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‘Do I need to value my practice and if so why?’

By Mindo - 05th May 2019

Mr Paul Redmond lists the main reasons why it is important for GPs to value their practice

I have often been asked by GPs whether they should value their practice and I have always given the same reply. The answer is absolutely yes. Anybody that is self-employed and in business does have an asset in their business and, as a result, it is important that you know the value of this asset.

Let’s examine what the reasons are for valuing your practice. Though it is not an exhaustive list, I have written seven of the main reasons I have seen during the course of my career.

1. Change in partner status

You’re in a partnership and there is a new partner entering the practice or an existing partner leaving the practice.

This is an obvious reason to value your business as there needs to be absolute clarity around how the value is calculated and how the partners benefit from such a valuation.

This should lead to less conflict as new members of the partnership enter.

2. Business protection

The partners are putting in place business protection cover and require a valuation for the life company. I believe all practices should have proper business protection cover in place for the partners in the event of loss of life of a partner. This will enable the remaining partners to pay the share of the practice to the estate of the partner who has deceased.

This should give great peace of mind to all partners of the practice and their families.

3. Estate planning

To properly plan for a partners’ personal estate, a valuation is required.

It is important that each partner knows the value of all their assets when planning on how to distribute their estate. The business is unquestionably an asset which needs to be valued for this purpose.

4. Tax planning

Each and every self-employed person should complete a full and exhaustive tax plan for themselves personally and for their business. The pay back will be massive if this is done properly. By doing so you will have a clearer picture of the steps to put in place, in particular for retirement planning purposes.

To allow for complete tax planning, it will be important that your advisers are aware of the value of your business as this may impact on the availability of certain reliefs.

5. Selling your practice

You may receive some interest regarding the sale of your practice, it will be impossible for you to consider any offer without first having a fair idea of what you believe your practice to be worth. You will likely only get one chance to sell your business, so it is absolutely necessary for you to receive full value.

6. What happens to your business when a partner dies?

Over the past 25 years of advising business owners on everything  from valuations and exit strategies to guiding them through the final sale of their business, sadly I’ve encountered a number of unfortunate examples of business owners being prepared for everything from downturns and competitive pressures and all sorts of other business downsides –  except for what is arguably the most important; when your business partner dies.

It is a difficult time when a business partner passes away; it is best to engage in succession planning early on, which can make life much easier in the long run. A properly drawn up partnership agreement can last many years and give peace of mind.

It is advisable that the partnership agreement sets out a clear methodology for valuing the business in the event of a partner passing away.

7. The importance of writing a will for your business

One of the most important parts of any business is making sure a will is put in place for the business. Ask the following question: What happens in the event of the practice having to close its doors? This is not a nice thought, but it is vital to ask this question.

So, what next?

In summary, have a clear method that is agreed on between all partners in the practice for placing a value on the business. Agree upfront how this is going to be done and if you require professional assistance.

The expectations that any partner has in terms of the current value of the business should really be addressed up-front.

These insights will prove invaluable in terms of getting the most from the process.

In most cases it is advisable to seek independent input from a professional valuer who has a clear knowledge of the industry in which you operate. This approach should give each partner confidence in the valuation that is ultimately agreed upon.

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