December
4, 200X
Sylvan Gold, MD
Bone and Joint Medical Associates, PA
Hook Road Extension
Anytown, USA
Dear Doctor Gold:
In
accordance with your request, I have reviewed the profit-and-loss statements of
Sylvan Gold, MD
Bone and Joint Medical Associates, PA, (Subject Practice),
Hook Road Extension, Anytown, USA as
well as other pertinent statistical data and information in order to determine
the debt-free value of the patient records and tangible assets of the subject orthopaedic
and sports medicine practice.
I
have given careful consideration to the industry-specific and practice-specific
factors that affect value and, it is my opinion that, as of September 30, 200X,
the fair market value of the client records and tangible assets of the Subject
Practice is two hundred five thousand dollars ($205,000).
The above mentioned value takes into account market
conditions that determine the amount of professional compensation, but does not
consider the effect of the actual amount of physician wages.
If said wages is taken into account, it is my opinion that,
as of September 30, 200X, the debt-free value of the above mentioned assets of
the Subject Practice is one million three hundred fifty five thousand dollars
($1,355,000).
The fair market value
of the tangible assets and client records of the Subject Practice does not
include the value of the real estate located at Hook Road Extension, Anytown, USA or
the accounts receivable. These assets
should be valued separately.
Appraiser
assumes that the client records and the tangible assets of the Subject Practice
are owned free and clear of all liens and encumbrances.
I
hereby certify, to the best of my knowledge and belief, that the statements of
fact contained in this report are true and correct, and this report has been
prepared in conformity with the Uniform Standards of Professional Appraisal
Practice of The Appraisal Foundation and the Principles of Appraisal Practice
and Code of Ethics of the American Society of Appraisers.
Sincerely,
David
J. Shuffler
DJS/h
Bone and Joint Medical
Associates, PA
Hook Road Extension
Anytown, USA
September 30, 200X
CONTENTS
| PAGE
|
|
| EXECUTIVE SUMMARY | 3
|
| APPRAISAL
|
|
| Revenue Ruling 59‑60 | 7
|
| Standard of Value | 9 |
| Method of Appraisal | 10
|
| PURPOSE OF APPRAISAL | 14
|
| VALUATION | |
| Fair Market Value | 15
|
| Break Even Point | 16
|
FINANCIAL HISTORY |
17 |
STATEMENT OF QUALIFICATIONS,
LIMITATIONS AND CERTIFICATION |
19 |
EXECUTIVE SUMMARY
Date of Valuation: September 30,
200X.
Standard
of Value: Fair Market
Value.
Purpose
of Valuation:
Appraiser has
been engaged by Sylvan Gold, MD to appraise the debt-free value of the patient records
and tangible assets of the orthopaedic and sports medicine practice known as Bone and Joint Medical
Associates, PA for the purpose of the development
of a short- and intermediate- term strategic plan.
Production per full time equivalent
(FTE) physician is on par the 90th percentile of physicians gross
charges reported by the MGMA survey; total income collected for physicians charges is two times the survey median.
Bone & Joint Medicine Associates* |
MGMA
Report |
|
| Production per Full Time MD (FTE) | $8,094,001 |
$4,375,860
|
| Collections per Full Time MD (FTE) | $2,066,203 |
$959,537
|
| *Fiscal
2006 Production: 2.0 FTE
|
The following table indicates the mix of services
rendered:
| Examination, Re-examination, Office Visits | 7.8% |
| Hospital Consultations | .3% |
| Surgical Procedures | 83.0% |
| Ancillary Services, i.e. x-ray, physical therapy et cetera | 8.9% |
Form 1120S
(U.S. Income Tax Return for an S Corporation) of Bone and Joint Medical A, PA prepared by Hunter
Accounting Group, LLC, North Fair Haven Road, Anytown, USA, for the fiscal year
ended December 31, 200X, December 31, 200X and December 31, 200X indicate the practice generated
the following collections. Production was provided by the doctor.
