Medical Practice Valuation Multiples
Are you looking for medical practice valuation multiples? These multiples can provide the basis for a primary care practice valuation. Whether you are preparing to buy, sell, or secure financing for a medical practice, an accurate valuation will help. In this article, we discuss some of the most common multiples used within the market approach. Understanding these financial ratios can help increase the value of a primary care practice.
Please note that valuation multiples require adjustments for factors like practice size, location, and specialty. These factors can significantly impact the accuracy of a primary care practice valuation. Therefore, meeting with a business appraiser is best for anyone curious about their medical practice’s value.
Peak Business Valuation values primary care doctors and medical practices across the country! We are happy to answer any questions about multiples for a medical practice. Schedule a free consultation with Peak today!
What are Medical Practice Valuation Multiples?
First, it is important to understand what medical practice valuation multiples are and how they work. In short, a medical practice multiple is a financial metric indicating how much someone might pay for the practice. These metrics are generally based on the medical practice’s SDE, EBITDA, or revenue. A business appraiser identifies which multiples are most suitable for the medical practice. For more information, check out Valuation Multiples for a Medical Practice.
Common Medical Practice Valuation Multiples
In the following sections, we discuss the SDE, EBITDA, and revenue multiples. While each multiple serves a purpose when valuing a medical practice, they are not the only part of the equation. Each medical practice has unique traits that impact its overall value. This can include the business structure, market, and payor mix. As such, determining the true value of a medical practice requires professional analysis. Peak Business Valuation is here to help! Schedule a free consultation today for professional guidance on your medical practice.
SDE Multiples for a Medical Practice
First, the SDE multiple is common when valuing small or private medical practices. This multiple uses the practice’s seller’s discretionary earnings (SDE) to estimate market value. It reflects the owner’s involvement and adds non-recurring and non-related business expenses to the owner’s compensation. Last, it combines with industry averages to calculate value.
Formula: Value = SDE x Multiple
Range: SDE multiples for Medical Practices often range from 1.65x – 2.52x SDE.
EBITDA Multiples for a Medical Practice
The EBITDA multiple values a primary medical practice based on its earnings before interest, taxes, depreciation, and amortization (EBITDA). During the valuation process, an expert adjusts EBITDA ratios to account for differences in capital structure, taxation, and asset ownership. This method is helpful because it reflects a practice’s profitability. This multiple also represents cash flow potential, which may attract buyers and investors.
Formula: Value = EBITDA x Multiple
Range: EBITDA multiples for a medical practice typically range from 2.61x – 3.61x EBITDA.
Medical Practice Revenue Multiples
The third common valuation multiple for medical practices is the revenue multiple. It is based on the medical practice’s last 12 months of revenue. A business appraiser multiplies the revenue amount by the ratio to determine its value. A valuation expert analyzes the primary care practice to select the most applicable multiples.
Formula: Value = Revenue x Multiple
Range: Revenue multiples for a medical practice can range from 0.69x – 0.93x revenue.
How to Value a Medical Practice Using Multiples
At Peak Business Valuation, our business appraisers use various procedures to determine the most precise valuation. These methods may include the income, asset, or market approach, as well as weighted averages. Using various methods provides a more comprehensive valuation of a medical practice.
In addition, analyzing financial statements and value drivers is crucial. For insight into the best valuation multiples for a medical practice, schedule a free consultation with Peak. See also Valuing a Medical Practice to learn more.
Rules of Thumb for Medical Practices
When valuing a primary care practice, there are various guidelines and industry benchmarks that aid in the process. However, these oversimplified formulas exclude vital information. For example, measuring a practice’s value based on its cash flow alone fails to account for many other factors such as risks and growth potential. A professional business appraiser will provide you with an accurate and credible valuation for your medical practice. Peak Business Valuation is happy to help! Schedule your free consultation today.
Factors Affecting Medical Practice Multiples
Many internal and external factors can influence a medical practice’s value. Below, we highlight some common value drivers that may affect your practice. Understanding these factors can help increase a primary care practice’s value.
- Telehealth Impact: The rising popularity of telemedicine may lower in-person care. Adjustments to these changes may impact revenue and the resulting valuation.
- Physician Shortages: Increasing physician shortages put practices at risk of seeing fewer patients. Such events can lead to decreased revenue and valuation.
- Reputation Benefits: Reputable medical practices may be able to resist economic volatility. Established practices with a good reputation may receive a more favorable valuation.
- Payor Mix: Medical practices with more private insurance payors generally receive higher reimbursements. This can positively impact revenue and overall valuation.
Valuation multiples are derived from similar industry transactions. However, multiples are also affected by the unique nature of each medical practice. Connect with Peak Business Valuation for accurate valuation multiples. See Value Drivers for a Medical Practice for more insight.
Conclusion
Medical practice valuation multiples offer a quick market value estimate, but working with a professional appraiser ensures accuracy. Peak Business Valuation regularly values medical practices across the nation. We are happy to help! Schedule a free consultation today to get started! You can also read Medical Practice Valuations for further guidance.
