What is the value of my optometry practice?
Whether you are planning for succession, welcoming new partners or simply taking stock of the health of your optometry business, it is important to know the value of your practice.
Start with the balance sheet
Of course, the balance sheet is a valuable source of information on the value of your business, as it summarizes the tangible assets of your business. The balance sheet is made up of the clinic's assets (such as cash, inventory, or materials and equipment) and liabilities (such as amounts payable to suppliers and the government, or bank financing).
However, the value of your optometry clinic is not only the assets presented on the balance sheet, but also the "added value" that you have created throughout your career.
This added value or goodwill reflects, among other things:
- Your clinic's brand/ reputation;
- The relationships you have built with your clients; and
- The efficiency of the clinic’s operations.
This added value or goodwill is the reason why the fair market value of your clinic may exceed its accounting book value (the sum of its assets minus the sum of its liabilities).
The fair market value
In business valuation, fair market value is generally the most common value concept used. Fair market value refers to the theoretical value at which the clinic would be sold to a potential buyer.
Therefore, the concept of fair market value must take into account added value or goodwill.
It is important to note, however, that the theoretical calculation of fair market value may differ from the actual price that the clinic may sell for, since certain external parameters come into play when establishing a price (for example, the relative negotiating power of each of the parties or the financing structure of the transaction).
There are three main approaches to determining the fair market value of a business:
- The asset-based approach;
- The earnings or cash flow approach; and
- The market approach.
Each approach includes several methods which must be adapted to the particularities of the business being valued. It is important to call upon the services of a professional in this field who has an in-depth knowledge of business valuation in order to avoid potentially harmful consequences. Vision Entrepreneur program experts of the OSI Group can help you adopt the best approach to your optometry clinic. Contact us today!
David Meslati, CPA and Chartered Business Valuator with MNP