YEAR ENDED |
PRODUCTION |
COLLECTIONS |
| 12/31/0X | NA |
$1,792,153 |
| 12/31/0X | $7,586,715 |
$1,755,395 |
| 12/31/0X | $8,094,001 |
$2,066,203 |
3
Fiscal production
and collections are on the rise; the interim trend in operations is strong.
| INTERIM PERIOD ENDED | PRODUCTION |
COLLECTIONS |
| 9/30/0X | $5,718,605 |
$1,167,168
|
| 9/30/0X | $6,771,382 |
$1,245,576
|
Normalized
practice overhead expense ratios exceed comparable practices in the MGMA survey
sample. Professional compensation is on
par with the market; EBITDA and normalized net cash flow are below market.
|
MGMA Report |
||
| Practice Overhead Expense Ratio | 63.0% |
50.6% |
|
| Cost of Clinical Supplies | 2.0% |
3.8% |
|
| Staff Payroll | 28.0% |
27.7% |
|
| Rent | 5.6% |
5.5%
|
|
| Insurance | 3.7% |
3.3%
|
|
| Employee Benefits | 4.7% |
4.6%
|
|
| Non-Primary Expenses | 19.0% |
5.7% |
The following table summarizes the
operating performance of the Subject Practice:
|
|
12/31/0X |
% |
12/31/0X* |
% |
|
Total
Collected Revenue |
$1,755,395 |
100.0% |
$2,066,203 |
100.0% |
|
Operating
Expenses |
$1,337,185 |
76.2% |
$1,301,314 |
63.0% |
|
Depreciation
& Amortization |
$80,689 |
4.6% |
$70,541 |
3.4% |
|
Gross
Practice Income |
$418,210 |
23.8% |
$764,889 |
37.0% |
|
EBITDA
|
$119,744 |
6.8% |
$84,571 |
4.1% |
*Normalized Statement of Revenue and Expense
The Subject Practice is well established
orthopaedic and sports medicine practice that possesses the external as well as
internal dynamics to drive it to higher levels of production and normalized EBITDA.
The socio-economic profile of the
catchment area is outstanding; the office is well located and easily assessed
and there is ample on-site parking for clients and staff. The market presence of Doctor Gold extends
the catchment area and provides a reservoir of potential new patients and
referents.
4
Referral patterns are strong. Doctor referents, together with the hospital
emergency room and non doctor referents, account for
70% of new patient referrals; existing patients generate 20% of new patients
with the balance generated from MCOs.
As
the present time, the active-client population numbers 1,513. The practice maintains 2,000 plus active and
inactive patient records. Ambulatory
patient encounters are on par with the 90th percentile of MGMA
survey.
However, despite
a number of certain strong practice-specific factors, the Subject Practice is under
managed and under potential. Analysis
indicates the Subject Practice is approaching the mature phase of its life
cycle.
Two factors
hold back production: patient load; production per full-time (FTE)
physician.
Three factors restrict EBITDA: contractual disallowances; accounts
receivable management; expense
management.
Even though ambulatory patient
encounters are on par with the 90th percentile of the MGMA survey,
encounters are on the wane and new patient generation lags comparable practices which restricts production.
While aggregate production per full
time equivalent (FTE) physician is on par with the 90th percentile
of physicians gross charges reported by the MGMA survey;
physician productivity is disparate.
| Fiscal 200X | Sylvan Gold, MD |
Rupert
Silver, MD
|
| Production per Full Time MD (FTE) | $5,371,536 |
$3,623,996
|
| Collections per Full Time MD (FTE) | $1,175,143 |
$692,917
|
| Interim 200X | Sylvan Gold, MD |
Rupert
Silver, MD
|
| Production per Full Time MD (FTE) | $3,744,242 |
$2,969,355
|
| Collections per Full Time MD (FTE) | $805,368 |
$702,636
|
Bone & Joint Medicine Associates* |
MGMA
Report |
||
| Contractual Disallowances | 79.9% |
51.1%
|
Accounts
receivable management is weak: unadjusted as well as the adjusted collection
ratio lags the benchmark; accounts receivable days on hand exceed the
benchmark.
Overhead
expense ratios are weak. Expense
management is sub-par which compromises professional compensation and
shareholder value.
5
The above named practice-specific
factors do not impinge the growth in production and operating income, but, together with the closure of Valley Hospital and
Medical Center and the Tri State County doctor to population ratio, challenge
future growth in production, operating income and EBITDA.
A comprehensive strategic management
plan designed to meet the above named challenges as well as network v. out of
network practice, new patient generation, patient service capacity, i.e. obtaining
ASC attending privileges and administrative weakness offers the Subject
Practice an internal market opportunity to generate additional production, raise
professional compensation and EBITDA and boost shareholder value.
