What’s a medical group worth?
Ah, one of the eternal questions. Okay, maybe not, but it can be an important one.
The problem is that it’s a question that sooner or later will be asked. Like the opportunity to legally create evidence now in the event of a later dispute, creating rules for valuation in advance comes in handy. Or, maybe not, if you haven’t given sufficient thought to the ways that those rules will return a value in the real world tomorrow, a year from now, a decade from now, or longer.
Valuation can have an impact on more than simply the question of what a departing shareholder or partner gets. Of course, it has an impact on what a new admittee to an equity position must contribute. But its impact can be much greater: In some jurisdictions, the form of the entity combined with the valuation formula can determine whether or not covenants not to compete are enforceable. The formula, and the payment terms, could also make it impossible for the entity to survive when a payoff is triggered.
Cutting corners now can be the same as cutting your throat later.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss