The valuation of freelance practices such as medical practices, architectural firms or law firms remains insufficiently defined in common standards such as IDW S1 or IFRS.
The valuation of freelance practices such as medical practices, architectural firms or law firms remains insufficiently defined in common standards such as IDW S1 or IFRS. However, the Federal Court of Justice (BGH) has developed clear guidelines for the valuation of goodwill in such freelance practices.
The valuation of a freelance practice is insufficiently codified by the standard setters. Neither IDW S1 nor IFRS consider freelance practices to be relevant valuation subjects. Nevertheless, the valuation of a medical practice, an architectural practice or a law or tax firm by an appraiser or tax consultant is regularly required, especially in the case of acquisitions or family law disputes.
In its ruling of February 9, 2011, the BGH provided basic guidelines for this. According to this ruling, the goodwill of a freelance practice is to be included as an intangible asset in the equalization of accrued gains and thus in the valuation. Goodwill is valued according to the following principles:
When measuring such goodwill, an entrepreneur's salary based on the individual circumstances of the owner must be deducted as part of the modified capitalized earnings value method. This method ensures that goodwill is valued realistically and fairly.
The consideration of goodwill in the equalization of accrued gains does not violate the prohibition of double utilization. Goodwill relates to the intangible asset existing on the valuation date to the exclusion of the owner's actual work performance, while the maintenance claim is based on the owner's work performance and other property income.
The valuation of an owner practice as at the reporting date in the equalization of gains presupposes that the practice can be sold. Deferred income taxes must already be deducted in the valuation of these final assets as at the reporting date, irrespective of whether a sale is actually intended.
The BGH has established clear guidelines for the valuation of the goodwill of freelance practices, which are particularly relevant in gain equalization proceedings. The application of the modified discounted earnings method and the consideration of deferred income taxes are decisive factors in this process. smartZebra's tools and expertise can help to carry out these complex valuation processes efficiently and accurately.
We support you in researching the data — e.g. putting together the peer group — with a short training session on how to use the platform. We are happy to do this based on your specific project.
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