Income approach

The income approach values a practice by what it is expected to earn. An IRS guide on valuing medical practices says valuation analysts generally favor the income approach for physician practices. It also says that if a valuation uses the income approach, the result should be confirmed, if possible, by the cost and market approaches. The Internal Revenue Manual says an appraiser selects discount rates, capitalization rates or multiples to match the benefit stream used. The inputs, such as projected earnings, rates and risk, drive the result and must be reviewed with care. A medical-practice guide is not a dental source, but the method is the same. See cost approach, market approach and adjusted EBITDA.