Key Considerations When Valuing a Medical Practice

by | Accounting, Blog

The fair market value (FMV) of a medical practice is the price that a willing buyer and seller would agree upon in an arms-length transaction, assuming both parties have a reasonable understanding of the relevant facts and market conditions.

Determining the FMV of a medical practice can be complex and typically requires the use of professional valuation services. The valuation process may include a review of the practice’s financial statements, patient data, staff information, and other relevant information. Additionally, the valuator may consider the factors outlined in my previous answer, such as revenue, patient base, location, staff, equipment and technology, reputation, lease or ownership, and competition.

The FMV of a medical practice can also be influenced by market conditions, such as the current demand for medical practices, the supply of practices available for purchase, and the state of the economy.

It’s important to note that the FMV of a medical practice may differ from its asking price or actual sales price, and that a professional valuation should be conducted to determine the FMV of a specific practice in its current market conditions.

There are several key factors to consider when valuing a medical practice:

  1. Revenue: The practice’s historical revenue and growth rate, as well as the expected future revenue and growth.
  2. Patient Base: The size and demographics of the patient base, as well as their insurance coverage and other factors affecting revenue.
  3. Location: The practice’s location, including demographic, economic and geographic factors that may impact revenue.
  4. Staff: The qualifications, experience, and stability of the staff, including physicians, nurses, and support personnel.
  5. Equipment and Technology: The value and age of the practice’s equipment and technology, including diagnostic and treatment equipment, as well as computer systems and software.
  6. Reputation: The practice’s reputation, including patient satisfaction, word-of-mouth referrals, and online reviews.
  7. Lease or Ownership: The terms and conditions of the practice’s lease or ownership of its facilities, including rent, repair and maintenance responsibilities, and lease renewals.
  8. Competition: The level of competition in the local market, and how the practice differentiates itself from its competitors.

These are just some of the factors that may impact the value of a medical practice. A professional valuation may consider additional factors, such as regulatory and legal considerations.


Written By: Nataliya Kalava

Ms. Kalava is the founder and managing director of American Valuations. Nataliya has over 12 years of experience in the field of finance.