Many ODs want to know what their practices are worth. As private equity continues a frantic pace in practice acquisition, this question will likely be asked more often.
So, what is your practice worth?
No exact science or calculation exists to determine the value of your practice. Numerous factors come into consideration, such as location, facilities, existing doctors, and whether the selling OD is staying after the sale. Other factors include key staff, gross sales, net sales, existing contracts, and suppliers.
The buyer also plays a large role in practice valuation. Buyers are buying for a financial reason or a strategic reason. Typically, buyers purchasing practices for strategic reasons will offer a higher dollar amount.
Related: Why ODs need a business strategy
One of the easiest numbers to use as a benchmark is sales price as a percentage of collections. In the past 18 months, I have seen this range from 35 percent to 125 percent of a practice’s one-year gross collections.
The other number used is multiple of earnings. In this category, we see a range from 4 to 7 times earnings before interest taxes depreciation and amortization (EBITDA).
Practices that have sold for higher percentages or multiples are well run and have a strategy to increase their value. It is important to have a plan in place before deciding to sell a practice.
Many practice owners wait until they must sell to start asking questions on how to prepare and sell their practices. Waiting this late to begin preparing to sell can lead to a bad situation and may result in a lower selling price. Everyone will exit their practices at some point—the sooner you set the exit plan and strategy, the better.
1. Warrillow J. The Value Builder System. Available at: http://valuebuildersystem.com/. Accessed 5/14/18.