Comprehensive Chiropractic Practice Valuations

At PPS we have designed our valuation methodology to mimic the valuation that the lender will complete prior to approving your buyer’s loan. First, we do a thorough analysis of the practice operations, financials and clinic stats to ensure that the data on the clinic is valuation ready. This is crucial to ensure that the valuation results are based on a complete picture of the practice operations – any inaccuracies can skew the valuation and result in costly sale obstacles with a buyer or lender. Then we determine the transferable profit of the clinic (the technical term for this is Seller’s Discretionary Earnings, or SDE) for the last three years. The SDE is the basis of your practice’s value. Determining SDE requires an in-depth review of your financial statements and the tax strategy that has been used to minimize your taxable income. Then we look at trends in collections, clinic assets, billed services and patient visits to determine the proper weighted average to utilize based on current lending standards. Next, we determine the multiple to apply to the SDE. The multiple is a statement of the risk the buyer will assume in buying the practice. The more transferable the income is, the lower the risk – which translates to a higher multiple, within the lender’s current range. Because the Small Business Administration (SBA) backs the majority of chiropractic practice acquisition loans, they tend to set a standard multiple range. So at PPS we constantly review + analyze current market conditions and evaluate the sold prices for similarly sized clinics to give us a range of multiples of SDE to work within. Finally, we use a series of 25+ intangible factors to determine where the clinic would fall within the applicable range. The PPS valuation is for the assets and goodwill of the business only – it does not include real estate or accounts receivable.

A practice appraisal is different from a valuation. Appraisals are a more extensive and in-depth analysis of a practice and are primarily used for legal situations, such as a divorce or bankruptcy. Appraisals are much more expensive than valuations, with prices starting around $5,000 and going up to $15,000 or more. Appraisals can also look at the practice value differently. This is because an appraisal is typically not a precursor to an actual sale, and therefore the likelihood of obtaining funding for the appraised value is not a concern. This means that other valuation formulas, like those heavily based on gross collections or equipment value, are often more heavily considered in an appraisal.

There are no licensure requirements for conducting business valuations, so there are many vendors offering practice valuations at various price points. Sadly, many doctors will invest thousands in these valuations, only to get an opinion off value that cannot be substantiated by the actual market conditions – rendering it useless. This can even be true for valuations conducted by trusted CPAs – while they may have extensive knowledge about valuations for other businesses, not all of that will transfer to valuing a chiropractic practice. And if they don’t actively participate in chiropractic practice sales then their valuation methods and formulas may be outdated and out of touch with current lending conditions, resulting in a valuation that can actively work against your goals.

Chiropractic practices are complex businesses, and many factors can push a clinic’s value above or below a general rule of thumb. This makes using a rule of thumb very dangerous, as it can either leave value on the table, or price a clinic outside of what is marketable. At PPS we find that around 30% of practices are straightforward enough to fall into a standard pricing model – and about 70% require a more nuanced approach to fully capture the clinic’s full value.

A high-quality valuation will advise you on both the practice value, as well as the strengths and challenges that led to the valuation. A valuation that doesn’t take those factors into account isn’t really a very precise opinion of value for your unique practice. At PPS clinic strengths and challenges play a prominent role in our valuation reports, so that you can use that data to best strategize + plan for a future sale. We also offer a more in-depth Future Planning + Exit Strategy valuation, which goes several layers deeper in offering likelihood probabilities and action steps to prepare for various exit scenarios.