How Much Can I Sell My Medical Spa For? How to Value a Practice

Have you been thinking about selling your medical spa? If only it was as simple as phoning a realtor friend, pulling comps from a database, and throwing up a "For Sale" sign.

Determining the value of your practice is more like solving a puzzle with many different pieces. But don't worry! We're here to help you understand the ins and outs of the medical spa valuation process and ensure you get the most out of your investment.

Putting Valuation Multiples to Work

“Multiples” is a standard method used to determine the value of medical spas.

Think of multiples in terms of two rulers—one in inches, another in centimeters. Each provides a different perspective on the measurement of the same object. In business valuation, multiples are like rulers, giving you different ways to assess the value of a medical practice.

So, in this case, you want to focus on "multiples on earnings"—how much the practice earns annually. Then, you use a number (or multiple) to find value.

Key: General practitioners generally have multiples that fall between 0.5 and 0.7 times their annual revenue.

It's worth noting that if the practice specializes in high-demand areas like oncology or neurology, the multiples may be higher since these practices have more market value.

Remember that you must be realistic about the value of your business. You will unlikely sell your business for more than it earns annually. As you calculate, consider common liabilities plus tangible and intangible assets like:

• Rent
• Staffing and accounting costs
• Changes in healthcare policies
• How much value your business has beyond its physical assets—that is, intangibles like your practice’s reputation or how widely known it is within your industry

Your Annual Earnings

As discussed above, the key to valuation is to focus on how much profit your medical spa earns annually. Here’s why:

• Buyers generally expect to earn back the money they spent on your business within a year of purchase.
• Sellers stand to gain from this process, too, as they essentially receive a year’s worth of profit upfront by selling their practice for an amount that’s based on how much the practice earns in a year.
• If you own the physical property where you run your business, you stand to gain more from the deal. In short, if the building is part of the sale of the company, its value must be factored into the calculations.

Valuation Calculator

Now, it’s time to dive into the math. Unfortunately, many online calculators use high multipliers without considering expenses, so their figures are overly optimistic.

Here’s a more grounded approach, divided into two sections: earnings and costs.

When you subtract the earnings from the costs, you get a more precise and accurate picture.

Here’s a checklist; you just need to do the calculations.

Earnings

• Number of patient visits annually
• Average net collections, or how much money you collect from each patient visit
• Average yearly income
• Multiple—this is where you consider a "multiplier." This multiplier can be higher if you run a specialized, high-demand practice. Use this number to account for your practice’s extra value before considering costs.

Costs

• Medical billing
• Back office expenses—rent, payroll, accounting
• Owner compensation—how much money you take from the practice annually
• Rent (if applicable)

Once you do the calculations, you should have a good sense of what your practice is worth.

Let’s Talk Business Value

Ready to uncover the true value of your business? At True North Mergers & Acquisitions, we specialize in helping business owners like you set and achieve meaningful goals. Whether you're focused on your company's future, your employees, or your family, we're here to guide you. Contact us now!