It is the
opinion of Appraiser, that, as of September 30, 200X, the fair market value of
the patient records and tangible assets of the Subject Practice is two hundred
five thousand dollars ($205,000).
The above mentioned value takes into account market
conditions that determine the amount of professional compensation, but does not
consider the effect of actual physician wages.
If actual physician wages are taken into account, it
is the opinion of Appraiser, that, as of September 30, 200X,
the debt-free value of the above mentioned assets of the Subject Practice is
one million three hundred fifty five thousand dollars ($1,355,000).
The fair market value of the assets of
the Subject Practice does not include the value of the accounts
receivable. This asset should be valued
separately.
6
APPRAISAL
Revenue Ruling 59‑60
Revenue Ruling 59‑60, Internal Revenue
Bulletin 1959‑9, as modified by Revenue Ruling 65-193, I.R.B. 1965-2, and
Revenue Ruling 68-609, I.R.B. 1968-48, outlines as well as reviews the
approach, the methods and the factors that an appraiser should consider in
order to determine the value of a closely held company such as a professional
practice.
The following factors, which are
fundamental, require careful analysis:
(a) The nature of the business and the
history of the company or practice.
(b) The general economic outlook as
well as the outlook for the industry or profession.
(c) The book value of the capital stock
and financial condition of the company.
(d) Earning capacity.
(e) Dividend-paying capacity.
(f) Whether there is goodwill or any other
intangible value.
(g) The price of the most recent public
sale of the company stock and the size of the stock offering.
(h) The market price of the stock of
comparable companies that are actively traded on either a national, regional or
over-the-counter stock exchange.
Although the valuation of a closely
held company requires consideration of all these relevant valuation factors,
certain factors carry more weight than others.
A determination of value will depend upon the circumstances in each
case.
Earnings could be the most important
criterion in some cases, whereas the value of the tangible assets could be more
important in others. In general, primary
consideration should be accorded earning capacity in the valuation of a company
that sells products or services to the public.
If earnings are absent, then greater weight should be accorded the value
of the tangible assets.
In a public company, value is
determined by the market price of the common and preferred stock. In a closely held company or a professional
practice, value cannot be fixed by the capital markets. It can only be determined by the ability of
the business to generate profit.
In the final analysis, the value of a
specific closely held company or medical practice depends upon the degree of
optimism or pessimism the market has regarding the reliability and continuity
of its earning capacity. Uncertainty
decreases value.
The value of a medical practice is
determined by the likelihood of retaining business from existing patients and
obtaining business from new patients.
The emphasis is on the amount of professional goodwill that can be
transferred from one doctor to another.
This differs from a non-medical business where the emphasis is on
goodwill that stems from trade marks, product line,
brand name, et cetera.
Revenue Ruling 59-60 states that a
sound appraisal of a closely held company or medical practice considers
economic conditions which prevail as of the date of
the appraisal.
Although the appraiser should obtain profit-and-loss statements for a representative period
7
of time, emphasis should
be placed on current earnings, rather than a projection of future earnings,
which can be uncertain and speculative, or past events, which are unlikely to
recur.
In order to apply Revenue Ruling 59-60
in the valuation of a medical practice, it is necessary to capitalize current
earnings or discount future earnings at a capitalization rate or discount rate
that indicates the potential attrition or erosion in professional
goodwill. The most important criteria in
determining a capitalization rate or discount rate are:
a. The
national or regional economic outlook.
b. The
condition and outlook of the health-care industry and the medical profession.
c. The
quality of the earnings of the subject practice.
d. The
clinical excellence and unique characteristics of the practitioner.
8
Standard of Value
The fair market value of a medical
practice is the price at which the subject practice would change hands between
a willing buyer and a willing seller, when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell.
The hypothetical buyer and seller are
assumed to be able, as well as willing, to trade and are informed about the
property and the market for such property.
Fair market value takes into account
the special advantages of an established medical practice such as practice
reputation, patient management, maldistribution, location, professional
referents, operations and business management, et cetera that contribute to
earning capacity.
