The fair market value (FMV) of shares in a start-up ASC are almost always valued based on an asset approach. The cost approach to business valuation is a method used to determine the value of a business based on the cost required to recreate or replace its assets. This approach assumes that the value of a business is equal to the cost of acquiring or building its assets from scratch.
In the case of a start-up ASC, these costs include not only the purchase price of all of the necessary furniture, fixtures, and equipment but also the myriad of soft costs, which normally comprises of the “development fee”. These soft costs include tasks such as:
- Conducting Market Analysis
- Creating a Business Plan
- Securing Financing
- Establish a Legal Structure
- Obtaining Certifications and Accreditation
- Sight Select and Design Fees
- Recruitment of Staff and Physicians
- Establishment of Payer Contracts
- Development Policies and Procedures
- Implementation of Electronic Health Records (EHR) System
- Marketing and Promotion
It’s important for the ASC developer to keep track of their time and direct costs related to the numerous tasks and efforts to build the business. Fundamentally, the total costs to build the business are then divided by the number of shares/members. Although this appears to be a rather simple calculation, many wrinkles and challenges present themselves when the physician members co-sign on the bank loan to finance the purchase of the assets and other development expenses. An experienced and qualified valuation analyst should be consulted, and each situation is unique.
