Prospective clients ask us,"what is my home care agency worth? What is a fair price?" Well, we tell them that you rarely get a "fair price" when you sell your home care agency. It's not because of some strange algorithm used by accountants. The price of a home care agency is not determined by a Fair Market Price. It is determined by a Most Probable Selling Price. Fair Market Price is something that a licensed appraiser will calculate. For example, when selling your home, the buyer will probably get a licensed appraiser to determine the fair market value of your house. Buyers used this information as part of their loan application. Rarely does a buyer state to a seller, "hey, the fair market appraisal is 'X" so that is what the selling price will be." No, it does not work like that. The same for a home care agency. The administrator-owner can get the home care agency appraised by a licensed business appraiser. However, the value is rarely the price a buyer is willing to pay. The price home care agencies sell at is the Most Probable Selling Price (MPSP).
The International Business Brokerage Association defines MPSP as "that price for the assets intended for sale which represent the total consideration most likely to be established between a buyer and seller considering compulsion on the part of either buyer or seller, and potential financial, strategic or non-financial benefits to sellers and probable buyers." Emphasis added. MPSP transactions assume the buyer, seller, or both are compelled to close the deal. They are usually motivated to work in good faith to get the deal done. Sometimes during due diligence, the buyer discovers a issue with the assets and the cash flow and the parties adjust the price. Sometimes the buyer cannot generate sufficient cash to close the transaction and requires Seller Financing, which could affect the price. Real world prices are driven by compulsion. Fair Market Value is merely a theoretical value of a business that banks use in the underwriting process.
A party's motivation can drive price. A buyer may be looking for a job and has a strong desire to buy a home care agency. A buyer might want to expand her existing agency and may be willing to pay a higher price for another home care agency. A seller may be ready to retire or stressed out and want to cash out quickly. Thus, personal as well as business situations can drive price.
MPSP is not a random exercise. There are industry standards used by professional business intermediaries. The three primary methods of determining MPSP are the Market Approach, Income Approach, and the Asset Approach. For a detailed discussion on these approaches, visit our MPSP Information publication.
Kommentare