Fair market value indicates the likelihood
that patients of record will continue to purchase medical services from the
practice as long as the quality of patient care is satisfactory and
professional standards are maintained, and therefore, it reflects the amount of
professional goodwill that can be transferred from one doctor to another.
9
Method of Appraisal
There are three generally accepted
approaches that are used to determine the value of a medical practice: Income Approach, Market Approach, Cost Approach.
1.
Income Approach
The income approach either capitalizes
current earnings or cash flow or discounts future earnings or cash flow to
determine the present worth of the future benefits of an ownership interest in
a company or medical practice.
The two-income approach methods of
appraisal are:
A.
Capitalized-Return Method
The
capitalized-return method is used when the historical operating trend of a
company is indicative of its future operating trend. In other words, the annual rates of growth
(decline) in the operations of the company fluctuate around a trend line that
is predictable.
The
capitalized-return method converts a current stream of income into a standard
of value. The capitalization rate is a
divisor or a multiplier that is used to compute the present worth of a
single-period benefit stream. The
single-period benefit stream is the net earnings or net cash flow the practice
is expected to generate in the future.
There are many
versions of the capitalized-return method.
The capitalization-of-earnings method, debt-capacity method and
excess-earnings method are three of the most widely used. The capitalization-of-earnings method and the
debt-capacity method are similar because both compute the present worth of a
single-period benefit stream.
The
Capitalization-of-Earnings Method
The focus of
the capitalization-of-earnings method is on the rate of return a practice owner
or buyer expects to receive from his/her investment in the practice.
The rate of
return includes income as well as capital appreciation. The capitalization rate is determined by the
rate of return available in the market for risk-free investments plus a premium
to compensate the investor for the lack of liquidity and assumption of capital
risk.
The
Debt-Capacity Method
The debt-capacity
method capitalizes earnings or cash flow to determine the maximum amount of
debt that a practice can service.
The focus is
on the break-even point or the amount of total income collected the practice
must generate to meet all fixed and variable practice expenses as well as pay
the doctor(s) a market rate of compensation and amortize debt.
The capitalization rate, which is determined by the capital risk inherent in the
10
normalized net earnings or cash flow of the practice, determines the maximum
amount of money a prudent lender would extend to a qualified borrower. This is the maximum price a willing buyer can
afford to pay or the maximum financial leverage of the practice.
The
Excess-Earnings Method
The
excess-earnings method, which capitalizes the earnings or cash flow in excess
of a fair rate of return on the tangible assets to determine the value of the
intangible assets, uses two capitalization rates.
The
capitalization rate on the tangible assets is the rate of return required to
attract capital. The capitalization rate
on the intangible assets is the rate of return that is available in the market
for risk-free investments plus a premium for risk and the lack of liquidity.
B.
Discounted-Future-Return Method
The
discounted-future-return method is used when the future operating trend of the
company is expected to differ significantly from the historical operating
trend.
The
discounted-future-return method discounts a future stream of income in order to
determine its present value.
The discount
rate is the rate of return, i.e., income as well as capital appreciation, that
a practice owner or buyer expects to receive from his/her investment in the
practice.
The discount
rate determines the present value factors that are used to compute the present
value of multiple-benefit periods.
2.
Market Approach
The market approach assumes that the
value of a specific company or practice can be determined by establishing the
value of a guideline company or practice.
For example, the value of specific medical practice can be determined by
the ratio of the sale price to the total income collected of comparable practices which have recently been sold.
The market approach is based upon the
principle of substitution, which states that a prudent buyer will pay no more
for a practice than it would cost to acquire a substitute practice that
provides the same benefits.
3.
The Cost Approach
The focus of the cost approach is on
the value of the assets of a specific company or medical practice, not its
earning capacity.
Since the cost approach does not take
into account the earnings or cash flow that the assets produce, it disregards
intangible assets and concentrates on tangible assets.
The two-cost approach methods are:
11
A.
Net-Worth Method
The net-worth
method assumes that the value of a specific company or medical practice is the
value of the adjusted fair market value of its assets minus the adjusted fair
market value of its liabilities.
B.
Liquidation Method
The
liquidation method assumes the company or practice will cease to operate, sell
all its assets and use the proceeds to liquidate its liabilities.
A medical practice possesses unique
characteristics that a non- medical company does not possess. Consequently, certain valuation approaches or
methods of appraisal are not appropriate and should not be used to value a
medical practice.
