Workforce in place as an asset of a physician’s medical practice

There is a great debate going on right now in the valuation community concerning the valuation of “workforce in place” as an asset of a physician medical practice. There is a growing number of us that believe that unless the POSITIVE cash flows of the practice support it, there can be no value for workforce in place.

As Mark Dietrich mentioned recently (www.cpa.net), no rational investor would pay to replicate assets that result in no income. This is one of the basic underpinnings of financial theory: the value of an asset is equal to the present value of the cashflows associated with it. That in turn is the foundation of Fair Market Value. What is often missed is that the return on the assets ends up being paid out to the physicians as compensation post-transaction, rather than retained by the buyer.

Or as another appraiser colleague said tongue in cheek:

“Apparently some appraisers think that an incompetent, embezzling, sabotaging, shoplifting, illiterate, knuckle-dragging, drooling, high-turnover "workforce in place" that has driven (or ridden) a medical practice into a state of "bankrupt-yet-standing", still has an intangible value in the many millions of dollars despite any ability to find value by the Income Approach. Or so I read in their valuation report of a cardiology practice recently (though they didn't quite phrase it so eloquently!) ;-)”

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.