Valuation Multiples for a Counseling Center
Establishments in the counseling industry provide treatments for mental, emotional, and behavioral disorders. These disorders are often caused by mental illness, physical trauma, emotional trauma, or substance abuse. According to IBIS World, there are over 216,000 counseling centers in the United States. In recent years, the counseling industry generated about $26.2 billion dollars in revenue. With rising demand, we can expect this trend to continue. However, it can be difficult to build a strong counseling center. This industry is extremely fragmented with steady competition. To succeed, it is important to understand valuation multiples for a counseling center. This is important whether you are buying, growing, or selling a counseling center.
Valuing a Counseling Center
Whether you are buying or selling, it is beneficial to understand the principles of valuing a counseling center. The first step is to receive a business valuation. If you are buying a counseling center, receiving a business valuation can help you determine a fair purchase price. Additionally, you may learn about effective negotiation strategies. For selling a counseling center, a business valuation can help you determine a fair listing price. You will also learn how to increase the value of a counseling center as part of a business valuation.
Peak Business Valuation, business appraiser, provides business valuations for counseling centers on a regular basis. We are passionate about helping counseling centers succeed! In addition, we can answer any questions you may have about valuing a counseling center. Schedule a free consultation with Peak Business Valuation today!
Valuation Multiples for a Counseling Center
A business appraiser commonly uses valuation multiples when valuing a counseling center with the market approach. In the following diagram, we show average market multiples for counseling centers. Keep in mind, this is only a guide. To know what market multiples are applicable to your counseling center, receive a business valuation with Peak Business Valuation. We can answer any questions you have about valuation multiples for a counseling center. Schedule a free consultation with Peak Business Valuation, business appraiser.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are similar to ratios. They compare the value of a counseling center to a financial metric. This may include cash flow, earnings, or sales. For example, the SDE multiple is common when valuing a counseling center. This multiple compares a counseling center’s value to its seller’s discretionary earnings. Using this multiple, the valuation expert can compare your counseling center to similar establishments that recently sold on the market. This process helps the valuation expert determine a fair market range of value for a counseling center.
For example, a counseling center has $150,000 in seller’s discretionary earnings. The business appraiser determines a 1.96x SDE multiple is applicable. This example implies the counseling center has an estimated value of $294,000 ($150,000 times 1.96x). On the other hand, if it receives a 3.06x multiple the fair market value of the counseling center would be $459,000 ($150,000 times 3.06x).
Peak Business Valuation, business appraiser, helps many individuals who are buying or selling a counseling center. Peak Business Valuation often uses valuation multiples to value a counseling center. Keep in mind, the range of value can vary since each counseling center is unique. The following sections discuss SDE, EBITDA, and REV multiples for counseling centers.
SDE Multiples for a Counseling Center
Average SDE Multiple range: 1.94x – 3.14x
According to our database, counseling centers transact at a SDE multiple of 1.94x – 3.14x. A valuation expert can determine an implied value of a counseling center by applying the multiple by the most recent 12-month period of earnings. See the following equation.
SDE X Multiple = Value of the Business
For example, a counseling center generates $163,000 in seller’s discretionary earnings. If it transacts at a 2.59x multiple, the value of the counseling center is about $422,170.
$163,000 X 2.59x = $422,170
Business appraisers often use SDE multiples when valuing a counseling center. When using this multiple, they are required to know the seller’s discretionary earnings of the center. To calculate SDE, business appraisers add back any expenses the new operator may not incur to the value of the counseling center. Common add-backs include the owner’s compensation, non-recurring or non-related business expenditures, and personal expenses. With these add-backs, business appraisers can determine the cash flow potential of the counseling center. This is crucial when determining the value of a counseling center.
EBITDA Multiples for a Counseling Center
Average EBITDA Multiple range: 3.37x – 5.40x
Counseling centers transact at an average EBITDA multiple range of 3.37x – 5.40x. Valuation experts can apply this multiple to EBITDA to determine a fair market value of the counseling center. Refer to the following calculation.
EBITDA X Multiple = Value of the Business
For example, a counseling center has an EBITDA of $108,000. It transacts at an EBITDA multiple of 4.36x. In this instance, the counseling center is worth $470,880.
$108,000 X 4.36x = $470,880
The EBITDA multiple helps determine a counseling center’s return on investment (ROI). Many experts prefer EBITDA multiple for counseling centers since they help normalize differences. These multiples allow business appraisers to compare your counseling center to similar centers. In addition, normalized ratios provide an accurate estimate of the future earnings a buyer can expect from a counseling center.
REV Multiples for a Counseling Center
Average REV Multiple range: 0.40x – 0.69x
On average, counseling centers transact at a revenue multiple range of 0.40x – 0.69x. Business appraisers at Peak Business Valuation can derive the implied value of a counseling center by multiplying its revenue by the multiple. See the calculation below.
Revenue X Multiple = Value of the Business
For instance, a counseling center makes $765,000 in revenue. It then transacts at a 0.74x multiple. In this example, the counseling center is worth about $566,100.
$765,000 X 0.74x = $566,100
REV multiples measure the total sales revenue a counseling center generates. REV multiples are less common when determining the value of a counseling center. Peak Business Valuation typically relies on the cash flow multiples – SDE and EBITDA. However, our analysts use their knowledge and expertise to determine which methods and multiples are suitable for your counseling center. For more information, read Valuing a Counseling Center.
Summary
When valuing a counseling center under the market approach, there are various multiples that a business appraiser may use. The valuation multiple that is applicable to your counseling center depends on various factors. To understand which methods and multiples for a counseling center are best, receive a business valuation. During a business valuation, a valuation analyst determines the fair market value of a counseling center. In addition, they will help you understand how to maximize the value of a counseling center.
Peak Business Valuation, business appraiser, works with many counseling centers throughout the nation. We are happy to help you with a business valuation for a counseling center! In addition, we can answer any questions you may have about valuation multiples for a counseling center. Get started now by scheduling a free consultation with Peak Business Valuation!
See also Valuing a Counseling Center, Value Drivers for a Counseling Center, and How to Value a Counseling Center.
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