For example, since few, if any, medical
practices are comparable, the market approach has severe limitations and should
only be used in conjunction with another appraisal method.
In a medical practice, the emphasis is
on the value of professional goodwill.
The cost approach disregards professional goodwill and concentrates on
the value of the tangible assets.
Since the discounted-future-return
method relies on a projection of future earnings, it can be speculative and
misleading. The excess-earnings method
focuses on the value of the intangible assets not the value of the business
enterprise. It is difficult to apply and
has a history marked by controversy and misuse.
In the opinion of the appraiser, the
debt-capacity version of the capitalized-return method of the income approach
is the most appropriate appraisal method for the valuation of a medical
practice.
The capitalization-of-earnings method
and the debt-capacity method are similar; both capitalize earnings or cash flow
to determine the present worth of a single-period benefit stream. However, since the focus of the debt-capacity
method is on the transfer risk or amount of goodwill that can be transferred
from one doctor to another, it is the most fitting method of appraisal to value
a medical practice
The Debt-Capacity Method is designed to
place a value on the practice that will simultaneously provide a practice owner
or buyer with enough time and cash flow to service debt, compensate him/her for
rendering professional services, and give the practice owner a realistic value
for professional goodwill.
DEBT-CAPACITY
METHOD
|
||||
| VALUE | = | (ADJUSTED NET CASH FLOW) |
X | AMORTIZATION FACTOR |
(CAPITALIZATION RATE)
|
||||
12
DEFINITIONS:
EBITDA
EBITDA or adjusted net cash flow is the
cash flow available for debt amortization before income taxes but after fixed
and variable expenses and professional compensation are paid. Non-recurring or extra-ordinary expenses as
well as excess professional wages and discretionary fringe benefits are
eliminated to normalize practice earnings.
Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio (DSCR)
reflects the capital risk peculiar to a specific practice as well as the
general economic outlook and the outlook for the health-care industry.
The DSCR indicates the attrition or
potential erosion of professional goodwill. The lower capital risk, the lower
the capitalization rate and the higher the value of the practice.
The precise DSCR depends upon medical
economics, EBITDA quality, the predictability of future EBITDA and the
perceived risk of attrition as of the date of valuation.
Amortization Factor
The amortization factor, which is the
statistical summation of the terms and conditions of a credit accommodation,
reflects the principal ratio and term of the loan.
The principal ratio, which is the
percentage of each loan payment that is applied to principal, is a function of
the interest rate and the term of the loan.
The term, which is the repayment period
of the loan, is determined by the term limit for commercial loans set by a
lender according to credit policy.
Since medical practice accounting is
cash basis accounting, income is recognized when services are collected, not
billed. Consequently, accounts
receivable reflect future, not current, income.
Since accounts receivable do not appear
on the balance sheet of a medical practice, the Debt-Capacity Method does not
take into account the value of the accounts receivable. These assets should be valued separately.
13
PURPOSE OF APPRAISAL
Appraiser has been
engaged to appraise the debt-free value of the patient records and tangible
assets of the orthopaedic and sports medicine practice known as Bone & Joint Medicine
Associates, PA. The appraisal
is being conducted to determine the fair market value of said assets for the purpose
of the development of a short- and intermediate- term strategic plan.
The effective
date of the appraisal is September 30, 200X; the date of the report is December
4, 200X.
In order to determine the fair market
value of the tangible assets and client records of the subject practice, the
appraiser reviewed Form 1120S (U.S. Corporation Income Tax Return) for the
fiscal years ended December 31, 200X, December 31, 200Xand December 31, 200X as
well as management reports and other pertinent statistical data and information
that was available.
The appraiser did not review the
profit-and-loss statements of Bone & Joint Medicine Associates, PA or other
pertinent statistical data for any prior or subsequent fiscal year or interim
period.
14
Fair Market Value
Upon careful
examination and analysis of the relevant industry-specific and
practice-specific valuation factors, it is the opinion of Appraiser, that, as
of September 30, 200X, the fair market value of the patient records and
tangible assets of the Subject Practice is two hundred five thousand dollars
($205,000).
The above mentioned value takes into account market
conditions that determine the amount of professional compensation, but does not
consider the effect of actual physician wages. If said wages is taken into
account, it is the opinion of Appraiser, that, as of September 30, 200X,
the debt-free value of the above mentioned assets of the Subject Practice is
one million three hundred fifty five thousand dollars ($1,355,000).
