Fair Market Value and Income for Support: NOT the Same Thing

July 22nd, 2008 | Dental Practices | Income Approach & Methods | Valuing Goodwill

Today I am reminded again that the income of a practice in the hands of the hypothetical owner of the fair market value standard is not the same thing as the income from that practice to the existing owner for purposes of support.  For example, if industry-normal overhead is say 60% and the subject practice has overhead of only 40%, the appraiser may well need to normalize expenses to determine what the fair market value of the practice is. On the other hand, if the practice is operated by the existing owner at a low overhead because, for example, he does his own office cleaning, supply purchasing, grounds maintenance and the like and intends to continue to do so, support income will be greater than the income in the hands of a hypothetical owner – who, based on industry-normal practice, will pay someone else to clean toilets and cut grass.

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