APMA News - January/February 2018 - 26

What to Consider When Buying or
Selling a Podiatry Practice

By Sean R. Saari, CPA/ABV, CVA, MBA
Partner, Skoda Minotti

s a podiatrist, you see patients all day
best represented by its Adjusted Net Asset value in
long. What you don't do every day
these cases.
is buy or sell a practice-in fact,
such an event may be something you do
Income Approach
only once in your life, if at all. With that in
Two income-based approaches are
mind, APMA prepared a guide (www.apma.
primarily used when valuing a business:
org/practicetools) to provide podiatrists with
◆ Capitalization of Cash Flow Method
an overview of the process of purchasing or sell◆ Discounted Cash Flow Method
ing a practice, from pre-transaction planning to
post-closing considerations. This
These methods are used to valarticle provides a high-level overue a company based on the amount
view of one component of the
of income the company is expectThe value of a podiatry practice
guide: the valuation of a podiaed to generate in the future.
being bought or sold is often
try practice.
The income approach is comone
of
the
most,
if
not
the
The value of a podiatry pracmonly used in valuing profitable
tice is often one of the most, if not
physician practices with multiple
most, discussed components
the most, discussed components
partners because it reflects the inof any transaction.
of any transaction. Three different
tangible/goodwill value that is supapproaches are used in the valuaported by the practice's earnings. It
tion of companies-the asset approach, income approach,
is more common for practices with multiple physicians to have
and market approach:
intangible/goodwill value because there are more physicians
across whom to spread the company's fixed costs, which creates
Asset Approach
a greater likelihood there will be income remaining after the
The most commonly used asset-based approach to valphysicians' compensation is adjusted to fair market value for
uation is the Adjusted Net Asset Method. This balance
their services.
sheet-focused method is used to value a company based
on the difference between the fair market value of its asMarket Approach
sets and liabilities. Under this method, the assets and liaTwo market-based approaches are primarily used when
bilities of the company are adjusted from book value to
valuing a business:
fair market value.
◆ Guideline Transaction Method
The Adjusted Net Asset Method is commonly used in
◆ Guideline Public Company Method
valuing small and marginally profitable practices because,
in those cases, there is likely not sufficient income remainThese methods are used to value a company based on the
ing that would support any intangible/goodwill value afpricing multiples observed for similar companies that were
ter adjusting physician compensation to fair market value
sold or are publicly traded. The Guideline Transaction Methin the valuation analysis. This situation is common with
od and Guideline Public Company Method are not as comsolo/small practices because there is less operational levermonly used in the valuation of podiatry practices as they
age and there are fewer physicians across whom to spread
are in the valuation of non-physician entities because of the
the company's fixed operational costs. As a result, the fair
Stark and Anti-Kickback laws that apply to physician practice
market value compensation for a solo podiatrist is often
transactions. In addition, because of the location-specific nasimilar to all of the income remaining after all other exture of each podiatry practice (demographics, insurance conpenses are paid, leaving little to no remaining income as a
tract reimbursements, etc.), finding truly comparable transacreturn on investment. Therefore, the value of the practice is
tions and public companies can be difficult.

Graphic by Shutterstock/Julia's Art.

26 APMA News January/February 2018

http://www.apma.org/practicetools http://www.apma.org/practicetools

Table of Contents for the Digital Edition of APMA News - January/February 2018