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. Currently, there are approximately 125,000 physical therapy practices in the United States, averaging a 10.3% profit margin. The industry as a whole moving forward over the next five years is expected to experience annualized growth of 3.2% vs. the previous five years of 1.7%. 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 a 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 physical therapy practice or purchasing an additional physical therapy practice. Understanding the value of a physical therapy practice is vital if you plan on doing so.
Business Valuation of a Physical Therapy Practice
The first step to selling your physical therapy practice or purchasing a physical therapy practice is to obtain a business valuation. Whether you are looking to sell or hold on to your company, understanding the market value of a physical therapy practice is essential. A valuation specialist will show you a range of values for your business and consult with you on how to increase the value of a physical therapy practice.
Over the past five years, I have provided business valuations for 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 an expert uses when valuing a physical therapy practice. Keep in mind that the factors listed below are only a guide. For any questions on the value of a physical therapy practice, reach out to Peak Business Valuation, business appraiser. Schedule a free consultation today. We are happy to help!
Market Multiples for a Physical Therapy Practice
- Annual Revenue: 0.52x – 0.77x
- EBITDA: 3.12x – 4.45x
- Seller’s Discretionary Earnings: 2.06x – 2.95x
**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.
The above are average valuation multiples for a physical therapy practice. A business appraiser at Peak Business Valuation, uses multiples when determining the value of a physical therapy practice. 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 sale. In addition, the following information is useful to value a physical therapy practice when looking to acquire a practice.
Below we touch on several ways in which you can increase the value of a physical therapy practice. However, there are many factors to take into consideration when valuing a physical therapy practice. 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 for a physical therapy practice, reach out to a valuation professional like Peak Business Valuation, business appraiser.
Success Factors for a Physical Therapy Practice
Understand 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. When a business appraiser is valuing a physical therapy practice, they will analyze your revenue streams.
Have a Great Reputation
Reputation is particularly important for operators. Those with strong reputations will receive more referrals, leading to more patients and revenue. One of the best ways to build your reputation is through a Google My Business page and regularly asking clients for reviews. For more ideas read, The Value of SEO.
Ensure Pricing Policy is Appropriate
Price is another way that operators compete. Balancing profit and competitive pricing is crucial for operators to ensure financial stability. As a business appraiser is valuing a physical therapy practice, they will analyze your pricing strategy compared to competitors and industry averages. Additionally, the appraiser will analyze your financial statements including profitability.
Access to Highly Skilled Workforce
A highly skilled workforce is crucial in the industry, as employees are heavily relied on to provide personalized services. The strength of your team is essential to maximizing the value of a physical therapy practice. The less owner dependent your business is the more valuable it becomes.
Proximity to Key Markets
Location is important to industry participants as many consumers choose operators based on location. A business appraiser at Peak Business Valuation analyzes the location of your practice when valuing a physical therapy practice.
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 a physical therapy practice or purchasing a physical therapy practice, it is never too early to start planning. The first step in that process is a business valuation for a physical therapy practice. We are happy to provide one for you. Peak also helps to identify ways to increase the value of a physical therapy practice.
We at Peak Business Valuation work with dozens of physical therapy practices across the country. We welcome any questions you have about valuing a physical therapy practice. Feel free to reach out by scheduling a free consultation.
See also Value Drivers for a Physical Therapy Practice, Valuation Multiples for a Physical Therapy Practice, and How to Value a Physical Therapy Clinic.
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