Developing Goodwill in Your Medical Practice
Medical practices in Sacramento, CA, and around the country have a variety of intangible assets, including patient medical records, a workforce in place, and non-compete agreements. These assets are usually referred to as “goodwill.” Medical practice goodwill can be an important element in valuing a medical practice when an owner is preparing to sell.
How Does a Practice Acquire Goodwill?
The most significant component in calculating medical practice goodwill typically is the expected earnings of the practice. As is the case on Wall Street, the companies with the highest expectations for future earnings are more valuable and will have more highly valued intangible assets.
Some practices for family physicians, internists, and pediatricians can be valued with net incomes between $400,000 and $500,000 per physician. These practices have a lot of medical practice goodwill that’s driven by those earnings. In contrast, there are practices in those specialty areas where the practitioner earns much less than $100,000 per year. This second group of medical practices generally has much less goodwill.
Of course, medical practice goodwill is an extremely subjective part of valuing a medical practice. In addition to anticipated earnings, other factors that influence goodwill include the competition level, the types of patients at the practice, physician work habits, the third-party payer mix and fee schedules, the location of the medical practice, other staff, and marketability. For instance, if a practice is in a location where the patient-to-doctor ratio for the specialty is at or below average—particularly where physicians earn a better than average income—the practice’s goodwill is apt to be more valuable. Compare this with a practitioner who wants to start a new practice or come into another practice. He or she is less assured of earning a typical income for that specialty. But in an area with a short supply of physicians in particular specialties, it can be less difficult for a new doctor to start a practice or join another and earn a good income. In those circumstances, even if physicians earn better than average compensation for their specialty, there may be some goodwill in the practice. In many instances, these practices are found in medically underserved areas. That’s because they’re not traditionally desirable places for physicians to live and work. This could be a rural area with less educational, social, and cultural attractions…or in an inner city with a lower socioeconomic patient base and higher crime rates.
Which Practices Have More Goodwill?
Business experts like Sacramento’s Andrew Rogerson will tell you that medical practices with a large number of patients with chronic illnesses have more goodwill than those with fewer of these patients. By way of illustration, an internal medicine practice with an above-average number of diabetic patients will be more likely to realize more income from these patients (along with greater goodwill) than practices with generally healthy patients.
More Work Hours Means More Goodwill
Research has shown that there’s a direct connection between a physician’s income and the time he or she spends working at the practice. Because medical care is typically reimbursed by the number of services provided, the more hours a doctor works and the more patients treated—the more services are provided. Of course, individual results may vary, but a practice group that establishes expected work schedules and practices more hours usually sees more goodwill in their practice.
Practice with a strong payer mix will likely have more goodwill. Medical practices with a lot of Medicaid or self-pay patients typically have lower collections than practices that can attract patients with desirable insurance coverage. Thus, there could be a significant difference in goodwill between two practices providing the same services to the same number of patients.
Medical Practice Goodwill by Staffers and Patient Retention After a Sale
Non-physician employees in medical practice have an impact on its goodwill, particularly in those practices that employ physician assistants (PAs) and nurse practitioners (NPs). Practices that use PAs and NPs appropriately will realize an income benefit because these individuals will generate income above their pay and cover their associated overhead.
Primary care physicians in family practice, internal medicine, and pediatrics have shown to be extremely marketable, with estimates stating that a physician who purchases a practice from another primary care doctor will retain roughly 85% of the practice’s patients. However, referrals for specialty and subspecialty practices have some valuation issues: a physician who purchases a solo practice of a doctor dependent upon referrals will have a less certain patient transition. But the bigger the specialty or subspecialty practice being purchased, the greater the certainty the buyer will have that the referral relationships and patients will stay with the practice when the new owner takes over. In addition, those practices that provide ancillary services typically have more value than those that don’t.
Start to Sell Your Medical Practice Today
Start your preparations and get expert advice on determining your practice’s value and the optimal selling price—because the price depends to a great extent on how the business sale is handled. You want a well-conducted business marketing campaign for a successful sale at the best price, not a fire sale.
Work with an experienced business broker who can help you with all of these issues. Andrew Rogerson is a business expert who has negotiated hundreds of medical practice sales in cities throughout the Sacramento Region. He’s helped numerous physicians sell in Elk Grove, Rocklin, Folsom, Davis, Citrus Heights, Rancho Cordova, Roseville, Cameron Park, and El Dorado Hills.
Final Take
Selling your medical practice in California doesn’t have to be difficult.
By following these four tips – understanding what buyers are looking for, knowing what they’re willing to pay, looking for buyers in the right places, and negotiating the best price – you can increase your chances of finding the right buyer and getting the best price for your medical practice.
Are you ready to sell or need some help deciding? Contact us today at this toll-free number (844) 414-9700 or simply email us at support@rogersonbusinessservices.com
Rogerson Business Services: Why Hire Their Expertise
Overall, by working with a qualified medical business broker during your sell-side process, you can feel confident that all aspects of selling your medical practice in California will be handled with care and expertise.
With their help, you will be able to sell your medical practice at top dollar. Here are some of the valuation tactics that Rogerson Busienss Services, expert brokers in California help you achieve your goal:
- How To Increase Company Valuation? 4 Value Drivers You Need To Know
- What is Quality of Earnings Analysis: Sell a Business Due Diligence in California
- Adjusted Financial Statements When Selling a Business in California
- SDE Adjustments To Make Before Selling a Business in California
- How Do I Calculate The Value Of My Business To Sell In California
- What is My Business Worth? | Valuing and Selling Your Business
- How Much is a Business Worth to Sell | Determine Business Worth
- Income Approach Valuation | Finding Business Worth Easy
- How To Value A Business Quickly: Best Business Valuation Formula
- Seller’s Discretionary Earnings (SDE) Valuation | Selling a Business in California
- Financial Due Diligence When Selling a Business
Do you have any questions about how to value a medical practice? Leave a comment below and we’ll be happy to help!
Conclusion
If you are thinking about valuing and selling your medical practice in California, then working with a medical broker is a great option. A medical business broker can help you get the best price for your medical practice by doing things like valuing your medical practice business correctly, finding the right buyer, and negotiating the best terms. If you are ready to sell your medical practice business, contact Rogerson Business Services today.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700 or email him at support@rogersonbusinessservices.com services the whole state of California.
This is part of the tips for Doctors wishing to sell their California medical practice and retire series ->