The fair
market value of the tangible assets and client records of the Subject Practice
doe s
not
include the value of the real estate located at Hook Road Extension, Anytown, USA or
the accounts receivable. These assets
should be valued separately.
Appraiser assumes
that the client records and tangible assets of the Subject Practice are owned
free and clear of all liens and encumbrances.
DEBT-CAPACITY
METHOD
| VALUE | = | (ADJUSTED NET CASH FLOW) (CAPITALIZATION RATE) |
X | AMORTIZATION FACTOR |
| ASSUMPTIONS: | FMV Doctor
Wages |
Actual Doctor Wages
|
| 1. EBITDA | $84,571 |
$84,571 |
| 2. DSCR | 2.040* |
1.039*
|
| 3. Amortization Factor | 4.9458 |
4.9458 |
*The equivalent capitalization rate for
the Capitalization-of-Earnings method FMV Doctor Wages is 41%; the equivalent
capitalization rate for the Capitalization-of-Earnings method Actual Doctor
Wages is 21%.
15
Break Even Point
Break
Even Point analysis indicates the amount of total income collected that must be
generated from patient-service activities to meet all fixed and variable
practice expenses, pay the doctor(s) a market rate of compensation for
rendering professional services and amortize the maximum amount of debt the
practice can service.
BREAK EVEN POINT = TOTAL FIXED COST
1.0
‑ % VARIABLE COST
DEFINITIONS:
Total Fixed
Cost: Any expense, such as fixed practice expenses,
professional compensation and loan amortization that does not vary with the
number of patient visits. Fixed practice
expenses include items such as rent, staff salary, insurance, and utilities and
telephone.
Variable Cost: Any practice expense, such as clinical
supplies, laboratory fees and non‑yellow page advertising that will vary with
the number of patient visits. % Variable
Cost is the ratio of variable cost to total income collected.
ASSUMPTIONS:
| ASSUMPTIONS: | FMV Doctor Wages |
Actual Doctor Wages |
|
| 1. Fixed Practice Expense | $1,288,667 |
$1,288,667 |
|
| 2. Doctor Compensation | $752,543 |
$520,116 |
|
| 3. Loan Amortization | $41,450 |
$273,971
|
|
| Total Fixed Expense | $2,082,660 |
$2,082,754
|
|
% Variable Cost |
2.1%
|
||
Assuming the fair
market value of the Subject Practice is two hundred five thousand dollars ($205,000)
re: FMV Doctor Wages, a buyer will need to generate total income collected of two
million eighty seven thousand sixteen dollars ($2,087,016) to break even given
the above assumptions.
Assuming the
fair market value of the Subject Practice is one million three hundred fifty
five thousand dollars ($1,355,000) re: Actual Doctor Wages, a buyer will need
to generate total income collected of two million eighty seven thousand one
hundred eleven dollars ($2,087,111) to break even given the above assumptions.
16
Bone & Joint
Medicine Associates, PA
Notes
to the Adjusted 12/31/0X Statement of Revenue and Expense
NOTE 1: Automobile
Expense
The adjusted statement considers the expense center
Automobile Expense a discretionary fringe benefit which
is a component of professional compensation not a practice expense.
NOTE 2: Entertainment
The adjusted statement considers the expense center Entertainment
a discretionary fringe benefit which is a component of
professional compensation not a practice expense.
NOTE 3: Gifts
The adjusted statement
considers the expense
center Gifts to be optional. If the
buyer chooses to bestow gifts, cash flow will be reduced accordingly.
NOTE 4: Travel
The adjusted statement considers the expense center Travel
a discretionary fringe benefit which is a component of
professional compensation not a practice expense.
NOTE 5: Professional Compensation
Gross practice income is made up of two
components: professional compensation
and net income before taxes.
Professional compensation, which includes, but is not limited to wages,
bonus, incentive compensation, and voluntary contributions to a 401(k), 403(b),
Keogh or Section 125 plan, but not employer contributions to any pension,
profit-sharing or other retirement accounts, life and health insurance,
automobile or other expense reimbursements, is the income earned by a doctor for
rendering professional services.
