Professional Practices

We often encounter buy-sell agreements with vague valuation clauses that leave a lot of uncertainty when it comes to valuing the ownership interest that’s being bought or sold. Buy-sell agreements should include an agreed-upon valuation formula with a clear definition of the related metrics used to value the practice.

Valuation issues often arise when a practice is being sold or an owner is conducting succession planning. Thorough research should be performed — including examination of national operational and valuation metrics — to help buyers and sellers form independent opinions with regard to a practice’s value.

Getting started early is critical when it comes to succession planning. Before exiting the business, a professional’s focus must shift from minimizing taxable income to maximizing profits in order to make the practice more attractive to prospective buyers. Making accurate tax-structured sales projections can also help reduce the overall tax burden in a sale.