Valuing a Physical Therapy Practice

Valuing a Physical Therapy Practice

One of the largest sub-sectors of the healthcare industry is the rehabilitation sector. Within this sector is the physical therapy field. I myself have spent countless hours rehabilitating back and shoulder injuries through physical therapy.

Industry Information

Companies in the physical therapy rehabilitation sector provide treatment or therapy through improving the mental or physical functionality of a patient following an injury or illness. As of February 2019, there are approximately 44,000 physical therapy practices in the United States, averaging a 10.9% profit margin. The industry as a whole moving forward over the next five years is expected to experience annualized growth of 2.8% vs. the previous five years of 3.2%. Overall, relatively stable growth.

One would expect a higher annualized growth rate with the increasing number of baby boomers, but with the shortage of physical therapists, the industry is experiencing high merger and acquisition activity. As such, the industry is experiencing a demand for clientele that is outpacing the supply of practices. These factors have put owners of physical therapy practices in a great position. With the expectation of higher growth, stable profit margins, and an environment of increasing acquisitions, now is the perfect time to consider selling your practice or purchasing an additional practice.

Business Valuation

The first step to selling your business or purchasing a business is to obtain a business valuation. Whether you are looking to sell or hold on to your company, understanding the market value of your business is important. A valuation specialist will show you a range of values for your business and consult with you on how to increase the value of your business.

Over the past five years, I have provided business valuations for several physical therapists for various valuation purposes. To give you an idea of each of those engagements, I will list out some of the key factors used in valuing physical therapy practices. Keep in mind that the factors listed below are only a guide.

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Market Multiples for a Physical Therapy Practice
  • Annual Revenue: 0.45x – 0.65x
  • EBITDA: 2.0x – 3.5x
  • Seller’s Discretionary Earnings: 1.5x – 2.5x

**Disclaimer: These multiples have been provided for educational purposes only. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, you should seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.

With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your physical therapy practice prior to a potential sell. In addition, the following information should be used to value a physical therapy practice when looking to acquire a practice. I will touch on several ways in which you can increase the value of your business. There are many factors to take into consideration, but this will provide you with the basis of what your company is worth and a few ideas to increase your company’s value. If you are searching for a more extensive valuation, reach out to a valuation professional like myself.

There are several success factors that help distinguish a physical therapy practice:
  1. Understanding Government Regulation and their Implications
    • Regulation affects how operators function and how they are paid. Operators must be sure to comply with regulation or risk fines or the loss of revenue streams from government insurance such as Medicare.
  2. Having a Great Reputation
    • Reputation is particularly important for operators. Those with strong reputations will receive more referrals, leading to more patients and revenue.
  3. Ensuring Pricing Policy is Appropriate
    • Price is another way that operators compete. Balancing profit and competitive pricing are crucial for operators to ensure financial stability.
  4. Access to Highly Skilled Workforce
    • A highly skilled workforce is crucial in the industry, as employees are heavily relied on to provide personalized services.
  5. Proximity to Key Markets
    • Location is important to industry participants as many consumers choose operators based upon location.

Understanding the value of a physical therapy practice is important, regardless of any near future transactions. Even if you have not thought about selling your business or purchasing a business, it is never too early to start planning. The first step in that process is a business valuation, which we are happy to provide you with. Peak also helps to identify ways to increase the value of your business.

We at Peak Business Valuation work with a handful of physical therapy practices. We welcome any questions you may have. Feel free to reach out by email or through a phone call.

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