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How Much Is Your Physiotherapy or Chiropractic Clinic Worth?

Posted by Rick Lau on Dec 12, 2019 9:40:55 AM
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Learn How to Sell Your Physiotherapy or Chiropractic Practice at the Right Time, for the Highest Value

Is now the best opportunity for you to sell your physiotherapy or chiropractic clinic? Should you wait five years? Or are you on the flip side and looking to expand by buying more clinics? 

If you want to sell a physiotherapy or chiropractic practice now or in the future, you will need to know how to determine an accurate valuation for your practice. If you’re looking to buy, you’ll need the same set of skills to assess how much the one you want to acquire is really worth.

Consolidation Is Coming for Your Clinic (and Community)

With the increasing consolidation in healthcare caused by corporate takeovers, mergers, and acquisitions by private equity, if you own a clinic and haven’t been approached by a big corporation yet, just wait. It will happen. And while your first reflex may be to show them the door, the idea will be planted. 

Someday, you will want to sell your physiotherapy or chiropractic practice, and now is the time to learn how to do it such that you reap the valuation you’ve worked hard for.

This is what happened to a clinic owner in Ontario some time back, who was asking for my help with a dilemma he faced during a mentorship call.

He and his wife are in their 50s. With kids still in school, they’re not ready to retire yet, but it’s on their mind. His physiotherapy clinic has been earning about $1 million in revenue the last five years. He’s not quite ready to sell because the sale is his retirement plan. Selling now would remove his source of income too early. At least, that’s what he has been saying. 

But then he got an offer from a "big corporation" that owns hundreds of clinics, and wanted my help to decide how to respond. 

What would you do in this situation?

He has an offer now. If he doesn’t take it, what if he can’t find a buyer five years from now? And is this even a good deal? He doesn’t really know what his clinic is worth. 

How to Determine How Much Your Physiotherapy or Chiropractic Clinic is Worth 

Step 1: Calculate Your EBITDA

The basic formula for determining your clinic’s valuation is this:

EBITDA x Multiple = Business Sale Price

EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and it’s the most commonly used approach for pricing a business across nearly all industries. 

EBITDA is distinct from profits and revenues. It is essentially your profits, with certain types of expenses added back in, such as tax payments, interest payments, equipment purchases, or non related personal expenses (car lease, travel etc)

The idea is, a new owner will not have to pay all the same expenses as you. For instance, you may be paying to travel to three conferences in Hawaii every year. The new owner doesn’t have to attend those. Therefore, that money isn’t an expense and it should be added back to boost your EBIDTA

Also, many owners don’t take a salary or pay themselves. They just take their dividends each year.  In this case, you need to include these expenses and adjust your EBIDTA because its overstated. 

All items like this need to be added back or adjusted to determine your EBITDA. The higher this figure, the higher your business sale price will be, because you are going to multiply this by a particular number during your business sale negotiations.

Another item to look at is your outstanding accounts receivable or expensive equipment. After you leave, there will be some payments still due for work you did, but that the new owner will receive. You can add that, or a percentage of it, to your business sale price. 

In addition to adding certain expenses back in, you may also be able to increase your projected revenues. Suppose you had a great quarter ever since buying some new equipment or offering a new service. Even if this new service has only been in place for a few months, you can safely project a sustained increase in revenue, and factor than in to your EBITDA. 

Normalizing your EBITDA takes quite a bit of work. To maximize this figure, you will want to work with an expert mentor/coach, such as my team, who specializes in helping chiropractors and physiotherapists get the maximum valuation and sale price for their clinics.

We’re helping clinic owners across Canada and the U.S. by creating a community of independent clinic owners. We created a marketplace where clinics can be bought and sold without meddling from corporate buyers who try to undervalue your clinic. 

How do they undervalue it? In step 2.

Step 2: Determine Your Multiple

The multiple is an arbitrary number. There is no fixed procedure for settling on one. It represents how much the buyer values your business. How much in demand they believe your clinic is. But this is where you earn that big end-of-career retirement check you’re hoping for.

I have seen this range from 2x to 15x multiple in the last couple years...  

With an EBITDA of $200k and a multiple of 3, you could sell for $600,000. But if you can inch your chiropractic or physiotherapy practice's EBIDTA up to $300k and increase your multiple to 10, now you’re selling for $3.0 million.

