Goodwill Value (FP)

by Keith Borglum

Actual Questions and Answers from Family Physician inquiries to the California FP Consultants On Call 900# phone line in April 1994

Q: A large group wants to buy my practice. What is my goodwill worth?

A: Goodwill in family practice through the 1980s typically had a median value of about 28% of the past year's gross receipts according to the National Goodwill Registry. It has dropped in California in most cases due to the turmoil surrounding managed care and the uncertainty about what will happen with the Clinton Plan. There are many local variables which come into play in determining the goodwill of any individual practice, including productivity, income, overhead, location, local politics and activities, sophistication of data tracking and accounting, experience with and impact of discounted fee for service and capitated contracts, distressed need to sell, demonstrated ability to manage managed care, etc., etc.. If you have a healthy practice in every regard, it is still possible to get 25-30% goodwill, though many practices are in the 0-15% range. Since you have an interested buyer, consider asking 30% and negotiate from there. Terms of sale can be crucial to the selling price. Especially beware of contracts that don't guarantee you continued employment for a specified number of years unless you plan to be retiring or relocating shortly. We expect goodwill in family practice to increase again to the 30-50% range within 5-10 years, therefore try to retain equity if you can so as not to sell out at the bottom of the market, which we think is now.

Reprinted with permission from CALIFORNIA MDs BUSINESS ADVISOR.

Author Keith Borglum is a consultant and medical practice appraiser with Professional Management and Marketing, 3468 Piner Road, Santa Rosa California 95401.

Member National Association of Healthcare Consultants, Society of Medical Dental Management Consultants, American Medical Association's Doctors Advisory Network, American Academy of Family Physician's Network of Consultants, California Academy of Family Physician's Consultants on Call, and the Institute of Business Appraisers. Phone 707-546-4433 for consulting information. Permission is granted to reprint or quote any portion of this article provided that both the author and publication are named and two copies or the quoting journal are immediately mailed to the publisher.

Phone 1-800-79-CONSULT for consulting and appraisal information.

Permission is granted to reprint or quote any portion of this article provided that the author, firm, phone and city are named and two copies of the quoting journal are immediately mailed to the author at 3468 Piner Road, Santa Rosa CA 95401.