How to Value a Medical Spa
Medical spas provide an ambient environment for patients to receive beauty, skincare, and health treatments. With rising trends in beauty and healthcare, operating a medical spa can be profitable. If you want to buy, grow, or sell a medical spa, it is best to receive a business valuation. During a medical spa valuation, you will discover how to value a medical spa and how to succeed in this industry.
As part of a business valuation, a professional business appraiser evaluates the strengths and weaknesses of your medical spa. Whether you are buying, expanding, or selling, understanding the value of a medical spa can help you make strategic business decisions.
Peak Business Valuation is a professional business appraiser. We work with medical spas across the country. As such, we are happy to provide you with a medical spa valuation. In addition, we can answer any questions you have on valuing a medical spa. Schedule a free consultation below to get started!
How to Value a Medical Spa
As part of a business valuation for a medical spa, valuation analysts often work with the market approach and the income approach. At Peak Business Valuation, we evaluate which methods work best based on the specific business circumstances. The market approach is common when calculating the fair market value of a medical spa.
Valuing a Medical Spa Using the Market Approach
The market approach compares your medical spa to similar spas recently sold on the open market. This approach is similar to how real estate is valued by comparing recently sold properties in the same area. The business appraiser gathers relevant data from private transaction databases. By analyzing key metrics, a business appraiser can help you understand the fair market value of a medical spa.
Multiples for a Medical Spa
The market approach involves using valuation multiples to determine the fair market value of a medical spa. Valuation multiples are ratios that compare the value of a business to a financial metric like sales, earnings, or revenue. To determine the appropriate valuation multiples for a medical spa, valuation analysts apply the proper NAICS or SIC code. Below, we discuss common medical spa valuation multiples.
SDE (Seller’s Discretionary Earnings) Multiple for a Medical Spa
The SDE multiple is a common multiple for valuing a medical spa. It measures the value of a medical spa based on its seller’s discretionary earnings.
EBITDA Multiples for a Medical Spa
EBITDA multiples reflect a company’s earnings before interest, taxes, depreciation, and amortization. This helps determine the medical spa’s potential return on investment.
REVENUE or SALES Multiple for a Medical Spa
Revenue multiples help determine the value of a medical spa based on the amount of sales it generates.
For more details on which medical spa multiples are applicable, check out What is a Valuation Multiple?
Valuing a Medical Spa Using the Income Approach
Another popular valuation approach is the income approach. The income approach evaluates the future cash flow potential of a medical spa and its risks. Below, we highlight some common risks for medical spas. A business appraiser will analyze these when performing a medical spa valuation.
- Regulatory Compliance: The medical spa industry is highly regulated for client safety. Complying with these standards is essential to avoid legal issues, fines, and health hazards.
- Client Retention: A loyal customer base is crucial for generating revenue. The quality of service and treatment plans can greatly influence client retention.
- Location: The location of a medical spa has a huge influence on its success. With a prime location, you can command higher prices and attract more clients.
- Technology and Equipment: Advanced medical equipment can significantly influence the customer experience. This can boost client loyalty and sales revenue.
Methods to Value a Medical Spa Using the Income Approach
There are two main variations of the income approach. They are the capitalization of the cash flow method and the discounted cash flow method. Below, we discuss how to value a small business using these methods in depth.
Capitalization of Cash Flow Method
This method is ideal for medical spas with a long history of stable earnings. It involves determining the spa’s income over a specific period and dividing it by a capitalization rate. The capitalization of cash flow method also assesses the risks associated with running a medical spa.
Discounted Cash Flow Method
The discounted cash flow method uses financial projections over a 3-5-year period to estimate the value of future earnings. These future earnings are discounted by applying a discount rate. This approach is best for medical spas with strong financial forecasts. Keep in mind, that this method is less accurate since it relies on future cash flow estimates.
Summary
During a business valuation for a medical spa, business appraisers often use the market and income approaches to determine its fair market value. These methods provide critical insights into your medical spa’s value and growth potential. Whether you are buying, selling, or growing a medical spa, understanding its fair market value is critical.
Peak Business Valuation, professional business appraiser, works with medical spas across the United States. We are here to provide you with a medical spa valuation and answer any questions about how to value a medical spa. Schedule your free consultation to get started today!