Market conditions determine the amount
of professional compensation.
Net income before taxes is the earning
capacity of the practice. It is profit
that accrues to the practice owner(s) and compensates him/her for capital
risk. Entrepreneurship and expertise in
management, marketing and administration determine the amount of net income
before taxes.
In order to determine professional compensation, the
appraiser reviewed the following professional publication and compensation stu6Data.
Upon careful examination of the data as
aforesaid, it is the opinion of Appraiser that
aggregate professional compensation is $752,543 or 36.4% of total income
collected.
NOTE 6: Interest
and Other Income (Loss)
17
The adjusted statement considers the profit center
Interest and Other Income (Loss) not to be a function of patient service
activities.
NOTE 7: Interest
Expense
The adjusted statement assumes all practice assets
are free and clear of all liens.
NOTE 8: Federal &
State Tax Provisions
Appraiser does not
provide accounting advice or legal counsel.
Individual income tax strategies as well as provisions of the federal
and state tax code are complex and ever-changing. Tax questions, as well as the provisions of
contract law, should be reviewed carefully with accounting and legal
professionals.
NOTE 9: Loan
Amortization
The adjusted statement of revenue and
expense assumes the following terms and conditions for the term debt required to complete the buy‑out:
Five Year Treasury Bond + 200
basis points or 6.39%
Repayment Period 7 Years
As of the date of the report, December
4, 200X, the five year Treasury bond as reported in the Wall Street Journal was
3.39%. Because the five
year Treasury bond is subject to change from time to time, there may be
differences between the pro forma and actual results and those differences
might be material. Appraiser assumes no
responsibility or liability for said differences.
Principal and interest payments
commence immediately.
18
STATEMENT OF QUALIFICATIONS,
LIMITATIONS AND CERTIFICATION
The
accompanying appraisal report was prepared for Sylvan Gold, MD for the
purpose and valuation date specified herein.
It should not be used for any other purpose and is not valid for any
other valuation date.
The opinions expressed herein are
dependent upon the accuracy of the information received and pertain solely to
this report and should not be taken out of the context of this report.
The information contained in this
report has been obtained from sources considered reliable; however, the
appraiser assumes no liability for such sources.
This appraisal is subject to such
conditions or circumstances that an investigation of the practice would
disclose. The appraiser assumes that
practice assets are owned free and clear of liens and encumbrances.
There may be differences between the
normalized and actual results because events and circumstances frequently do
not occur as expected and those differences might be material. Appraiser assumes no
responsibility or liability for any deviation in the performance of the
practice for any period subsequent to the date hereof.
Tax questions, as well as provisions of
contract law, should be reviewed carefully with legal and accounting
professionals.
I certify that, according to the best
of my knowledge and belief:
1.
The analysis and conclusions that are expressed herein are
only limited by the appraisal qualifications and limitations and are the
personal, unbiased, professional opinion of the appraiser.
2.
Neither Appraiser nor its
principals or employees have any present or contemplated future interest in the
property that is the subject of this report.
3.
The fee that is paid to Appraiser for
determining the value of the subject practice is not contingent upon the amount
of an award in a property settlement or court action; or the consummation of a
purchase and/or sale transaction; or any conclusion that was specified in
advance by the practice owner or client; or the amount of the appraised value;
or the occurrence of any subsequent event.
4.
The analysis and conclusions expressed herein and this
report conform to the Uniform Standards of Professional Appraisal Practice.
19
This report and its analytical methods,
in whole and in part, constitute confidential proprietary information to which Appraiser
reserves
and protects all rights and interests.
Beyond its own use, as described to Appraiser by the
client, the recipient agrees to keep confidential the entire report.
David J. Shuffler
David
J. Shuffler
Appraiser
201-819-0087 fax: 828-252-8372
David
J. Shuffler is the Director of Management Services for Appraiser, a strategic
management company that offers physicians, dentists, veterinarians and other
health care professionals a wide range of consulting services such as Practice
Appraisal; Business and Strategic Planning; Marketing and Loan
Origination.
Mr.
Shuffler, who is a strategist, specializes in practice valuation and is expert
in medical practice finance. He has
appraised over 800 doctor practices and has been court appointed to perform
practice appraisals and offer expert witness testimony in New Jersey, Alaska,
New Hampshire, Pennsylvania and Wisconsin.
