Question
How do the number of years in practice and number of patient files influence the value of a hearing care practice?
Answer
Craig Castelli: It has an influence, to a degree. A much more established business with a much larger file base presents greater stability and greater opportunity for the buyer. However, once a practice is at least five to seven years old, especially when practices get to ten years old, they have been around long enough so that there is not much difference in the value of a 10-year old practice and a 40-year practice. The value is driven by the P&L and some of those key risk factors.
You may have a 40-year old business, but if you have some major customer concentration risk, you might not be worth as much as a 10-year old business that is more profitable and has none of the customer concentration risk. There should be more stability in a mature practice, which is seven years or older.
Ron Gleitman: I think the other issue is analyzing the marketing strategy. If a seller has gone to the well and marketed to their database for the last three years to drive all their revenue, then your repeat business over predicted cash flow is going to be different in the future because repurchasing habits do not happen in one or two years. There is more risk involved.
This Ask the Expert was taken from the course, Advanced Transaction Strategies, by Craig Castelli and Ron Gleitman, presented in partnership with the Academy of Doctors of Audiology.
