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Buying A Veterinary Practice

Understanding Goodwill Value

Jul 20, 2017 9:00:00 AM

shutterstock_559467643.jpgWhen it comes to appraising the value of your veterinary practice there is a lot of different terminology you'll run into. One of those terms is "goodwill value". Goodwill value is something that needs to be assessed by a professional appraiser for accuracy.

Defining Tangible versus Intangible Assets

To understand goodwill value, you must first know what tangible and intangible assets are. Tangible assets are the assets that you can physically touch or feel such as office equipment and supplies. Intangible assets are those things that add value to your practice but don't necessarily have a direct dollar value associated with them such as patient medical records. Goodwill value and Blue Sky value are two forms of intangible assets.

What is Goodwill Value?

Goodwill value has to do with the characteristics of your practice and your adjusted earnings. For instance, what is the value of your brand's reputation and name? What is the value of your practice's location? In this case we're not talking about the building itself, but the environment that it is in. And finally, what is the value of your client lists? These are all parts of Goodwill value of your practice based on existing information.

What It's Not

While Goodwill value can be difficult to nail down, it's important to know what is not considered goodwill. For instance, future profits earned by adding a service or changing your business hours.

Why It's Important

Anybody in customer service knows that branding and reputation are a big part of customer loyalty. The goodwill value is meant to assess the likelihood that the customers you have will continue using your services at relatively the same rate, and that you will continue to attract customers with your name and brand into the future. It also takes into account whether the location of your practice will continue to be viable or if changes in the immediate neighborhood could detract from your practice. Goodwill value gives the buyer a more complete picture of the future they are buying into than simply projecting revenues. Goodwill value is a professional assessment of what the future looks like based on the intangibles.

Whether you're buying or selling, it's good to know how goodwill value is determined and how it will play into your negotiations. Goodwill value helps bring future projections down to earth by looking at the true state of intangible assets at that point in time.

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