He adheres to the Uniform Standards of Professional Appraisal Practice
of the Appraisal Foundation and Principals of Appraisal Practice and Code of
Ethics of the American Society of Appraisers.
Prior to establishing Appraiser, Mr. Shuffler was the
Director of Client Services and founder of Physicians Business Advisors, LLC, a valuation consultant.
He also started The Paragon Group, Inc., a
specialist in health care appraisal, medical practice management and dental and
chiropractic brokerage. Additionally,
Mr. Shuffler established and managed the medical practice finance group at
Midlantic Bank and National Westminster Bank, NJ. He developed the credit criteria for
extending loans to medical professionals and underwrote over $160 million in
doctor loans.
Mr. Shuffler wrote curriculum and presented seminars
for professional organizations, dental and chiropractic colleges and medical
residency programs and authored appraisal and management articles for medical
periodicals such as Medical Economics,
Journal of the American Chiropractic
Association, Optometry Economics,
Podiatry Management and Journal of the New Jersey Dental
Association. His “Practice Hotline”
column appeared in the Bergen County Medical Society Medical Report, Passaic County Medical Society News and Notes, and Journal
of the New Jersey Dental Association. Mr. Shuffler also authored “The Beginning
Physician’s Guide for Financing a Practice” and “The Banker’s Guide to the
Doctor Market: Principles of Medical Risk Analysis.”
He presented his workshop “The Partnership Track” at
the Atlantic Coast Veterinary Conference and spoke to the Medical Society of
New Jersey on “Setting the Right Price for Your Practice.” He addressed the Bergen County Bar
Association; American Academy of Matrimonial Attorneys, NJ Chapter; Association
of Trial Lawyers of America, NJ Chapter; Family Law Section, The Inns of Court
Program and Passaic County Chapter of the New Jersey Society of CPAs on “How to
Value a Medical Practice in These Changing Times.”
Mr. Shuffler received a Bachelor of Science in
Economics with a concentration in marketing and finance from the Wharton School
of Finance and Commerce, University of Pennsylvania.
GUEST SPEAKER:
Medical
Society of New Jersey Mountainside
Hospital Medical Center
University of
Medicine & Dentistry of NJ Englewood
Hospital & Medical Center
New Jersey
Hospital Association Bergen
County Medical Society
Palmer College
of Chiropractic Bronx
County Medical Society
St. Joseph’s
Hospital & Medical Center Jersey
City Medical Center
New York
Chiropractic College St.
Barnabas Medical Center
St. Mary’s
Medical Center Passaic
County Medical Society
N.J. Assn. of
Certified Public Accountants N.J.
Veterinary Medical Association
Middlesex
County Medical Society Atlantic
Coast Veterinary Conference
American
Academy of Matrimonial Lawyers Union
County Dental Society
Westchester
County Medical Society Association
of Trial Lawyers of America American Chiropractic Association NJ Chapter
Bergen County
Bar Association America
Outdoors
American
Society of Appraisers Chapter #73 Family
Law, Inns of Court Program
Hackensack
University Medical Center South
Ocean County Hospital Foundation
PUBLICATIONS:
Journal of the American Chiropractic Association
“How to Turn a Successful Associateship
into a Successful Partnership”
Chiropractic Showcase Magazine
“The Partnership Track”
“What is Your Associate’s Worker
Status?”
“Group Practice: A Strategic Response to a
Changing Health-Care Environment”
Chiropractic Economics
“The New-Doctor’s Associate Employment
Agreement”
Medical Economics
“Setting the Right Price for Your Practice” Quoted extensively.
“Do You Need a Broker to Help Sell Your
Practice?” Quoted extensively.
The Medical Report
“The Practice Hotline” - A Quarterly Q
& A Column for the Bergen County Medical Society.
News and Notes
“The Practice Hotline” - A Quarterly Q
& A Column for the Passaic County Medical Society.
Optometric Economics
“Seeking the Substance of Practice
Valuation”
Podiatry Management
“Buying and Selling a Practice”
Journal of the New Jersey Dental Association
“Let’s Make a Deal: A Dentist’s Guide to
Buying and Selling A Practice”
“Mergers and Groups without Walls: The
Salvation of Private Practice”.
“The Practice Hotline” - A Quarterly Q
& A Column.