Optometric Strategies For Success library
How to Choose a Business Appraiser
So you’re ready to buy a vision care practice. Congratulations on taking this significant step in your career! But before you finalize your purchase, be sure to get a technically correct and professionally prepared practice appraisal as this can influence whether a deal is ultimately completed and you can get a loan.
The practice appraisal provides the basis for establishing fair value, and a professionally prepared appraisal adds credibility to the asking or offer price. The more credible the appraisal, the more likely you are to make a deal that is a win/win for both parties.
Look for these qualities when choosing a business appraiser to ensure you get an accurate appraisal that meets everyone’s objectives.
1. The appraiser has some type of business accreditation or certification. This means he or she has passed a comprehensive test including a peer-reviewed sample report. In addition, the appraiser completes continuing education in appraisals each year.
2. The appraiser follows standards set by one of the well-known professional appraisal groups such as American Society of Appraisers (ASA), Institute of Business Appraisers (IBA) and the Appraisal Foundation, which establishes the Unified Standards of Professional Appraisal Practice (USPAP). Lack of professional standards often results in incorrect methodologies, abbreviated financial analysis, and a report that doesn’t provide all the relevant information to define what’s being appraised, the level of value, the standard of value, how the demographics of the drawing area affect business risk and how the practice compares to norms for the industry. The report must show the detail of the work that was performed, the formulas used and the results of each formula.
3. Reports include a Justification for Purchase Test (sanity check), which shows that the indicated practice value will allow the buyer to take reasonable compensation and pay off the note in a reasonable period of time. If it doesn’t show positive cash flow, the buyer won’t be able to get a loan.
4. The appraiser never advocates for a particular party. An appraiser who is following ethical guidelines has a duty to advocate for the appraisal only – not for a particular party.
5. The appraiser uses generally accepted methodologies, which include the Asset Approach, the Market Approach and the Income Approach. The appraiser picks the methodologies that are relevant to each particular case. If the practice is a going concern (it is profitable and assets are greater than liabilities), the asset approach is typically not used.
6. The appraiser does not incorrectly apply ‘rules of thumb’ from one industry to another, as rules of thumb are industry specific. For example, applying a rule of thumb for an accounting firm (value equals one times gross revenues plus hard assets) to an optometric practice will often yield a value that is too high to pass the sanity check. The typical range of values for optometric practices is 40% - 70% of gross revenues. Although values do sometimes fall outside the norm, a practice that appraises for more than 70% of revenues should be in the upper 5-10% of practices within the United States.
Statements of opinion not necessarily endorsed by the American Optometric Association or any of its subsidiaries, counsels, commissions, or agencies.
|Marilee Blackwell, MBA, is an accredited optometric business appraiser and leading financial professional in the eye care industry. Previously the assistant controller of a large, multi-specialty medical clinic in Texas, Ms. Blackwell has appraised hundreds of optometric practices and provided clients with advice on creating win/win deals. She can be reached at 800-588-9636 or Marilee@mblackwell.com.|
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