Practice Appraisal Software Limitations

Like Rules of Thumb, software programs designed to simplify in-depth projects that involve complex reasoning and reduce them into simple and cost-effective, step-by-step processes can often provide unexpected results with unexplained outliers for answers.

Using a software package to create a practice appraisal will certainly be more affordable than employing a professional appraiser. However, since such programs have not years reached the point of human reasoning, they might appear to provide little better than the old Rule of Thumb appraisal technique of equating the practice value with 60% of the previous year's production. Compare two practices with equivalent production, one with a 95% collection rate and the other with a collection rate in the mid-70%, and you'll quickly see the limitations of this Rule of Thumb.

While appraisal software is (and should be) much more involved than this, it can never answer the question of what the real value of a practice is. And that answer is... whatever someone else is willing to pay for the practice. Plain and simple.

Current technology cannot gage a market nor engage potential buyers to determine the practice's true monetary value. Such vital questions can only be answered through human interaction.

By all means, take advantage of appraisal programs. They're affordable, interesting and, I dare say, fun! But be aware of their limitations. For important appraisal needs (sales, partnership formations, associate-to-partner opportunities), please call an experienced professional.