How to Value an Urgent Care
Urgent care centers provide medical care for patients with mild health concerns that need immediate attention. In recent years, the urgent care industry has seen rapid growth partly due to COVID-19. According to IBIS World, we can expect this industry to generate about $74 billion dollars over the next several years. In addition, we have seen a significant increase in profitability within the urgent care industry. As such, it may be an ideal time to buy, grow, or sell an urgent care. However, operating an urgent care can come with many challenges. To succeed in the urgent care industry, it is important to understand how to value an urgent care.
There are many factors to consider when valuing an urgent care. The best way to learn how to value an urgent care is to receive a business valuation. During a business valuation, a business appraiser determines the fair market value of an urgent care you are buying or selling. In addition, receiving a business valuation can help you understand the strengths and weaknesses of your urgent care. This information can help you understand how to maximize the value of an urgent care.
Peak Business Valuation is a professional business appraiser. We work with many urgent care facilities throughout the country. Peak is happy to provide you with a business valuation and answer any questions you may have on how to value an urgent care. Schedule a free consultation with Peak Business Valuation below to get started!
How to Value an Urgent Care
There are many valuation approaches a business appraiser may use when valuing an urgent care. At Peak Business Valuation, our business appraisers often rely on the market approach and/or the income approach. Each method values an urgent care using different metrics. When valuing an urgent care, a business appraiser determines the best valuation approach for your facility. This can include using a combination of valuation approaches to value an urgent care.
Valuing an Urgent Care Using the Market Approach
The market approach is a popular method for valuing urgent care facilities. To understand this method, consider the real estate appraisal process. Real estate appraisers assess similar properties that recently sold to determine a fair value for the home. When using the market approach, a valuation analyst looks at similar businesses that recently sold. If the urgent care is a private entity, the analyst refers to private transaction databases.
Multiples for an Urgent Care
Valuation multiples are a crucial component of the market approach. Valuation multiples are financial ratios that compare an urgent care’s value to a financial metric. To find the appropriate multiples for an urgent care, business appraisers use the proper NAICS or SIC code. In the following paragraph, we discuss how to value an urgent care using valuation multiples for an urgent care.
SDE (Seller’s Discretionary Earnings) Multiples for an Urgent Care
- The SDE multiple assesses the value of an urgent care based on its seller’s discretionary earnings. This involves multiplying a facility’s SDE by the multiple.
EBITDA Multiples for an Urgent Care
- The EBITDA multiple determines the return on investment (ROI) an operator can expect from an urgent care.
REVENUE or SALES Multiples for an Urgent Care
- The revenue multiple measures the value of an urgent care in relation to the amount of revenue it generates. They then multiply the facility’s revenue by the multiple to determine the fair market value of an urgent care.
To know which multiple is most suitable for an urgent care, receive a business valuation. In addition, be sure to check out our article on Valuation Multiples for an Urgent Care.
Valuing an Urgent Care Using the Income Approach
The income approach is another common method for how to value an urgent care. This valuation approach calculates the value of an urgent care by considering its cash flow potential. Additionally, the income approach considers the risks an investor may encounter before meeting expected earnings. We highlight a few of these risks below.
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- Regulatory Compliance: Urgent care facilities are responsible for the well-being of their patients. To ensure patient safety, it is vital to be aware of and comply with regulations.
- Skilled Workforce: It is vital to have a well-trained and educated healthcare and management staff. This ensures efficiency and reduces risks and penalties.
- Financial Performance: Running an urgent care can be expensive. As such, it is vital to build financial strength through careful planning.
- Competition: The urgent care industry is extremely fragmented. As such, it is crucial to understand how to differentiate from competitors.
Methods to Value an Urgent Care Using the Income Approach
There are two popular methods valuation experts use for valuing an urgent care under the income approach. They are the capitalization of cash flow method and discounted cash flow method. Below, we discuss how to value an urgent care using these valuation methods.
Capitalization of Cash Flow Method
- Peak Business Valuation often uses the capitalization of cash flow method when valuing an urgent care. The capitalization of cash flow method is best for urgent care facilities with stable histories. When using this method, the valuation analyst determines an appropriate amount of economic income for one period of time. This period is then divided by a capitalization rate. The capitalization rate indicates a rate of return that an investor can expect. In addition, this method assesses any risks that the buyer may encounter. We discuss some of these risks above.
Discounted Cash Flow Method
- Generally, the discounted cash flow method is best for businesses with strong financial histories. Additionally, facilities that have built reliable forecasts benefit from the discounted cash flow method. This method uses 3-5 years of cash flow projections to determine the value of future cash flows at an urgent care. The business appraiser discounts the future cash flows using a discount rate instead of a capitalization rate. This process allows them to calculate the fair market value of an urgent care. Keep in mind, the discounted cash flow method is less reliable since it uses future cash flow estimates which can be subjective.
Summary
There are various valuation methods for valuing an urgent care. Each method offers a different assessment of an urgent care’s value. To know which method is most applicable to your urgent care, receive a business valuation. Receiving a business valuation is also an effective way to understand the risks and advantages of your urgent care. A business appraisal for an urgent care center also determines a fair market value of an urgent care. This information is beneficial whether you are looking to buy, grow, or sell an urgent care.
Peak Business Valuation, business appraiser, is happy to help! We value urgent care facilities on a regular basis. Peak Business Valuation can provide you with a business valuation for an urgent care. We can also answer any questions you have about how to value an urgent care. Start now by scheduling a free consultation with Peak below!
Check out our other articles: Valuing an Urgent Care. Value Drivers for an Urgent Care. Valuation Multiples for an Urgent Care.
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