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The valuation of a professional practice is particularly demanding because there is often little or no market experience to guide the valuation. The expert determining value in this case is left with purely theoretical concepts rather than the rigorous testing of the marketplace that supports value in other areas. The Colorado Supreme Court has recognized a valuation process known as the excess earnings method for professional practices. In brief, this method suggests that if you can extract the portion of a professional's compensation that is the fair market value of labor, the remainder, or "excess", compensation must be due to goodwill. The goodwill is then multiplied by a capitalization factor to determine its value. This methodology is replete with subjective value judgments and you will need an attorney with intimate knowledge of the method, its theoretical underpinnings and the common errors in its application to assist you. |
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