How Does A Buyer Select A Practice From An Investment Perspective?

The typical procedure for selecting a practice begins with an analysis of the entire business as a business. What kind of return on your investment would you be looking for?

Typically, the sources of information for this analysis include company reports, computer databases, and financial statements. This information is used to focus on the fundamental characteristics of the practice. Items including, but not limited to, earnings, book value, cash flow, and capital structure (i.e. how much is owned vs. how much is owed), are all analyzed to develop an estimate of the practice’s intrinsic value.

Once a practice is given an estimated value, this value is then compared to the market or asking price of the practice. If the current market price is substantially lower than the estimated value of the practice (from an investment perspective), then one could say that this practice could offer an above-average chance for profits and is likely a "good deal". If the asking price is considerably higher than the estimated value of the practice, then the buyer would have to seriously consider whether this is a wise investment.