Determining Your Organization's Value
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The challenge for many providers looking to undertake a valuation is how and what to include in this process. That’s why most finance leaders look to outside sources, such as consultants or attorneys, to help measure a hospital’s assets and assign a market value. This process is easier for some components in the organization (e.g., property and equipment) than for others (e.g., the institution’s name and reputation).
There are five areas that must be assessed during the valuation and some general rules of thumb most appraisers agree on, says Jeff A. Nelson, a partner at Atlanta-based finance executive search firm Tatum, who has been through numerous valuations, and also is a former CFO at a 140-bed hospital in Texas.
- Patient service mix: The more services offered, then the less uncertain earnings are for an organization, leading to higher valuation.
- Financials: Strong income and cash flow positions increase value.
- Real estate and equipment: Historical capital expenditures are considered and all real estate holdings are counted, so modern facilities in desirable locations or ones that would improve the buyer’s reach in a market are positives.
- Competitive environment: This is a market leader or an organization small enough to roll neatly into a larger increases.
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