Valuation Multiples for a Medical Practice
Within the United States, there are more than 141,000 primary care doctors and physician practices. The annual growth in this industry is expected to increase over the coming years. As such, it is always a great time to buy or sell a medical practice. When a business appraiser is valuing a medical practice or primary care doctor’s office, they will analyze many things. This includes financial statements and operations. Using multiples for a medical practice, they will determine the fair market value of a primary care doctor’s office.
Below we show average valuation multiples for a medical practice. Understand that these numbers are only a guide. As a business appraiser, Peak Business Valuation will determine what multiples are applicable to your medical practice through a business appraisal. We provide business valuations for medical practices and doctor’s offices nationwide. We would love to answer questions about valuing a medical practice. Schedule a free consultation to get started!
Valuing a Medical Practice
One of the primary factors a business appraiser considers when valuing a primary care doctor or valuing a medical practice is what product/service segment they operate in. This includes family medicine and general practice doctors, internal medicine practitioners, and pediatric medicine. The business appraiser will also analyze your payor mix, financial statements, patient visit volume, location, and other factors. Using a variety of business valuation methods, the valuation expert will determine the value of the medical practice. Multiples for a medical practice is just one method.
If you are buying a medical practice or primary care clinic, it is important to obtain a business valuation. A valuation of a medical practice will help when negotiating a fair purchase price. It is also key to growing a medical practice post-acquisition.
Whereas, if you are selling a doctor’s office or medical clinic, a valuation can assist in determining a fair listing price. It is also useful for maximizing the value of a physician’s office before selling.
Whether you are buying or selling a medical practice, a business valuation is important. Peak Business Valuation, business appraiser, is happy to provide a valuation of a medical clinic. Reach out by scheduling a free consultation.
Valuation Multiples for a Medical Practice
The visual below shows average market multiples for medical practices. These are also multiples for a primary care doctor. These multiples are approximate for physician practices and medical offices. Understand that these numbers are only a guide. It is best to obtain a business valuation of a primary care practice or medical office to know what multiples are appropriate to your business. The diagram shows REV, SDE, and EBITDA multiples for primary care physicians. For specific information or to value a medical office or practice schedule a 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?
As a business appraiser at Peak Business Valuation is valuing a medical office, they commonly use valuation multiples for a medical practice. This is one valuation method to determine the value of a medical office. A valuation multiple is a ratio that compares the value of the business to a factor such as earnings, revenue, or EBITDA. One common multiple for a medical office is a REV multiple. The revenue multiple compares the revenue of the medical practice with the implied value of the medical office.
For instance, the revenue of a medical clinic is $770,000. If the medical practice transacts at a 0.71x REV multiple, the implied value of the medical practice is $545,700. Whereas, if a 0.93x REV multiple is more appropriate the approximate value of the primary care doctor’s office is $716,100.
When viewing multiples for a medical practice, a valuation expert will analyze the financials and operations of your physician’s office. They then compare these to similar medical practices that recently sold on the open market. Using this and other valuation approaches, the business appraiser determines a range of fair market value for the doctor’s office.
Peak Business Valuation, business appraiser, is happy to provide a business valuation for a medical practice. Knowing the value of a physician’s office is important before buying or selling a medical practice. Schedule a free consultation today to learn more.
SDE Multiples for Primary Care Doctors
Average SDE Multiples: 1.65x – 2.52x
In Peak’s data, the average SDE multiples for a doctor’s office range between 1.65x – 2.52x. To determine the implied value of a medical office, first, calculate the seller’s discretionary earnings. Then apply this number to the applicable SDE multiple. The calculation is below.
SDE X Multiple = Value of the Business
For example, a primary care doctor has a seller’s discretionary earnings of $486,000. A business appraiser at Peak Business Valuation determines a 2.17x SDE multiple is applicable to the valuation of the medical practice. In this scenario, the value of the medical office is approximately $1,054,620.
$486,000 X 2.17x = $1,054,620
The business appraiser will determine whether an SDE multiple is applicable to the transaction of your medical practice. To determine the seller’s discretionary earnings, a valuation expert does the following. Take the medical practice’s operating profit and add-back expenses a new owner may not incur. These expenses can include personal expenses, non-related or non-recurring business expenses, and a fair owner’s compensation. For additional information read, Common Add-backs in Business Valuation.
EBITDA Multiples for Physician Practices
Average EBITDA Multiples: 2.61x – 3.61x
Next, in private transaction data, the average EBITDA multiples for a medical clinic are between 2.61x- 3.61x. This can be a wide range. As such, it is important to obtain a business appraisal for a medical practice. To determine what a physician’s office is worth multiply EBITDA by the appropriate EBITDA multiple. See the equation as follows.
EBITDA X Multiple = Value of the Business
To illustrate, the EBITDA of a medical practice is $305,000. As the business appraiser is valuing a medical practice, they determine a 3.18x EBITDA multiple is applicable. Using the above equation, the medical office is worth about $969,900.
$305,000 X 3.18x = $969,900
The EBITDA multiple for a primary care doctor measures the approximate return on investment an investor can expect from the business. When Peak Business Valuation, business appraiser, decides to use this multiple it is because it uses normalized ratios. Normalizing ratios makes it easier to compare similar medical clinics. Some of the normalized differences in the EBITDA multiple include fixed assets, capital structure, and taxation.
REV Multiples for Primary Care Doctors
Average REV Multiples: 0.69x – 0.93x
Last, according to Peak’s database, average REV multiples for a medical practice fall between 0.69x – 0.93x. To determine the value of a medical practice do the following. Using the most recent 12 months of revenue, multiply by the appropriate multiple. Refer to the calculation shown below.
Revenue X Multiple = Value of the Business
For example, a doctor’s office makes $1,350,000 in revenue or sales. The valuation expert determines a 0.80x REV multiple is applicable to the medical clinic. Using the above equation, the medical clinic’s value is approximately $1,080,000.
$1,350,000 X 0.80x = $1,080,000
In every business appraisal for a medical clinic, the business appraiser will determine what methods and multiples for a medical practice are most applicable. Often, the valuation expert uses several methods to determine the fair market value of a medical practice.
Summary
When looking at valuation multiples for a medical clinic, know these numbers are averages. To determine applicable multiples for your medical practice, obtain a business valuation. During a business valuation, the appraiser will analyze financial statements, key value drivers for a medical clinic, and other factors. By comparing these to similar medical clinics, they can determine appropriate market multiples. Again, this is one method for valuing a medical clinic. To know the value of a medical clinic, obtain a business appraisal.
Peak Business Valuation, business appraiser, provides business valuations for medical clinics across the country. We are happy to answer questions about valuing a medical practice during a consultation. Schedule yours today by clicking on the link below!
See also Valuing a Medical Practice, Value Drivers for a Medical Practice, and How to Value a Medical Practice.
