You’ve spent years building your practice, so you probably have a good feel for how it’s performing. You know how busy things are from week to week, how your team is tracking, and what the numbers generally look like.
But when it comes to valuing a medical or dental practice, revenue is only one part of the picture.
Two practices can have similar turnover and still end up with very different valuations. Profitability, goodwill, risk, staffing, and how easily the practice could transition to a new owner can all influence what a buyer may be willing to pay.
Here are seven factors that can significantly affect what your practice is worth.
1. Profitability
Revenue matters, but profit often tells a more useful story. A practice may have strong turnover, but if wages, rent, equipment and other overheads are high, that can reduce its overall value. In some cases, a smaller practice with healthier margins may be worth more than a larger one with higher revenue.
Buyers will want to understand the underlying earnings of the practice and whether those earnings are likely to continue. Accurate, up-to-date financial records make that much easier to assess.
2. How dependent the practice is on you
If you stepped away for a month, or longer, what would happen? In some practices, the owner generates a large share of billings while also managing key patient relationships, staff, and day-to-day decisions. That level of reliance on one person can create additional risk for a buyer.
A practice with other established clinicians, a healthy patient base, good systems, and a capable team may be more attractive because its performance is less dependent on the current owner staying involved.
3. Your patient base and goodwill
Goodwill can make up a significant part of a healthcare practice’s value. A loyal patient base, reliable referral sources, and a strong reputation can all contribute to that goodwill. The important question is how much of it is likely to remain with the practice after ownership changes.
If patients primarily attend because of one individual practitioner, a buyer may have more concerns about patient retention once that practitioner leaves.
4. Staff and workforce stability
A strong, settled team can make a practice much more appealing to a buyer. Experienced clinicians, nurses, reception staff and practice managers who are likely to remain after a sale can help provide continuity and make the handover much smoother.
High staff turnover, unresolved employment issues or too much reliance on a small number of key employees can create uncertainty.
A buyer is looking beyond the financials. They also want confidence that the people and processes needed to keep the practice running will still be there after the sale.
5. Location and premises
Location can have a significant influence on a practice valuation. Visibility, parking, accessibility, local demographics, nearby competition and planned development in the area can all affect patient demand and future growth.
The premises arrangement matters as well. A secure lease with suitable terms can give a buyer confidence, while a short lease, high rent or uncertainty about staying in the premises may create additional risk.
6. Systems, equipment and operations
A well-run practice is generally much easier for a buyer to take over. Clear procedures, reliable practice management software, good financial reporting and effective appointment systems can all make the transition smoother and support the value of the practice.
Equipment also plays a part, but spending money on equipment doesn’t necessarily add the same amount to the practice’s value.
For example, spending $100,000 on new equipment won’t automatically increase the valuation by $100,000. A buyer will consider its age, condition, usefulness, and whether any major replacement costs are likely in the near future.
7. Future growth and risk
A buyer won’t only look at what the practice is doing today. They’ll also consider where it could go from here.
A practice with capacity to add clinicians, extend opening hours or increase treatment volumes may offer useful growth opportunities.
At the same time, factors such as declining patient numbers, increasing local competition, poor record-keeping or unresolved compliance issues can create risk and affect what a buyer is prepared to pay.
So, what is your practice worth?
There’s no single formula that applies to every medical or dental practice. A proper valuation and due diligence look beyond turnover and consider the financial performance, goodwill, people, systems, and risks that sit behind the numbers.
At Amalgam Advisors, we work with doctors and dentists to prepare independent practice valuations. Whether you’re preparing to sell or acquire a practice, our valuations can help you understand what the practice is really worth, maximise value and avoid costly missteps.
If you’re considering your next move, contact Amalgam to find out how we can help.
