Practice Sales and Valuations
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.
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Employing Broker: David N. Greene for Medical Practice Brokers
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