay for the purchase from net are used.

Dr. Brad Williams of Williams Group says that as an initial rule of thumb, present day practice sales typically fall into the 40-60% of gross range. In this area, we will attempt to provide information on a number of more refined methods of determining the value of a practice. But as with any investment, a primary concern of the buyer should be the potential return on investment.

Always insist on a professional appraisal!

Factors that increase the relative price of a practice:

• Gross revenue trends - Up is good, down is bad
• Current net income and net income trends - cash flow is critical, and has a big effect on practice value. Net income can be an indication of cash flow.
• A well-trained, loyal, and experienced staff - the rate of staff turnover is also a factor
• A broad source of revenues - not limited to one plan or one company's employees
• The amount of "local" competition
• Appearance and location - as with real estate, often the most important factor is location.
• The condition of the records - patient, personnel, and financial

Reference Articles

• Gary Gerber's "Buyer Beware"
• Articles by Gary Moss, OD, MBA, FAAO
      "Valuing an Optometric Practice" - available through the AOA
      "Determining Practice Value" - also available through the AOA
• "Determining Practice Value"