What are Medical Practices Worth?

One of the first questions people ask when thinking about buying/selling a practice is, “How much is the practice worth?”   A simplistic metric quoted is Sales Price as a percentage of Annual Gross Income.  While often unreliable, people seeking a “rule of thumb” like using this metric. 

 First, let me begin with the caveat: Rules of thumb are great, except when they don’t apply to you.  For example, I frequently hear sellers cite “a practice is worth one year’s gross.”   This tended to be somewhat true 10-20 years ago before pharmaceutical expense (and other expenses) went up lowering profitability.

The hard reality is that today, the typical practice sells for around 65% - 85% of one year’s gross.  Some will sell for more, some for less. Using data from 178 actual veterinary practice sales by the Veterinary Practice Sales Group (VPSG) we see a tremendous amount of variability for this metric: ranging from a low of 13% to a high of 172%

Why the variability in value?  Not all practices are equal at time of sale.  Practices in highly desirable neighborhoods sell for more.  A forced sale where the doctor died will sell for little more than asset value.  Practices with all the newest equipment sell for more than practices with little or outdated equipment—even if equally profitable.

Several factors influence value:

·         Type of practice (small, large, mixed)

·         Location

·         Practice profitability

·         Facility (e.g., appearance, zoning, parking, cost, visibility, size, etc.)

·         Community demographics/economics

·         Type of services provided

·         Practice size ($ gross & number of associates and lay staff)

·         Type and amount of equipment

·         Available financing & interest rates

·         Negotiated terms of the sale

·         Staff quality

·         Growth potential

·         Etc.

David Greene is President and founder of Medical Practice Brokers, Inc., the Rocky Mountain region’s largest business brokerage firm specializing in sales of medical related professional practices.  Mr. Greene and the associates at Medical Practice Brokers, Inc. have assisted Sellers and Buyers in the successful transactions and valuations of numerous medical practices including: Medical primary care, Medical primary care and surgical subspecialty, Dental, Chiropractic, Veterinary, and others Mr. Greene is a seminar instructor on Buying and Selling Practices, and has been an invited speaker at universities and professional groups on the subject of practice sales and values.  He is a member of the International Business Brokers Association and holds their prestigious Certified Business Intermediary (CBI) certification.

David Greene, The Vet Broker
Medical Practice Brokers, Inc., 15847 Woodmeadow Ct., Colorado Springs, CO 80921
Phone: (719) 487-9973    Fax: (719) 487-9974    Email: dave@vetbroker.com