Finance and valuation
Market approach
The market approach is a valuation method that compares a practice with similar practices that have sold, using what buyers paid as a guide to value.
An IRS guide on valuing medical practices says the market approach is familiar to home buyers, who compare the value of homes they are interested in with recent prices paid for similar homes. The same idea applies to practices, but good comparisons are hard to find. Practices differ in size, payer mix, location and records, and sale prices are often private. Lenders sometimes publish transaction data, which gives a valuation multiple such as a share of collections or a multiple of EBITDA. The IRS guide advises using all three approaches in an appraisal. See also cost approach.