Medical Practice
Valuation Services

Medical practice valuation can make or break a business sale because for many physicians, attaching a dollar value to their practice is very challenging.

How to Value Your PRactice

Changing Methodology

The methodology for determining a medical practice’s value has changed over the years. Today’s most common reference point is a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA).

Traditionally, a solo practitioner thought of earnings as the total remuneration from the business in a given year. In reality, though, a portion of those earnings was compensation for the physician providing clinical care, and another portion represented profit generated from the business.

Historically, medical practice valuation primarily considered the owner’s total earnings. In contrast, investors primarily focus on the profits of the business as a basis for a  practice valuation. Adding another layer of complexity, investors believe the practice’s actual cash flow on a debt-free basis is the best predictor of their return on investment. All of these factors have led to the focus on EBITDA as a measure of a practice’s performance. This calculation reflects how most other businesses are valued.

What is the Right Multiple?

There are Many Factors

There is no easy answer to that question because the multiple is meant to assess the following:

  • The opportunity of the investment
  • Its relative riskiness
  • Whether it provides a reasonable rate of return for investors
  • Endless other factors, including location, trained staff, stable or growing revenue stream, payor mix, condition of the facility, mix of services, patient demographics, and profitability.

Understanding Different Buyers

A Key Factor

Another nuance in today’s market is the varying perspective on earnings from different types of buyers. A private equity firm is usually looking to invest in a business or partner with its founder. Therefore, they will want to keep as many members of the management teams in place as possible to operate the business and drive performance. However, they could make a downward EBITDA adjustment if they think additional management team members are needed to grow and support the business.

Conversely, strategic buyers (those who have existing group practices and experience in the industry) may make upward EBITDA adjustments for synergies, including:

  • Duplicative management team members or third-party vendors
  • More favorable lab and supply contracts
  • More favorable payor contracts

In general, a private equity firm will likely pay a higher multiple but on a lower EBITDA. In contrast, a strategic buyer will probably pay a lower multiple on a higher EBITDA.

No More Guessing

As healthcare specialists in the business brokerage industry, we know how to value a medical practice in this complex environment. Call us today if you need a medical practice valuation.

Texas Medical Practice Brokers provides credible practice valuations for healthcare businesses whether you are considering selling soon or simply want to know the value of your business as you plan for the future. We also take on valuation assignments from buyers who want to know that they are not overpaying for the business they have targeted to buy. At Texas Medical Practice Brokers, we consider over 30 different factors when valuing your practice. No more need for guessing.

Do you need a medical practice valuation?

Arizona Medical Practice Brokers provides credible practice valuations for healthcare businesses and can provide a valuation for you whether you are considering selling or simply want to know the value of your business for planning purposes.  We also take on valuation assignments from buyers that want to know that they are not overpaying for the business they have targeted to buy.