How to Value an Optometry Clinic
Optometry clinics provide medical help for patients with concerns about their optical health. This generally includes examining, diagnosing, and treating eye diseases, injuries, and disorders. Optometry clinics may also prescribe and sell contact lenses and eyeglasses. In recent years, the optometry industry has seen healthy growth. According to IBIS World, this industry generates over $4 billion in revenue each year. We can expect this number to grow as the population ages and eye conditions become more common. This is ideal if you are buying, growing, or selling an optometry clinic. However, many optometry clinics struggle to retain profitability. To understand how to maximize your profits, it is beneficial to learn how to value an optometry clinic.
There are many factors to consider when valuing an optometry clinic. The best way to learn how to value an optometry clinic is to receive a business valuation. As part of a business valuation, a valuation analyst calculates the value of an optometry clinic. In addition, they may discuss the strengths, weaknesses, and how to maximize the value of an optometry clinic. This information can help you succeed whether you are buying or selling an optometry clinic.
Peak Business Valuation is a reputable business appraiser. At Peak, we work with optometry clinics on a regular basis. We are happy to provide you with a business valuation for an optometry clinic. In addition, we can answer any questions you may have on how to value an optometry clinic. Schedule a free consultation today!
How to Value an Optometry Clinic
When valuing an optometry clinic, a business appraiser may use various valuation approaches. Often, they will use the market approach and/or the income approach. Each valuation method measures the value of an optometry clinic using different metrics. The business appraiser will determine which method is best for your clinic during a business valuation. This may involve using a combination of valuation methods.
Valuing an Optometry Clinic Using the Market Approach
The market approach is a common valuation method for valuing an optometry clinic. To understand the market approach, consider the real estate appraisal process. When valuing a house, real estate appraisers look at similar homes that recently sold in the area. Then, they can accurately determine the value of a house. When using the market approach to value an optometry clinic, a valuation expert assesses similar clinics that recently sold on the market. If the clinic is a private business, the appraiser refers to private business transaction databases.
Multiples for an Optometry Clinic
When using the market approach, business appraisers rely on valuation multiples for an optometry clinic. Multiples are financial ratios that measure a business’s value based on metrics such as cash flow, earnings, or sales. To find the valuation multiples for an optometry clinic, business appraisers use the applicable NAICS or SIC code. Below, we highlight SDE, EBITDA, and REV multiples for an optometry clinic.
SDE (Seller’s Discretionary Earnings) Multiples for an Optometry Clinic
- SDE multiples measure the value of an optometry clinic in relation to its seller’s discretionary earnings. This is a common valuation multiple when valuing an optometry clinic.
EBITDA Multiples for an Optometry Clinic
- EBITDA multiples reflect an optometry clinic’s earnings before interest, taxes, depreciation, and amortization. This indicates the return on investment an optometry clinic can expect.
REVENUE or SALES Multiples for an Optometry Clinic
- REVENUE or SALES multiples calculate the value based on the total amount of revenue an optometry clinic generates. This valuation multiple is less common when deciding how to value an optometry clinic.
Valuation analysts will determine which multiple is most suitable for your optometry clinic. To learn more about the value of an optometry clinic, see Value Drivers for an Optometrist, Valuing an Optometry Business, and Valuation Multiples for an Optometry Clinic.
Valuing an Optometry Clinic Using the Income Approach
The income approach is another popular valuation method for valuing an optometry clinic. When using the income approach, valuation experts analyze the future cash flow potential of an optometry clinic. Additionally, they will consider the risks that may prevent an investor from meeting expected earnings. Below, we discuss a few risks associated with buying or selling an optometry clinic.
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- Competition: The optometry industry is very fragmented and competitive. As such, operators need to find ways to differentiate from competitors.
- Financial Strength: The optometry industry may experience a decline in profit margins in the near future. As such, it is vital for optometry clinics to develop financial strength.
- Regulatory Compliance: Optometry clinics are responsible for the health and safety of their patients. As such, it is important to be aware of and comply with the regulations and policies in optometry.
- Workforce: It is crucial to hire qualified employees at an optometry clinic. Optometrists must have a Doctor of Optometry degree and assistants should have extensive experience and training.
Methods to Value an Optometry Clinic Using the Income Approach
There are several variations of the income approach. Two common income approaches for valuing an optometry clinic are the capitalization of cash flow method and the discounted cash flow method. Both of these methods analyze the future earning potential of an optometry clinic. Below, we discuss how to value an optometry clinic using the capitalization of cash flow method or the discounted cash flow method.
Capitalization of Cash Flow Method
- The capitalization of cash flow method is best for optometry clinics with long and stable histories. This valuation method involves determining an appropriate measure of cash flow for a certain period. Then, a business appraiser assesses the risks of the optometry clinic to determine an appropriate capitalization rate. The capitalization rate reflects the rate of return an investor can expect from the clinic. By dividing the future cash flows by the capitalization rate, a business appraiser can determine the value of an optometry clinic.
Discounted Cash Flow Method
- The discounted cash flow method is ideal for optometry clinics with strong financial histories. In addition, this method may be useful for optometry clinics with reliable forecasts. The discounted cash flow method involves projecting future earnings over a 3-5 year period. A valuation expert then uses a discount rate rather than a capitalization rate to account for the time value of money. The future cash flows are discounted using a discount rate rather than a capitalization rate. Keep in mind, the discounted cash flow method is less common since it relies on future cash flow estimates which can be inaccurate.
Summary
Business appraisers may consider various valuation approaches when valuing an optometry clinic. To know which method is most suitable for your optometry clinic, receive a business valuation. During a business valuation, a business appraiser can help you understand the fair market value of an optometry clinic. This is key whether you are buying or selling an optometry clinic.
Peak Business Valuation works with many optometry clinics across the country. Peak can provide you with a business valuation and answer any questions you may have on how to value an optometry clinic. Start today by scheduling a free consultation with Peak Business Valuation, business appraiser, below!
