Avoiding The Pitfalls

Forensic Accounting Can Open Your Eyes To Value

Practices are bought and sold on a handshake, deals are consummated by a third party with deep pockets, purchases are agreed upon for political reasons and  worth is driven by the emotions of divorce. 

Whatever your situation, make sure you know the value before you commit. Following is an example of how the full knowledge and complete information of an independent appraisal and forensic analysis can save you headaches and heartaches down the road.

This practice may look strong and profitable by the numbers, but look closer.  A physician, who claimed principal loyalty to a local non-profit hospital, approached the hospital to purchase his practice. The physician was tired of managing the practice, was agreeable to a salary, and wanted to be part of the hospital’s forming foundation model.

Looking at the practice numbers, the physician looked like a good prospect. Upon further investigation, it was found that the revenue figures included director fees paid by three different hospitals and a “loan” listed under revenue. The practice rent and equipment was underwritten by one of the hospitals and various vendors.

Most of the revenue came from assisting in surgery as payment for referrals;  physical therapy was performed by an unqualified assistant; and the physician required patients to make cash pre-payments of deductibles. Two liens were filed against the practice, it had a maxed out credit line, various overdue credit card accounts and the problems didn’t stop there.

In the end, the hospital decided not to purchase the practice or hire the physician.