The Ultimate Guide to Valuing Your Medical Practice

When the time comes to retire, sell, or merge your family medicine practice, knowing its worth is critical for making informed decisions. While medical practice brokers can offer an evaluation, you can also get a quick estimate by using a medical practice valuation calculator.

Why valuation is important for your practice

A precise valuation serves you in multiple ways, whether you’re thinking of selling your practice, merging with another practice, or planning for personal life events. If you’re selling, a solid valuation ensures you set a competitive price that reflects both the current and future worth of your practice. When entering a merger or acquisition, a robust valuation strengthens your negotiating position. Potential buyers also rely on this valuation to measure both the risk and potential return on investment (ROI) they might expect from acquiring your practice.

Beyond business decisions, the valuation of your practice holds personal value as well. If you’re nearing retirement, knowing the accurate worth of your practice helps in your financial planning, letting you see how your practice factors into your overall retirement assets. During significant life events like divorce, a credible valuation is essential as you’ll need to divide the practice’s value as marital property. The same goes for estate planning. Knowing the worth of your practice is crucial for fair asset distribution among heirs and calculating potential tax obligations. In each of these scenarios, an accurate valuation isn’t just a luxury—it’s a necessity for any physician.

Who carries out medical practice valuations?

While a medical practice valuation calculator can offer a quick, rough estimate of your practice’s worth, it doesn’t provide a detailed analysis. For a comprehensive evaluation that factors in the many variables affecting your practice’s value, it’s wise to consult with a medical practice broker. They possess the expertise to give you an accurate valuation, thereby enabling you to make informed decisions about the future of your practice.

Key factors considered during a valuation

While a medical practice valuation calculator gives you a quick estimate based on EBITDA, this is just a starting point. Medical practice brokers offer a more comprehensive valuation by diving deeper into various aspects of your practice:

  • They evaluate the risks associated with the practice, the scope for future investment, and what kind of ROI a potential investor might reasonably expect.
  • Brokers also take into account factors that a medical practice valuation calculator can’t capture—like the expertise of your staff, the strategic importance of your practice’s location, and the sustainability and growth potential of your revenue streams.
  • They’ll even scrutinize the physical condition of your facility, the mix of insurance payors, patient demographics, profit margins, and the range of services you offer.

This holistic approach offers a far more nuanced and accurate valuation, which is essential whether you’re planning to sell, merge, or make other significant business decisions.

How different types of buyers approach valuations

Different types of buyers view the profitability and value of a family medicine practice from various perspectives. Private equity firms, for example, may want to collaborate with you, planning to retain you or your management team to keep the practice running smoothly. They may adjust the EBITDA downward if they think additional management personnel are needed for growth.

In contrast, strategic buyers—typically seasoned professionals or those with existing practices—may approach EBITDA differently, potentially making upward adjustments based on:

  • New lab and supply contracts
  • Additional insurance contracts
  • Redundancies in third-party vendors or management

Meanwhile, individual buyers who are often looking to jump-start their careers usually focus on the seller’s discretionary earnings (SDE) rather than EBITDA and generally apply lower multiples to SDE.

Going beyond the medical practice valuation calculator

A medical practice valuation calculator is a good starting point, but for a comprehensive, tailored valuation of your medical practice, consider consulting with experts like Strategic Medical Brokers. They offer in-depth evaluations, whether you need it for financial planning, selling, or merging your practice. Reach out to them to ensure you’re making the best decisions for your future.

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