Same business. Same clinic. But if you start planning for this several years ahead of time, you can make smart moves that reward you with those kinds of numbers.

You can do this. 

Your goal then is twofold:

Increase your EBITDA as much as possible, and then aim for the highest multiple.  

For every $10k increase in your EBITDA, you can expect about $100k increase in your physiotherapy or chiropractic clinic valuation. 

That’s why it’s so critical to do everything you possibly can to maximize your EBITDA.

 

Top 7 Reasons People Sell a Physiotherapy or Chiropractic Practice

 

 

The last thing you want is to feel boxed in, forced to sell when you don’t want to, when you won’t get maximum value for your clinic.

I was on a mentorship call with another owner in Alberta who told me that a big corporation had just bought up most of the other clinics in his area. He of course felt the urge to consider selling to them as well. If everyone else is doing it, maybe this is the time to cash in, right?  

If he doesn’t sell now, what if the corporation decides they have enough clinics in his area, and five years from now he won’t be able to sell?

Good question. Will there be any other buyers if he waits?

The problem comes back to how much your physiotherapy or chiropractic clinic is worth. If the big corporation undervalues it, or gives you a lower multiple than you think is fair, then selling too early just because a big company is offering something might not be the right move. 

In fact, getting an insulting offer is one reason people sell their practices. If you should get a multiple of 5, but a corporation offers you 2.5, that’s an insulting offer. 

Here are the seven main reasons people sell their clinics. As you’ll see, most of them are outside your control. You want to sell on your terms, not when circumstances force your hand.

1.) Health Issue

The health issue could be yours, or a member of your family. It could be one event that changes everything, or a chronic illness that forces a change of life. Either way, health problems can easily make owning a business too burdensome. Or, you might feel the need to sell your clinic so you can use the big lump sum to pay for the health issue.

2.) Divorce

Divorces disrupt your life and drain your bank account. Do everything you can to avoid this one.

3.) Fallout with Business Partner

Having a business partner can be a great asset. But it can also turn sour, and if the business relies upon both of you and you have a falling out, you may find yourself unable to sustain the clinic on your own.

4.) Loss of Superstar Clinician

Another major threat from the corporate takeovers is the increasing competition for star clinicians. You have to find them, hire them, and then hold on to them. Losing your best people at the worst time can force you to sell prematurely.

5.) Your Spouse Has to Relocate

Not much you can do about this one when it happens.  Unless you have strong systems and leaders in place so you can remotely run your clinic.  I recently talked about this in my Instagram Post on "How to Run Your Clinic In Hawaii"

how to sell your physiotherapy clinic

 

6.) Burnout – You Decide It’s Easier to Be a Clinician Than an Owner

Owning a clinic is a lot harder than working at one. Some people believe they want to own a clinic until they actually do. Then, they miss the good old days of just showing up at work and going home at the end of the day. The grass is always greener.

7.) Got an Insulting Offer

Just like the story you read earlier. 

And again, what do these seven reasons to sell a clinic have in common?

They’re reactive.

These are not the reasons you want to sell. You don’t want to feel as if you have no choice but to accept a sale price that’s half of what you know it should be, but that you end up taking because you’re in desperate circumstances.

We Have Sold Over 127 Physical Therapy and Chiropractic Clinics

We began selling clinics a while ago, and over time, we unearthed a blueprint that we’ve been able to apply to many more subsequent sales. This blueprint increases your EBITDA and raises your multiple.

The best part is, you can use this approach as part of a community of clinic owners who, like you, want to stay away from the corporate consolidation of health care clinics. Though that trend seems like an unstoppable force, it isn’t. 

Patients will always prefer better care to formulaic care. And they can tell the difference. 

We’re building a community of independent clinic owners. And the best thing about this community is that it will also become your marketplace. There will be younger clinic owners who are looking to expand and will want to buy chiropractic or physiotherapy clinics. And there will be other clinic owners in the last five years of their professional journeys who will be looking to sell. 

All in the same marketplace and community. 

If that sounds attractive to you, what should you do first?

Meet the team by watching a free webinar (CLICK HERE) that walks you through our blueprint for how to sell a chiropractic or physiotherapy clinic for millions

 

Yes! Watch Webinar Now!

 

Topics: Sell or Buy Clinic

 

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