Is it possible to value a professional practice?
The valuation of a professional practice is a unique property issue that is typically treated different then the valuation of other business interest, for example the ownership of shares in a corporation.
Although a typical professional practice is a business, the income that business earns may not be easily transferred to another owner. The ability to sell a professional practice together with evidence of its ongoing income is a central issue that is necessary to determine what, if any, value the practice may have.
Some professionals close their practice rather than selling it to another because there simply is no interest in the purchase of a practice in a given area. In other cases, an established professional practice is a lucrative enterprise to be sold. Courts have routinely sought expert evidence to determine the value of a professional practice, as well as the ongoing clientele.
For example, the Court in Petley-Jone v Petley-Jone (1993), 41 A.C.W.S. (3d) 134, [1993] B.C.J. No. 1427 (S.C.) assigned a nominal value for the “goodwill” in the husband legal practice. The following is the rationale provided by the Judge in determining this issue:
[8] … Given the nature of the practice, as well as Mr. Petley-Jones stature in what is a relatively small commercial community and his personal relationship with his clients, I do not consider the assumption that the practice has a substantial ongoing value without him, to be sound. I accept that, beyond the capital account, a purchaser would pay something for the advantage of the practice being “in place” but I do not consider the goodwill to have any greater value.
In other cases, the Court has prescribed value to the practice, and has even gone so far as to consider the accounts receivable on the date of separation. In short, the fact pattern in a given case concerning a professional practice will likely determine a party’s entitlement to the business.
Regardless of which side of the case you are one, evidence and financial disclosure to support your position is essential to achieving success against a professional practice. In the case of S.A.H. v I.B.L., 2018 BCSC 544 the Supreme Court of British Columbia dismissed a party’s claim for a share in a professional practice, primarily due to the failure to provide the Court with any financial information to determine a fair value of the professional practice.