Does Relocating A Practice Devalue The Goodwill?

Dr. Hayes,  

I am writing in reference to your blog of May 5 titled ‘Allocating Expenses When You Purchase A Practice’. 

I think there are two aspects to Goodwill when one OD is purchasing a practice from another OD.

One is the tax consideration, which you covered quite well in your May 5 blog. 

The other, and equally important, is the business value a buyer receives over and above what he pays for the equipment, inventory and other hard assets.

Why Move An Established Practice?

If I understood Dr. TS correctly, she was purchasing a practice from a retiring OD who was not staying on after the sale. Dr. TS was then planning to move the practice to a nearby location.

I would not pay a dime for Goodwill in this scenario.

If the senior doctor leaves and TS moves the office to another location, I think she is basically just buying the records, inventory and equipment. That’s something that can be bought for pennies on the dollar in this economic climate.

If the new doctor is paying for Goodwill without the help of the senior doctor staying on for a year or so, I think it is even more important for her to stay in his present location for at least 2-3 years.

There is a value of having patients who are accustomed to coming to the same location for their services. We are all creatures of habit in that regard.

Let The Retiring Doctor Help Your Transition

I purchased a 35 year old practice in 1985. As we agreed, the senior OD stayed on full-time for one year and then part-time for another six months.

I kept the office in the same location for another three years. I rented from the seller at a very reasonable rate, in part because he wanted me to be successful.

In my opinion, the Goodwill I received was represented by the opportunity to practice in an established location with a friendly senior OD staying on to help me meet his patients. 

While it is difficult to assign a value to that kind of Goodwill, it is nevertheless priceless when done properly.

Sincerely,
Stephen R. Kepley, OD

Dear Dr. Kepley,

You make a good point. There is more to Goodwill than tax considerations.

A lot of the value received when buying a practice is the implied endorsement the selling doctor passes on to the buyer. It's like telling his patients the new doctor is OK. 

The other ‘thing’ you are buying is an established location and equally important, the phone number.

People are indeed creatures of habit. Many will come back to you for the simple reason they have been there before and they know you have their old records.

How long Dr. TS should stay is a judgment call because it’s conceivable the old office is out of date. 

But it’s probably a good idea to stick around for some period of time if you buy a practice and the selling doctor does not stay on to help with the transition.

Regards,
Jerry Hayes, OD

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Disclaimer: The information and opinions contained on this site are for discussion purposes only and are NOT intended to serve as legal, accounting or investment advice. ©2009 Jerry Hayes, OD. Not to be reproduced without written permission of the author.