Physical Therapy Multiples
Are you looking for physical therapy multiples? When valuing a physical therapy practice, valuation experts often utilize physical therapy valuation multiples as part of the market approach. Whether buying, selling, or financing a physical therapy practice you need to understand these financial metrics. Below we discuss the three most common valuation multiples for physical therapy practices.
Understand that each business is unique and many factors impact what valuation multiples apply to your business. As such, a professional business appraiser will perform a physical therapy valuation to determine appropriate valuation multiples for your physical therapy practice.
As a top business appraiser, Peak Business Valuation frequently performs physical therapy valuations. We are happy to help you understand how to value a physical therapy practice and applicable physical therapy valuation multiples. Schedule a consultation with a founder today to get started!
What are Physical Therapy Multiples?
First, knowing what a valuation multiple is is important. A valuation multiple is a financial ratio that measures the value of a business in relation to a financial metric. Common metrics include SDE, EBITDA, and Revenue. When using the market approach for valuing a physical therapy practice, the business appraiser will determine appropriate multiples. For physical therapy valuation multiples, the business appraiser calculates the value of a physical therapy practice by using the practice’s SDE, EBITDA, and REV. See Valuation Multiples for Physical Therapy Practices to dive deeper.
Common Physical Therapy Valuation Multiples
Below we discuss SDE, EBITDA, and REV multiples for a physical therapy practice. Understand that many factors affect the valuation multiple applicable to your physical therapy practice. We discuss some of these below. As such, the most accurate way to understand the value of a physical therapy practice is to obtain a physical therapy valuation. Peak Business Valuation is happy to help! Schedule a free consultation today!
SDE Multiples for a Physical Therapy Practice
The SDE multiple measures a business’s value to its seller’s discretionary earnings. To calculate the seller’s discretionary earnings, a business appraiser adds back any non-recurring and non-related business expenses. They also determine a fair owner’s compensation which can add or deduct from the value depending on the owner’s involvement in the business. The SDE multiple for a physical therapy practice is a common cash flow multiple to use when buying or selling a physical therapy practice.
- Formula: Value = SDE × Multiple
- Range: SDE multiples for physical therapy practices can range from 2.0x to 4.0x SDE.
Physical Therapy EBITDA Multiples
Next, EBITDA multiples for a physical therapy practice measure the return on investment you expect to make. A business appraiser determines an EBITDA multiple by using normalized ratios. This helps them account for differences in capital structure, taxation, and fixed assets. Thereby allowing them to compare similar physical therapy practices. This physical therapy multiple represents the future earning capacity a potential buyer could expect from the practice.
- Formula: Value = EBITDA × Multiple
- Range: EBITDA multiples for physical therapy practices typically range from 3.0x to 6.0x EBITDA.
REV Multiples for a Physical Therapy Practice
Last, REV multiples measure the value of the business in relation to the revenue or sales it generates. The business appraiser typically uses the trailing 12 months of revenue prior to the sale to determine the value of a physical therapy practice. For physical therapy practices, this multiple is often less applicable.
- Formula: Value = Revenue × Multiple
- Range: Revenue multiples for physical therapy practices generally range from 0.5x to 2.0x revenue.
How to Value a Physical Therapy Practice Using Multiples
As stated, above a professional business appraiser will determine applicable physical therapy valuation multiples for your practice. A physical therapy valuation often includes a combination of valuation methods including the market, income, and asset approach. In addition, the business appraiser may also use weighted averages.
Moreover, the business appraiser will analyze financial statements, key value drivers for a physical therapy practice, and other factors when valuing a physical therapy practice. To learn more about valuing a physical therapy practice, schedule a consultation with Peak Business Valuation! Be sure to also check out How to Value a Physical Therapy Practice.
Rules of Thumb for Physical Therapy Practices
While rules of thumb and comparable sales can be helpful, they are typically unreliable. There is simply a lot more to consider than multiplying sets of numbers. Business valuation is part math, science, and art. As such, it is best to work with an experienced and credentialed business appraiser. In addition, many scenarios require a certified business appraisal to be considered reliable.
Factors Affecting Physical Therapy Multiples
Several key factors can influence the value of a physical therapy practice. Here are some of the most important ones a business appraiser considers when valuing a physical therapy practice. These value drivers for a physical therapy practice are key to increasing value.
- Growth Potential: Higher growth potential can command higher physical therapy multiples.
- Location and Market Demand: Physical therapy practices in high-demand areas with little competition will see higher valuation multiples.
- Profit Margins: More profitable practices generally receive higher EBITDA or SDE multiples.
- Size of Practice: Larger practices with diversified revenue streams may be valued at higher multiples than smaller, single-location physical therapy practices.
- Risk Factors: Practices with higher risks, such as dependence on a single-payer or a small patient base, may see lower physical therapy practice multiples.
Multiples are often derived from comparable transactions in the market, and they can vary significantly based on the specific characteristics of the practice being valued.
Conclusion
As a professional business appraiser, Peak Business Valuation is happy to help you understand how to value a physical therapy practice. Reach out with any questions about valuing a physical therapy practice and physical therapy multiples by scheduling your free consultation today! Be sure to also check out Physical Therapy Practice Valuations for all the information we have written on valuing a physical therapy practice.
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