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Elements of a Healthcare Practice Valuation

Posted by practicesales on July 20, 2016
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So many times I get asked what is the average price of a Chiropractic practice in Sydney is, or a Physiotherapy practice in Brisbane. The answer is, there is no answer. I can’t answer it as there is no average. There are so many variables involved.

Let’s go through the list.

 Profitability

Put simply, a practice netting 50% of the gross is going to sell more than practice netting 35%. This might seem fairly obvious, but to some it’s not.

Location, Location, Location

A practice with good street frontage and easy parking is always going to do better that a practice that’s tucked away in a side street. Note the difference here, I’m not saying the practice on the side street is not going to do well, I’m saying that the other one will do better. Is it based in a rural town? It’s a known fact that clinics or practices located in rural regions can sell for less. They also take longer to sell.

Facility

Is the practice dated or old fashioned? This can often be overlooked by the owner who has worked there for years. The practice has always looked like this. Cramped, tired, dark, run down – all add up to selling for less.

Equipment

Healthcare practices or clinics with new or state of the art equipment will always sell for more. Equipment is expensive to replace, always check the age of the equipment if inspecting a practice to buy. Have recent technological advances made the equipment obsolete?

Fee Structure / Hours

How many hours do you need to work to generate revenue?

 Patient Database

How many new patients go through the door each week? How many come back?

Competition

The denser the population the more likely it is to have several allied healthcare clinics and practices in the community. How close is the competition in terms of location? How does the competition present itself? How well is it doing? Where does it advertise?

Staff

Does the practice have a good track record with well trained staff? Or does it have a high attrition rate, poorly trained and unhappy staff?

 Referral Network

How strong is the referral network? I.e. the practices reputation with medical and other allied health practitioners. This can make a huge difference as to how a practice performs in the community.

 Financial History

Is the practice trending upward or has it recently suffered a decline? This will make a massive difference in the asking price.

 Lease

What sort of lease is available? Does it have favourable options to renew? Cost of outgoings and annual increases also need to be considered.

Goodwill

How much of the practice revenue is tied to the owner’s individual reputation or personality?  Will patients/referrals accept an alternative? Is the owner willing to stay on for a time to help sustain the goodwill and assist with the handover?

Every practice is different. Types, sizes, locations, owners. It’s impossible to pop them all in a pot and pull out an average. That is why so many owners use Healthcare Practice Sales to value their practice and sell them. We look at all of the above elements and prepare a full valuation report

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