A clear value for an important decision

A share transfer turns on two figures. Enterprise value is the value of the business operations to all providers of capital, assessed on the assumption that the business carries a normal level of working capital, meaning the debtors, stock and creditors it needs to trade at that level of activity. Equity value is what the shareholders hold once borrowings, surplus or non-trading assets and shareholder loan accounts are taken into account, and a share price is drawn from equity value rather than from enterprise value.

A parcel that does not carry control may be worth less for each share than a parcel that does, because a minority holder cannot set remuneration, dividends, the terms of practitioner service agreements or the timing of a sale. That difference is not automatic. Many shareholders agreements, and some purposes, call for fair value, which is often assessed as a proportionate share of the whole rather than as a discounted minority parcel, so we state the basis applied and why.

In a healthcare business the incoming shareholder is usually a practitioner who already works there, which raises a question generic models miss: how much of the earnings the parcel buys are produced by the buyer. Where a large share of billings follows one clinician, buying in at a price that capitalises those billings can mean paying for a person's own output. The same question governs an exit, because the earnings the remaining owners keep may be smaller than the earnings the business reported while the departing practitioner was present. See how practitioner dependence affects business value and valuing a healthcare business for a shareholder exit.

A change in the people behind a healthcare entity is itself a regulated event, and the timetable can affect what a buyer is willing to pay. Registered NDIS providers must keep their key personnel details current with the NDIS Commission. A registered aged care provider must notify the Aged Care Quality and Safety Commission of a change in circumstance, including a change to a responsible person or a significant change in the organisation or governance arrangements of the provider. In New South Wales every holder of a financial interest in a pharmacy business must be a registered pharmacist, subject to limited exceptions, no one may hold an interest in more than five pharmacies in the state, and those interests are recorded on the Pharmacy Council's register.

An incoming and a departing shareholder are usually relying on the one figure, so the cost of producing it is better settled than left open. HPNA's fee schedule is published and set by the annual revenue of the business, agreed in writing before the work begins and unchanged by the conclusion reached.

The ATO describes market value as the estimated monetary worth of an asset on the open market at a particular time, based on its most valuable use and on what a willing buyer and seller would agree in an arm's length transaction. It expects a valuation to be objective and supported by evidence, and says a report should record at a minimum the purpose and scope of the valuation, details of the asset valued, the date it was conducted, whether it is retrospective, the date of inspection where applicable, the records explaining the basis of market value, and the value. It also expects the person engaging the valuer to set out the scope and purpose, to acknowledge the valuer's independence to draw conclusions and write the report, and to state that the fee does not depend on the outcome. It notes that valuations by professional valuers are more credible than those from someone who is not a professional valuer.

Value is the input to several common decisions, and the settings below are those in place at the time of writing. The maximum net asset value test is one of the tests used to work out whether the first step of eligibility for the small business capital gains tax concessions is met, and it requires the total net value of the CGT assets owned by the taxpayer, entities connected with them, their affiliates and entities connected with those affiliates not to exceed $6 million just before the CGT event, a limit the ATO states is not indexed for inflation. The small business restructure roll-over allows active assets to move between eligible entities without an income tax liability at the time of transfer where aggregated turnover is less than $10 million, the transfer forms part of a genuine restructure of an ongoing business, and there is no change in the ultimate economic ownership of the assets. The ATO notes that stamp duty and GST consequences may still arise, and your accountant should confirm how any of this applies to your circumstances.

Healthcare restructures carry one issue that a general valuation will often miss. Revenue NSW ruling PTA 041, issued on 11 August 2023 and effective from 1 July 2018, explains how the relevant contract provisions of the Payroll Tax Act 2007 apply to entities conducting a medical centre business, expressly including dental clinics, physiotherapy practices and radiology centres, that contract with practitioners to give patients access to their services. Where a practice has changed its service agreements, or expects to, the normalised earnings used in the valuation should reflect the arrangement that will actually operate. See payroll tax, contractor arrangements and medical practice value and valuing a healthcare business for tax purposes.

Part 2F.1 of the Corporations Act 2001 deals with oppressive conduct of a company's affairs. Under section 232 the court may make an order where the conduct of a company's affairs, an act or omission, or a resolution of members is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member. Section 233 lists the orders the court can make, including an order for the purchase of any shares by any member, and section 234 sets out who may apply. A forced buy-out is a common outcome, so the parties need a number that survives scrutiny even where relations have broken down entirely.

