How to value a Physiotherapy business

27 Nov 2021

How do I value my physiotherapy practice? This is one of the most common questions we get asked.

It’s not straightforward to value a physiotherapy business, or any business for that matter. There are numerous methods for calculating fair market value. The best option is largely determined by the structure of the company, its size, location, and whether you’re selling the entire company or just a portion of it. Market factors and trends at the time of sale also influence how much buyers are willing to pay for a business.

The simplest way to value a physiotherapy business

Most buyers in the physiotherapy market use a multiple of adjusted net profit to value physiotherapy clinics. This is a common technique for valuing businesses across various industries, and one that we frequently employ as a starting point at Verilo.

Calculating the adjusted profit on your physiotherapy business

When calculating profit, there are a few elements to keep in mind. The profit reflected on your financial accounts may not be a genuine indication of the profit used by a buyer to value your business. This is especially true for lifestyle businesses, where the owner is responsible for a large portion of the revenue and receives the majority of his or her salary in dividends. In the private physiotherapy sector, we see this a lot. If this is the case, profit should be modified to represent what it would be like if the owner wasn’t directly creating income in the business or if he or she was replaced by someone else at a similar level.

The profit on your financial accounts may also be adjusted upwards at times. Accountants and financial consultants frequently advise business owners to employ tax-saving methods in order to cut profits to reduce corporation tax. If you put large pension contributions, family health insurance, or other significant benefits through the business, this may be taken into consideration when a buyer calculates the profitability of the business. The same is true for one-time expenses like a rebrand, significant repair expenditures, or a one-time legal expense. All of these things should be taken into account.

Having had the opportunity to review hundreds of businesses in the physiotherapy sector, we know that most established and well-run physiotherapy clinics will produce a net profit of between 10-20% of their turnover. This is a high-level guide but it’s a good method to see if the profit you see in your year-end accounts is a true reflection of what a buyer would accept.

How much is my clinic worth in multiples of profit?

The multiple a buyer is willing to pay varies a lot from one company to the next. A sensible multiple range for businesses in the physiotherapy sector is between 2-4 times. Smaller, single-site clinics with fewer established processes will be valued at the lower end, whereas larger clinics will likely achieve larger multiples. Businesses with revenues near to or over £1 million, multi-site clinic groups, or those in very attractive locations may command a higher price.

An example of how to value a small but well-established physiotherapy clinic

A modest clinic outside of town is run by a husband and wife team. They’re both physiotherapists, and they each spend roughly 26 hours per week treating patients. They have one full-time physiotherapist on payroll as well as two part-time associates. They also have two hourly-paid part-time receptionists/administrators. The premises is rented, and there is no high value equipment included in the sale. The company has an annual revenue of £240,000 and a profit of £84,000, according to its financial statements. Both shareholders receive a £12,000 salary and dividends.

If the owners stay on, a new buyer would have to either replace them or give them a market rate salary. The £12,000 salary would be adjusted to about £38,000 each, bringing the total profit down to £32,000. Because this is a small, single-site, lifestyle business with significant owner involvement, the multiple will most likely be on the lower end, say 2.5 times. An incoming buyer will most likely offer around the £80,000 mark.

Final thoughts

A company is worth what a seller wants to sell it for and what a buyer is willing to pay for it at the end of the day. A company’s worth is determined by a large number of factors that cannot all be addressed in a single article. This is a simplified illustration of how a physiotherapy practice might be valued, and we always advise getting a professional valuation done. You can get a quick estimate valuation using our business valuation calculator tool. Please contact us if you’d like our experts to evaluate your company and provide you with an accurate appraisal.

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