The most widely used method for determining practice value is fair market value. The commonly accepted definition of fair market value is the price which a professional practice would produce, allowing reasonable time to find a purchaser, with both buyer and seller having access to full disclosure of information about each other.
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The most widely used method for determining practice value is fair market value. The commonly accepted definition of fair market value is the price which a professional practice would produce, allowing reasonable time to find a purchaser, with both buyer and seller having access to full disclosure of information about each other.
In Rev. Rule 59-60, 1959-1 C.B. 237, the Internal Revenue Service defined “fair market value” as the price at which a property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, with both parties having reasonable knowledge of the relevant facts.
It also includes the professional practice being offered for sale, and the seller being willing but not compelled to sell, and the buyer being able and willing but not compelled to purchase the professional practice. In addition, the fair market value will be contingent upon the seller being bound to the terms of a restrictive covenant, reasonable in both time and distance.
The fair market value of every professional practice is affected by various financial, economic, and geographic considerations. These considerations make invalid the use of any industry formula as a method for arriving at a fair market value. Ultimately, the practice fair market value will be determined by the marketplace and is subject to the forces of supply and demand.
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