Chiropractic Practice Valuation Multiples
Are you considering using valuation multiples to grow, buy, or sell a chiropractic practice? Valuation multiples help determine a business’s fair market value, allowing owners to make informed decisions about growth, sales, or financing. At Peak Business Valuation, business appraisers employ the best methods to determine chiropractic practice valuation multiples. Receiving a chiropractic clinic valuation helps business owners grow their practice and identify potential risks. This article will outline common valuation multiples for a chiropractic practice.
Please note that these are general principles for chiropractic practices. Since each chiropractic practice is unique, a professional business valuation is necessary. Valuation experts will consider all the details that impact the value of the chiropractic clinic.
At Peak Business Valuation, we work with chiropractic professionals across the country! We would love to provide a chiropractic practice valuation and answer any questions you have on valuing a chiropractic practice. Start today and schedule a free consultation with Peak!
What are Chiropractic Practice Valuation Multiples?
In short, a valuation multiple reflects how much someone would pay for a chiropractic practice. These multiples are based on real-world sales of similar chiropractic practices and industry trends. They often measure a practice’s value based on its EBITDA, SDE, or revenue. This data provides buyers and sellers with a pricing benchmark. A variety of factors influence valuation multiples. A valuation expert conducts a thorough analysis of the business and industry to select the best multiples.
Common Chiropractic Practice Valuation Multiples
In the following sections, we discuss the three most common valuation multiples: EBITDA, SDE, and revenue. Bear in mind that working with a professional ensures the most precise chiropractic practice valuation. Peak is here to help! Schedule a free consultation for your chiropractic practice today.
EBITDA Multiples for a Chiropractic Practice
EBITDA represents a chiropractic practice’s earnings before interest, taxes, depreciation, and amortization. An EBITDA multiple measures the practice’s core profitability and overall earning potential. A valuation expert typically adjusts this value by looking past non-recurring expenses, including owner-specific costs and other discretionary spending. Normalizing EBITDA and applying the multiple provides an accurate estimated value.
Formula: Value = EBITDA x Multiple
Range: EBITDA multiples for chiropractic practices often range from 2.86x to 3.83x EBITDA.
SDE Multiples for a Chiropractic Clinic
The SDE multiple is especially relevant to small businesses. It takes an owner’s involvement in the practice into consideration by calculating the practice’s value based on the seller’s discretionary earnings (SDE). The SDE adds irregular and discretionary expenses back to a practice’s earnings. The total amount, when multiplied with an industry multiple, represents a fair market value. A higher SDE multiple typically reflects a well-established practice with stable income, whereas a lower multiple might indicate inconsistent earnings or higher risks.
Formula: Value = SDE x Multiple
Range: SDE multiples for chiropractic practices can range from 1.75x to 2.27x SDE.
Chiropractic Practice Revenue Multiples
A revenue multiple values a chiropractic practice based on its total revenue from the last 12 months. The amount is then multiplied by an industry standard to provide an estimated value of the practice. However, this method is usually only used if the company’s expenses align with industry norms. If costs and profit margins vary drastically, the result may be inaccurate. Therefore, a revenue multiple is often compared with other valuation methods to obtain the most accurate result. At Peak, we apply a combination of valuation methods and multiples to provide a comprehensive and efficient valuation.
Formula: Value = Revenue x Multiple
Range: Chiropractic multiples range from about 0.69x to 0.87x revenue.
How to Value a Chiropractic Practice Using Multiples
The multiples listed above are effective, but it takes a trained eye to know which are most applicable. For example, SDE is more common for small, owner-dependent practices, while EBITDA is often used for larger, multi-practitioner clinics. Valuing a chiropractic practice requires consideration of all factors, like market trends and income. This is especially important since many chiropractors are sole practitioners.
A valuation expert at Peak reviews all the necessary information to provide an accurate chiropractic practice valuation. Schedule a free consultation with Peak Business Valuation today! See also How to Value a Chiropractic Practice.
Rules of Thumb for Chiropractic Practices
While the above valuation multiples are helpful, they present limitations. Each practice is unique, so using oversimplified formulas provides inaccurate results. Peak Business Valuation conducts extensive research to give an accurate chiropractic clinic valuation. In addition, we provide the legal credibility needed for any transaction.
Factors Affecting Chiropractic Practice Valuation Multiples
Many risks and value drivers influence a chiropractic practice’s value. Understanding these factors can help you increase the value of your practice.
- Growth Potential: Chiropractic practices with higher growth potential will receive a higher valuation multiple.
- Size of Practice: Smaller practices with fewer chiropractors tend to have lower value, while larger practices carry less risk, making them more valuable.
- Revenue Streams: Diversified revenue streams, such as offering a variety of services or a selection of health supplements in-store, will increase value.
- Profit Margins: Practices with greater profit margins will increase SDE or EBITDA multiples, raising the practice’s overall value.
- Location and Market Demand: Practices in densely populated areas with low competition may perform better, promoting a higher valuation multiple. Similarly, a small patient base puts a practice at risk and can result in a lower valuation.
- Payor Mix: Chiropractic practices face insurance reimbursement risks–the uncertainty of receiving full payment from insurers–which can impact cash flow and overall practice stability.
For more information, check out Value Drivers for a Chiropractic Office.
Conclusion
Valuation multiples are an effective way to estimate the value of a chiropractic practice. Many factors affect a business’s value, so a thorough analysis is essential. Valuation experts know exactly what to consider when determining applicable chiropractic practice valuation multiples. They can provide business owners with key insights to successfully buy, sell, secure financing, and more.
Peak Business Valuation is proficient at valuing chiropractic practices across the country. We provide accurate valuations to help any business reach its highest potential. Reach out to Peak by scheduling a free consultation today!
Be sure to also see Chiropractic Practice Valuations and How to Value a Chiropractic Clinic.
