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I have a question for Mr. Kaufman following up on the article in HE.

We have been approached by a physician to buy his practice out. He is expecting $500,000 for his practice, along with a $300,000 paycheck because "that is what I make right now". This is a primary care physician who has the solo practice in a small rural town, and he is so busy that he is not accepting any new patients. After examining his financial documents, it appears that his demand of $300,000 might not be all that unreasonable. However, I am still not comfortable paying him that much with no incentives or performance tie-ins. Any suggestions on shaping his contract? Please let me know if you need any further information.

thanks! 

Reply from Nathan S. Kaufman:

"It sounds like this physician just pulled a valuation number out of the air. Compensation should be based on historical levels as long as it is determined to be at fair market value. Medical groups are being bought based on asset value. That is the value of the factored AR and fixed assets net of liabilities. Included in the asset valuation is the value of the 'workforce in place' which we typically value at 10% of W-2 salary of employees of the practice. Physician salaries can also be included if they sign a non-compete with specific liquidated damages."