Disputes make ordinary tasks harder, starting with the valuation date, which may itself be contested. Access to information is often uneven, with one party holding the practice management system, the billing reports and the contracts. Adjustments that would be uncontroversial elsewhere, such as owner remuneration, related party rent, motor vehicles or family members on the payroll, become the substance of the argument. We identify each adjustment separately, state the evidence for it and show the effect of the alternative treatment where the point is genuinely open, so the parties and their lawyers can see exactly where the difference between them lies.

Healthcare disputes follow a pattern: control of billings, provider numbers and referral relationships often sits with one practitioner, and a dispute can cause the very earnings being valued to fall while it runs. Where a departing clinician can lawfully take patients or referrers with them, that possibility affects the transferable goodwill of the business rather than only the fairness of the split. Whether the interest being bought carries control, and whether the shareholders agreement fixes a basis of value, both need to be resolved before the calculation starts. See valuing a healthcare business for a shareholder exit and share and equity valuations. Where two parties are funding one valuer, the fee can become another thing to argue about, which is why ours is published in advance and fixed by the annual revenue of the business rather than quoted case by case.

Planning ahead is easier than valuing under pressure. Where one child works in the practice and another does not, an agreed basis of value, refreshed periodically, avoids an argument at the worst possible time. Where a practice is co-owned, a buy-sell arrangement that states how the interest of a deceased owner is to be valued, and how the payment is to be funded, settles that question before it becomes urgent, since insurance proceeds fixed years earlier may bear no relationship to current value. A valuation prepared for planning is normally of the whole business and of each owner's interest in it, because those are different numbers.

Tax treatment on death follows its own rules and should be confirmed with your accountant. The ATO states that there are generally no capital gains tax implications for a beneficiary who inherits an asset, and that the legal personal representative of an estate disregards a capital gain or loss on a CGT asset owned by the deceased just before death where the asset passes to a beneficiary. Where an asset instead passes to a tax-advantaged entity, such as a charity or the trustee of a complying superannuation fund, capital gains tax applies to the deceased at the time of death and the gain or loss is worked out using the market value of the asset at the date of death. The ATO sets out a similar outcome where an asset passes to a foreign resident beneficiary, subject to conditions that include the deceased having been an Australian resident when they died and the asset not being taxable Australian property in the beneficiary's hands. That makes a date of death valuation a real requirement in some estates rather than a formality.

Personal registrations end with the practitioner, which shapes what the estate actually holds. A Medicare provider number is issued to a named individual who holds registration with Ahpra or an approved body and cannot be used by another health professional, so an estate cannot keep billing through a deceased practitioner's number, and a single-practitioner medical or allied health practice with no surviving registered clinician may have very little that can be sold as a going concern.

Some healthcare businesses cannot simply be held by an executor. Under section 91 of the National Health Act 1953 the executor or administrator of the estate of a deceased approved pharmacist may apply for permission to continue supplying PBS medicines for a limited time, until probate or letters of administration are granted, and the Department of Health, Disability and Ageing asks to be notified as soon as possible after the death. The practical effect is that the window in which the business can be sold as a going concern may be short, which is itself a matter the valuation should acknowledge. See pharmacy valuations and valuing a healthcare business for tax purposes.

A strategic review is a valuation with a different question attached. Rather than producing a figure for a transaction, it identifies what the business is worth on the current facts and then isolates the factors that are moving that figure in each direction. In a healthcare business those factors are reasonably consistent: the quality and repeatability of earnings, dependence on the owner and on individual practitioners, the stability of the clinical workforce, revenue mix and exposure to government funding, patient, participant and referrer concentration, lease security, the maturity of systems and compliance obligations, and how much of the goodwill would transfer to a buyer. Where earnings are weak relative to the assets employed, a net assets basis, being the value of the assets less the liabilities, can set a floor beneath the answer an earnings-based method gives on its own. See what reduces the value of a medical practice and how the clinical workforce affects healthcare business value.

The review is also the right place to test a decision before it is made. Opening a second site, restructuring practitioner service agreements after a state revenue ruling, shifting the billing mix between bulk billed and privately billed services, adding an NDIS registration group, replacing a practice management system, taking on a longer lease or bringing an associate into ownership all change the risk profile as well as the earnings, and the effect on value is not always in the direction owners expect. Measuring the same business on the same basis before and after a proposed change makes the trade-off visible.

A review of this kind is analysis rather than advice: it sets out what the evidence supports and what it does not, and decisions about tax, finance and legal structure remain matters for your accountant and lawyer. It is also distinct from an appraisal offered as part of a sales process, which serves a different purpose. See business valuation versus business appraisal and premises and lease terms in healthcare business valuations.