Appraisals

Appraisal ValuationIf you are a practice owner, there comes a time when you, or your heirs, must sell or transfer your practice to a partner, associate or outside buyer in order to recoup the value you have built up over years of hard work.

How to Prepare for an Appraisal

Because you are usually dealing with an asset worth hundreds of thousands of dollars, the starting point for all sale-related planning should be a professional appraisal. If the goal is to sell your practice in the near future, an appraisal can help you support a realistic asking price to potential buyers and thereby expedite the selling process. If your timeframe is more long term, an appraisal can show you things that need to be done in order to enhance the future selling price.

Appraisal Valuation FAQs

Q: Who do you favor in an optometric appraisal: the buyer, the seller or the person who hires you?

A: The role of an optometric appraiser is to be unbiased. In fact, providing an unbiased opinion is required by the Uniform Standards of Professional Appraisal Practice.

Q: What’s the best formula for calculating the value of a practice?

A: This is a question we often get asked and frankly, there is no quick and easy answer. Doing an appraisal is like preparing a tax return. A qualified financial professional should work through a variety of computations to determine the right value for a practice. Important considerations are demographics, revenue and expense trends, financial ratios, efficiency ratios, practice net and cash flow.

While some appraisers like to use rules of thumb such as ‘one year’s gross,’ ‘net plus inventory,’ or ‘three times net,’ these rough guidelines are all based on simple averages. The problem is that all practices are different, and as such, they should be evaluated differently.

For example, according to our in-depth database, values ranged from a low of 16% to a high of 82%, with the majority of practices within a 40% to 70% range. Obviously, there were significant differences between the practices. Practices with the same net might not have the same value due to differences in the demographics of the drawing area and other risk factors.

For this reason, rules of thumb should not be applied when the result will be used in an actual sale transaction. The best advice we can really offer is that high-net, high-volume practices tend to have larger price-to-gross percentages than low-volume or low-net practices.

Q: How long does it take to do an optometric appraisal?

A: The length of time is primarily dependent on how long it takes the optometric practice seller to provide information and to fully and accurately answer questions. Once all the documents have been received and the questions have been answered satisfactorily, the optometric appraisal takes approximately four weeks to complete.

Q: I have a good optometric practice, but it could do much better if a young buyer fixed up my office and raised the fees. Will you factor that into your optometric appraisal?

A: Part of your job as the seller is to paint the future earnings potential of your optometric practice in the best possible light to prospective buyers. Our job as neutral third party optometric appraisers is to come up with an unbiased value based on the current financial performance of the optometric practice.

Q: I have located an optometric practice that I am interested in buying and the seller has named a price that seems fair. Why would I need an optometric appraisal?

A: The main reason you need an optometric appraisal is so you know for sure that the ‘true net’ of the practice will provide both a reasonable salary for you and enough cash flow to pay off the optometric practice loan. If you are borrowing money for the purchase, the lending institution will also likely require an appraisal.

Q: What is the final product after an appraisal?

A: After completion, the client receives an in-depth report that provides the details and conclusions of the analysis. The reports run between 50 and 70 pages and include explanatory tables and graphs. All reports include a Justification for Purchase Test (aka a sanity check), which mathematically validates that the cash flows of the practice will allow the buyer to take fair market value compensation and pay off the acquisition loan in a reasonable period of time.

Q: I have contacted several appraisers in the industry. What sets McDaniel & Scibal Consulting apart from its competitors?

A: The best way to compare optometric appraisers is to ask about their experience and education. In addition, you should ask what professional appraisal standards the appraiser follows. Dr. Scibal is an optometrist, and a certified business appraiser, the only one to hold that distinction in the optometric field. It includes certification-required attendance in training classes, passing a comprehensive exam, and successful completion of appraisals for peer review. To maintain certification, there are annual continuing education requirements.

Dr. Scibal’s work is in compliance with standards set by the Institute of Business Appraisers, which for the most part, are similar to the Uniform Standards of Professional Appraisal Practice. When appraisers do not follow generally accepted standards, we end up with widely varying numbers and reports that do not provide enough information for the client to make a well-informed decision. Opinions should be supportable. The reader of the report should not be expected to accept critical elements such as adjustments to financial statements, value calculations and sanity checks without support.

Rely on McDaniel & Scibal Consulting.