how much is my practice worth?

I’m constantly surprised that many physicians think they cannot sell their practice.  Don't believe the gossip you hear on the golf course or at the local medical society meeting.  Not every practice sells...but practices sell regularly, and many for a surprisingly good price.

 Why do people buy practices?

• Scratch startups take more time, effort, and risk.
• It may be the only way to enter some markets.
• To earn above average salary.
• Often more profitable than a startup (even after purchase loan payment).

What do practices sell for?

There is no single magical formula to valuing any business, especially a veterinary practice.  Though many people still want a rule-of-thumb; so here are a couple rules-of-thumb:

• Most practices will sell for between 1x to 4x annual net earnings.
• Most practices will sell for 20% to 80% of annual gross collections.

Why is the Price Range so Wide?

One factor is practice type.  Average practice price ratios and ranges differ for a dentistry practice vs. a chiropractic practice vs. a family practice vs. a cardiology practice vs. an optometry practice, etc.  Why the general differences?  Certain types of practices tend to have more equipment, or higher veterinarian compensation expectations, or rely upon professional referrals, or are more dependent upon the veterinarian’s personal reputation, etc.

 Within practice type, there are a number of factors that determine whether your practice will sell for above or below the average.  At veterinary practice Brokers we look at 41 different practice characteristics to help determine practice value.  Sample factors include:

• Profitability
• Income history 
• Transferability of goodwill
• Location
• Facility
• Equipment
• Provider hours worked & production
• Payer mix
• Demographics

Let’s use the Internal Medicine (IM) practice category as an example.  Our data show that IM practices sell for an average of 35.2% of annual collections, with a standard deviation of 21.6%.   Most practices will sell for ±2 std dev below or above the average sales price.  In the below graph, you can see that the highest percentage of IM practices (i.e., 13.7%) sell for between 20%-30% of annual collections.  But some are selling for less than 10%, and others as high as 100% of annual collections.   As you can see, there is a very wide spread.

Now let's contrast Internal Medicine practice values with that of General Dentistry practices. Our data show that general dentistry practices sell for an average of 62.7% of annual collections, with a standard deviation of 23.1%.   Most practices will sell for ±2 std dev below or above the average sales price.  In the below graph, you can see that the highest percentage of IM practices (i.e., 13.7%) sell for between 20%-30% of annual collections.  But some are selling for less than 10%, and others as high as 100% of annual collections.   As you can see, there is a also very wide spread for dentistry practices.