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. This article discusses valuing a physical therapy practice. For questions, schedule a free consultation with Peak Business Valuation, business appraiser.
Industry Information
Companies in the physical therapy rehabilitation sector provide treatment or therapy by improving a patient’s mental or physical functionality 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. For any questions, reach out to Peak Business Valuation, business appraiser by scheduling a free consultation. We are happy to help!
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 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.
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 Peak Business Valuation, business appraiser.
Success Factors for a Physical Therapy Practice
Understanding Government Regulations and their Implications
Regulation affects how operators function and how they are paid. Operators must be sure to comply with regulations or risk fines or the loss of revenue streams from government insurance such as Medicare.
Having a Great Reputation
Reputation is particularly important for operators. Those with strong reputations will receive more referrals, leading to more patients and revenue.
Ensuring Pricing Policy is Appropriate
Price is another way that operators compete. Balancing profit and competitive pricing is crucial for operators to ensure financial stability.
Access to Highly Skilled Workforce
A highly skilled workforce is crucial in the industry, as employees are heavily relied on to provide personalized services.
Proximity to Key Markets
Location is important to industry participants as many consumers choose operators based upon location.
Summary
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 dozens of physical therapy practices. We welcome any questions you may have about valuing a physical therapy practice. Feel free to reach out by scheduling a free consultation.
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