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Valuation of an Existing Audiology Practice

Robert M. Traynor, EdD, MBA

July 16, 2007

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Question

What are the most common ways to establish the "worth" of a practice in order to work with a prospective buyer? I have heard about - price per file, price based on an average of X years of income, etc. Where are the best resources for this sort of information?

Answer

According to Drullinger (2006) there are two method of practice valuation. Book valuation and historical precedent valuation. A book valuation is the adding up of the assets that practice owns, equipment, building, furniture, computers, inventory, files, etc. Each of these items are valued and considered as a component of the value of the practice. This book valuation generally favors the buyer, not the seller.

This type of valuation works very well for ice cream shops, gas stations, and convenience stores, but it not a very good method for Audiology practice. Although it is necessary to value items within the practice, the biggest asset the practice has is goodwill sometimes also called blue sky, defined as an intangible asset, such as brand recognition or employee morale or patient loyalty. This makes the historical precedent valuation much more necessary. This is a professional evaluation of not just the assets of the practice but a number of factors that deal with the growth, length of time in practice as well as all the accounting factors that prove specific values, then a number or multiple is assigned.

A good reference for this issue is Seminars in Hearing, January 2006 that I edited. The chapter by Randy Drullinger outlines the specifics of practice valuation and the steps to a fair evaluation for both parties.

Drullinger, R.A. (2006). Practice Valuation: The Buying and Selling of an Audiology Practice. Seminars in Hearing, 27(1), 57-76.

Robert Traynor, Ed.D., MBA is President and Audiologist of Audiology Associates of Greeley in Greeley, Colorado. Additionally, he teaches in two Au.D. programs, a basic hearing aids course for PCO and the Business course for the University of Florida. He has presented academic audiology and product lectures in over 40 countries including the United States and is a co author of a forthcoming book, Strategic Practice Management due Summer 2007. Dr. Traynor is also a Contributing Editor for Audiology Online.


Robert M. Traynor, EdD, MBA

CEO and a practicing audiologist at Audiology Associates, Inc.

Robert M. Traynor, Ed.D., MBA is the CEO and a practicing audiologist at Audiology Associates, Inc., in Greeley and Johnstown, Colorado with particular emphasis in amplification and operative monitoring, as well as offering all general audiological services to patients of all ages.  Dr. Traynor holds degrees from the University of Northern Colorado (BA, 1972, MA 1973, Ed.D., 1975), conducted Post Doctoral Study at Northwestern University in 1984 and studied business at the University of Phoenix (MBA, 2006).  He taught Audiology at the University of Northern Colorado (1973-1982), University of Arkansas for Medical Sciences (1976-77) and Colorado State University (1982-1993).  Dr. Traynor serves as an Adjunct Professor at the University of Florida, the University of Colorado, and the University of Northern Colorado.  For 17 years he was a consultant to a major hearing instrument manufacturer  holding the title of Senior International Audiology Consultant traveling all over the world providing academic audiological and product  orientation for distributors and staff.  A clinician and practice manager for over 35 years, Dr. Traynor has lectured on most aspects of the field of Audiology in over 40 countries.  Dr. Traynor is the co-author of Strategic Practice Management, an audiology business management textbook, used in most universities to train audiologists in practice management.


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