Evaluating professional practices can be tricky. There are many ways to determine a value for a professional practice. Read more for an overview of this issue so you will know what to consider during divorce.
Collect Relevant Documents
It is important to collect information about a professional practice similar to any other owned business during a divorce, thus counsel for the non-business owning spouse will want to obtain items such as:1. Financial Statements for the business;2. Tax returns;3. List of assets owned by the practice, including equipment, accounts receivable, work in progress, automobiles, investments, and the value of goodwill the business has cultivated;4. Financial Records, including bank statements;5. Information on life insurance policies insuring the lives of principals or the practice;6. Copies of all partnership agreements or other corporate documents;7. Buy-Sell agreements between partners, if any.
Once the different assets belonging to the business are identified, they must be valued. Tangible assets are normally valued at fair market value, while accounts receivables are discounted bases upon their collectibility. Any unbilled time must also be added to the balance sheet. Patient or client files can also have a value, mainly to determine the number of ongoing clients.
Possibly the most vexing valuation issue is the determination of whether goodwill is present in the practice, and if so, how to establish its value. Goodwill is the probability that clients will return to the same practice for future business. This is no easy task. Factors that must be weighed range from the professional's earning capacity and reputation in the community, to the length of time the business has operated.An expert business appraiser should examine these factors in detail. Professional business evaluations can quickly get expensive. There are many variables and subjective factors that can lead to disagreements and competing experts making the valuation of a professional practice a complicated part of the property division during a Massachusetts divorce.