Medical practices in Sacramento, CA, and nationwide possess a variety of intangible assets. These include patient medical records, a trained workforce, and non-compete agreements. These assets are usually referred to as “goodwill.” Medical practice goodwill can be an essential 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 is typically the expected earnings of the practice. As is the case on Wall Street, companies with the highest expectations for future earnings tend to be more valuable. They will have more highly valued intangible assets.
Some practices for family physicians, internists, and pediatricians can yield net incomes of between $400,000 and $500,000 per physician. These practices have a lot of goodwill in the medical field, driven by those earnings. In contrast, there are practices in those specialty areas where practitioners earn significantly less than $100,000 per year. This second group of medical practices generally has much less goodwill.
Of course, medical practice goodwill is a highly subjective aspect of valuing a medical practice. Other factors influence goodwill, in addition to anticipated earnings. These include the level of competition, the types of patients at the practice, physician work habits, the third-party payer mix and fee schedules, and the location of the medical practice. Staff and marketability also play a role.
For instance, if a practice is located in an area where the patient-to-doctor ratio for the specialty is at or below average, particularly where physicians earn a higher-than-average income, the practice’s goodwill is likely to be more valuable.
Compare this with a practitioner who wants to start a new practice or come into another practice. The Buyer is less assured of earning a typical income for that specialty. However, in an area with a short supply of physicians in particular specialties, it can be less complicated for a new doctor to start a practice or join another and earn a good income.
In such circumstances, even if physicians earn above-average compensation for their specialty, goodwill may remain 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 fewer 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, such as Andrew Rogerson of Sacramento, will tell you that medical practices with a large number of patients with chronic illnesses tend to have more goodwill. This is compared to 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 Mean More Goodwill
Research has shown that there’s a direct connection between a physician’s income and the time they spend working at the practice. Because medical care is typically reimbursed based on the number of services provided, the more hours a doctor works and the more patients they treat, 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.
Practicing with a potent payer mix is likely to generate more goodwill. Medical practices with a high volume of Medicaid or self-pay patients tend to have lower collections than those 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 practices have a significant impact on the practice’s goodwill. This is particularly true in practices that employ physician assistants (PAs) and nurse practitioners (NPs). Practices that utilize physician assistants (PAs) and nurse practitioners (NPs) effectively will realize an income benefit. These individuals will generate income above their pay and cover their associated overhead.
Primary care physicians in family practice, internal medicine, and pediatrics are highly marketable. Estimates indicate that a physician purchasing a practice from another primary care doctor will retain approximately 85% of the practice’s patients.
However, referrals for specialty and subspecialty practices have some valuation issues: a physician who purchases a solo practice dependent upon referrals from another doctor will have a less specific patient transition.
However, the larger the specialty or subspecialty practice being purchased, the greater the certainty the Buyer will have that the referral relationships and patients will remain with the practice when the new owner takes over. Additionally, 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 receive expert advice on determining your practice’s value and the optimal selling price, as the cost depends significantly 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 a complex process.
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 do you 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. Rest assured, all aspects of selling your medical practice in California will be handled with care and expertise.
With their help, you can sell your medical practice at top dollar. Here are some of the valuation tactics that Rogerson Business Services, expert brokers in California, can 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 valuing a medical practice? Leave a comment below, and we’ll be happy to help!
Finally
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 obtain the best price for your medical practice by accurately valuing your business, identifying the right Buyer, and negotiating favorable 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. He can be reached Toll-Free at (844) 414-9700 or by email at support@rogersonbusinessservices.com. He services the whole state of California.
This is part of the tips for Doctors wishing to sell their California medical practice and retire series ->
Further Reading