Common questions asked by private practice owners

24 Nov 2021

1. What is my private practice worth?

Most buyers value a company using the ‘multiple of net profit’ approach. Depending on the size and nature of the company, the multiple will change. Multiples within the sector, on average, range from 2-4x. Larger multi-site enterprises may be able to get a little more.

Be mindful that the net profit reflected on your year-end financial statements may not accurately reflect the businesses true profit. If you work in the business and receive most of your compensation in the form of dividends, your profit will need to be modified to reflect the cost of replacing you. You may be able boost profit by adjusting for personal benefits like health insurance, home office use, vehicle expense and other one-off costs.

Read our insight on how to value a physiotherapy business for more detail and an example.

2. Who should I get to value my business?

When it comes to determining a valuation, most people turn to their accountants or general brokers. However, this frequently yields mixed results.

Your accountant may not be familiar with the market or how the company operates. They frequently under-adjust profit and use multiples from other industries.

Many of the larger, generalist brokers will usually exaggerate the companies worth in order to attract your business. They don’t understand the market, therefore they’ll tell you what you want to hear or value your company based on other industries.

The most reliable way to determine the value of your clinic is to speak with an industry specialist broker or peers who have already purchased or sold clinics, alongside your accountant or financial advisor.

3. How should I price my company to sell it?

It’s important to know what you want to accomplish and to set a reasonable goal for yourself. However, be open minded and don’t reveal your sale price to buyers right away.

Running a formal marketing exercise and asking for offers is the best way to maximise value. This will allow you to gauge interest in your company, familiarise yourself with the market, and find the right buyer.

It’s possible that the best buyer isn’t the one who offers the greatest price. You’ll have to think about how much is being paid up front, what conditions are being imposed, and what warranties you’re being asked to provide.

4. What are the typical components of a sale?

A sale usually falls into one of two categories. An ‘asset and goodwill’ sale or a ‘share’ sale. A share sale, which is only available to limited companies, entails selling the entire company, sometimes including cash and debt. In an asset and goodwill sale, you are not selling the legal entity; instead, you are selling specific assets that may make up part or all the company.

Private practice businesses are typically asset-poor unless you own the freehold. Unless you’ve recently purchased a high-value piece of equipment, such as a shockwave machine or an ultrasound scanner, you won’t get much money for old plinths, medical supplies, or fixtures and fittings.

The goodwill linked with your client base, staff, referrers, and local reputation provides the most value. Buyers will most likely want to take on your staff, premises, clients, website, phone numbers, email address, and referral contracts. They’ll almost certainly request a handover to help with the transition.

5. What is the value of intellectual property?

Within our industry, intellectual property doesn’t often have much value. Unless you’re a large, multi-location company, your brand name isn’t worth much, and most educational materials and literature are either freely available or easily replicable.

If you have produced any form of patented technology or have a well-known national brand, consideration will be given for this.

6. How valuable is a patient database?

The quality of a database is more essential than its size. Your database has value if it is up to date, GDPR compliant, electronically stored, and has a high degree of engagement with marketing activities. A buyer will most likely be enticed to pay a larger multiple as a result of this.

7. Who would buy my business?

There are a lot of potential purchasers out there. Local practice owners, regional and national clinic groups, outside industry investors, private equity, and an increasing number of ‘market consolidators’ are among those looking to buy.

An associate buying into a larger clinic is less common, but not unheard of. Funding is readily accessible if a physiotherapist is motivated to buy, and the valuation is realistic.

Specialist brokers and financing groups can help associates get funding and facilitate a transaction like this.

8. How do I locate potential buyers?

You could reach out to co-workers or local business owners, use social media, or place an ad in your trade magazine. You might find a few buyers this way, but it’s unlikely that you’ll get the best price.

The most effective way to sell your company is to work with a broker who specialises in your industry. Although generalist brokers will have access to a vast network, they will be short on quality leads. A specialist broker’s network will be smaller, but the leads will be of higher quality, resulting in a better likelihood of sale and higher value.

Brokers will charge a commission on the sale, but they will increase your chances of finding a buyer, help you avoid costly mistakes during the process, and typically get you a price 10-20% higher than if you sold on your own.

9. What makes a business more attractive to a buyer?

Businesses that are less dependent on the owner are more appealing. Make sure you’re not personally responsible for too much of the businesses income and that you’re surrounded by a solid team. A well-run business has good systems and processes in place.

Ensure that you use electronic records, have proper contracts in place, and have up-to-date financial documents.

10. What are the various possibilities for exiting?

The majority of people choose a trade sale, which involves selling the entire company to a third party with little to no ongoing involvement beyond a handover.

Smaller business owners would likely achieve better value if they sell a portion or all of their company to an ambitious associate or partner as part of a management buyout.

Market consolidators are becoming more common in our space. They’ll usually buy half of your company for a 2-3x multiple, leaving you with part ownership. They’ll assist you in running the clinic and handle a lot of the back-end business operations. You’ll probably get a better multiple (4-6x) for the remaining equity when they sell the combined group in the future.

11. What is the best way to handle a freehold sale as part of a business transaction?

Many people choose to transfer freeholds from their company to themselves or another entity before selling. The company can then sign into a lease with you as the landlord, providing you with a steady stream of income after the sale. Take legal and financial counsel before doing so, and make sure you have a legitimate lease in place at fair market value.

Some buyers may be willing to pay market value for the freehold. If you use a broker and the freehold is included in the sale, find out what commission they charge. It should be similar to what a real estate agent would charge.

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