 | VALUATIONS / PRACTICE APPRAISAL
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Formula for Buy/Sell Agreements
There are usually three business values options to deal with
in the death, disability, and divorce (leaving the business)
of a partner or shareholder in a veterinary hospital. The
business values are usually a percentage of a formula utilized
to value the business.
The value of the business is a hybrid between the asset and
income approaches of valuing a company. The formula includes
the fair market value of all the tangible assets, and a value
for goodwill, less liabilities. The tangible assets usually
include drugs and supplies, medical equipment, office equipment,
computer equipment, leasehold improvements, furniture fixtures,
prepaid rent, prepaid insurance, and other prepaid expenses.
The liabilities include accounts payable, accrued expenses,
and notes payable. The goodwill is the "excess earnings"
times a capitalization rate between 2.5 and 4.2.
A very common formula for our clients is:
Assets at Fair Market Value + Excess Earnings times
3.5 - Liabilities
Understand this formula is relatively conservative, and usually
adjusted by a percentage depending on the circumstances. The
common percentages applied to the above formulas are:
Death = 100%
Disability = 90%
Divorce = 65%
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