How much is your clinic worth? If you’ve been operating your clinic for any significant length of time and can see that you have achieved some level of success, you have probably started thinking about how much it’s worth.
This question is especially common for physiotherapy, chiropractic, and massage clinics, most of which operate independently and have built themselves from the ground up.
You may not want to sell now, but you also don’t want to have to sell in a hurry. Navigating the clinic sales process takes time. Generally, you want to give yourself at least a couple years – yes, years – from the time you decide to sell to the time you actually do sell.
So, starting to think about this now, even if it’s still a long way off, it's a smart move.
Let’s go through the basic process of how to value your clinic, and how to maximize that value so you can sell for top dollar.
And by the way, the questions of how to value your clinic, who is buying, why owners sell, and so much more related to this topic was discussed in a recent episode of New Patient Secrets, a free webinar series featuring some of the most successful clinic owners and consultants in the business. Sign up to watch the recorded episode instantly.
How to Value Your Clinic – Chiro, Physio, Massage
Step 1: Calculate Your EBITDA
EBITDA is the most common approach used across almost all industries to value a business. And it’s the one you should use to calculate the value of your medical clinic business.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Once you get that number, you multiply it by an agreed upon multiple between you and the buyer. Suppose your EBITDA lands at $500,000 and you have a multiple of 3. In that case, you would be selling your clinic for $1.5 million.
How do you calculate your EBITDA?
Roughly speaking, use your P&L data to start. Use your revenues, expenses, and income before taxes to figure out your profits. Those are your earnings.
A clinic sales consultant or a business accountant can help you work through the finer and critical details of the calculations.
That approach gives you a rough estimate of your EBITDA. But you don’t want to stop there. The next step is to maximize the value by normalizing it.
Watch this video to learn about the EBITDA Formula For Determining The Value of Your Clinic.
Step 2: Normalize your EBITDA
The raw figure from step one is likely lower than the real figure, though this is not always true. But the reason it’s often lower than the true value is because you are counting things as expenses that will not apply to the new owner, and thus should not be subtracted from the earnings figure.
For example, are you making car payments and including that as an expense? The new owner won’t be making payments on your car.
Do you travel to industry conferences, and incur related expenses such as transportation, hotel, and dining in addition to conference fees? The new owner doesn’t have to attend those conferences and can keep those earnings in the business, if they so choose.
There are likely many things you are counting as expenses that the new owners will not have to pay for.
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Another common one is your own wages as an owner. Many clinic owners just pay themselves out of the profits of the business and count that as an expense. But the new owner won’t continue paying you, so that too is not an expense for them.
When you add things like this back in to your EBITDA, you get a more accurate – and higher – value for your chiropractic, physiotherapy, or massage clinic.
As you can probably already imagine, this step requires quite a bit of work. We’ve only given a few examples of how you can maximize your clinic’s value by normalizing your EBIDTA. There are many more.
Another trick might be debt payments. Maybe you are paying more each month for some equipment loan than you need to. Reduce it or spread it out over more years, and you lower your monthly expenses.
With an accurate EBITDA, you’re now getting closer to engaging with potential buyers. But not yet.
Step 3: Determine Your Multiple
Your multiple – what you multiply by the EBITDA to determine the actual sales price – will depend on a number of things. But this part of the process is not set in stone. There is no blueprint for figuring it out. It’s based upon what you and the buyer can both reasonably foresee as the growth potential of the clinic.
For example, if your revenue has grown by 5-10% in each of the last three years, you can command a larger multiple because you have a track record of growth.
If you just finished paying off a big loan that was eating into your profits, you might be able to command a larger multiple.
If you have a very large and valuable email or mailing list of current and past patients and you have been using that list well, that’s a powerful asset and will justify a larger multiple.
You can also increase your multiple if you have more than one location. But be careful – a high-functioning single location will be more attractive to a buyer than a clinic business with multiple locations that are barely profitable and have dysfunctional operations and systems. So don’t go out and open a second clinic just to increase your multiple. It could backfire.
Many other factors can come in to this, and it comes down to the negotiation between you and the buyer.
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Step 4: Anticipate Buyer Expectations
So, with the goal of getting the highest possible multiple, you want to start figuring out what a potential buyer is likely to want before deciding to buy.
For example, some buyers will want to see your last three years of finances so they can assess your long term performance. Other buyers will only want to see your last twelve months. Unless they tell you in advance, you should prepare both sets of data and be ready to discuss them.
If you have grown a lot in recent years, your buyer will probably want to know why. What did you do differently?
Did you alter your marketing? Expand your doctor marketing efforts? Increase your referral traffic? Get more Google reviews? Send out more emails and direct mail? Did you hire a new clinician so you can now see more patients?
Did you improve your call metrics by increasing your phone answering rate, calling back missed calls, and winning back lost patients? Did you train your front desk to use phone scripts to book more patients?
[Swipe to learn how to winback lost patients over the phone]
The buyer will want to know all that so they know what’s working well.
If you didn’t do anything different, then why are you growing? Did a competitor sell or go out of business? Has the population grown significantly?
They will want to know this so they can be confident that your growth will be sustained even after you leave.
Why? Because the last thing a buyer wants is to purchase a clinic business that was mostly dependent on the owner. If after you leave, half your staff leaves, and all the goodwill you had built up in the community goes with you, and you were doing all the accounting and marketing yourself, then your buyer will worry about losing value once you leave.
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Step 5: Know Your Buyer’s Motivations
Once you start getting some actual interested buyers, learn what you can about their experience and their motives before entering the negotiations.
For example, if you have installed a successful management system and hired personnel who know how to run it, and your buyer has little experience with operations management, that’s a major selling point for you because they won’t have to worry about doing that type of work.
The closer you can get to a ‘turnkey’ operation – meaning the buyer can simply purchase the clinic and it will already be running smoothly – the higher multiple you can legitimately expect.
Step 6: Work on Increasing Your Value
If you go through these earlier steps and realize that your clinic just isn’t worth what you hope to sell it for, then you’ll need to pull back and start building value into it so the next time you put it up for sale you can get the value you hope for.
Get started using this article about how to increase the value of your clinic business.
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.
If that sounds attractive to you, what should you do first?
1. What should I do before trying to sell my clinic?
Before selling your clinic, find its value, get it prepared to sell, and find qualified buyers. Find the value using EBITDA. Prepare it for sale by evaluating if your systems, your staff, and your revenue are in a place that would be attractive to a buyer. Then you can start looking for buyers.
2. How much can I sell my clinic for?
Your clinic’s value is best determined using EBITDA – earnings before interest, taxes, depreciation, and amortization. A business accountant or clinic sales specialist can help you calculate your EBITDA. Once you have that, you and the buyer will agree on a multiple. Multiply that number by the EBITDA, and you get the sales price.
3. What is EBITDA?
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Combined with a multiple, it is a common method of determining the value of a business so you can agree to a sales price with a buyer.
Who is Rick Lau and CallHero?
Rick has built three 10 million dollar healthcare businesses over the past 15 years including a network of 127 clinics with over 1400 employees. He is one of the most sought-after mentors for clinic owners in Canada and USA where he helps owners double, triple, and even quadruple their profits by optimizing their clinic operations using his proven systems and leadership strategies. Plus, he has spent over millions in google and facebook ads during his career.
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