There was a recent blog post at Inc.com regarding the necessity of a business appraisal. The author’s argument was that most buyer’s do not put much stake in a valuation. True, a business valuation is needed for estate planning, for buying a partner out, for cases of divorce, and by a lender’s request. When those situations are not the case, the value of a business is based upon the buyer’s desire to purchase the practice.
For example, if an optometry practice on the east coast has gross collections of $400,000, average of the last 3 years, and the practice has not sold for the past 12 months, then is that practice appraisal of $280,000 valid? The author would say that the optometry practice appraisal is valid but not reflective of the current market, therefore not practical. I would agree with this and pose the question, is it necessary to have your optometry practice appraised prior to selling it? An optometry practice appraisal can be expensive and many times irrelevant by the time the practice has an interested buyer and seller. When considering the numerous formulas that have been utilized in practice valuations, why not forego the academic formulas and look at the market.
It appears in recent history that practices are being sold for between 55-65% of the last 3 years gross collected. Why not start with this number and negotiate from there. There are many successful practice transitions that have occurred and are continuing to occur without the expense of an optometry practice appraiser. The two parties have agreed that most formulas and the current market puts the practice between the 55-65% range. 
If you are purchasing or selling a practice and you do not agree upon this range, then it becomes imperative that you have a mediator that values the practice and brings the two parties together. If a practice valuation is necessary, do yourself a favor and split the cost of the appraisal to receive the most objective results.
“A business valuation is a detailed financial analysis that gives you an estimated range of what your company is worth. There are plenty of business appraisers out there. The reputable ones will be certified by the ASA (American Society of Appraisers), the NACVA (National Association of Certified Valuators and Analysts), or a similar organization. They’re not cheap. A professional valuation can set you back anywhere from $30,000 to $50,000.” How Much Is Your Company Worth? via Inc.com by David Lonsdale.
