How to Value a Chiropractic Clinic: 3 Methods (+ Examples)
Navigating the intricate world of chiropractic clinic valuation can be challenging. With its unique blend of healthcare service and business operations, determining a clinic’s true worth goes beyond simple mathematics.
It’s an exercise that intertwines financial metrics with qualitative factors, painting a comprehensive picture of the clinic’s value.
Whether you’re a seasoned investor, a chiropractor contemplating a sale, or simply curious, this guide will shed light on the essential methodologies and influential factors that shape a chiropractic clinic’s valuation.
1. Asset-Based Approach
What it is:
The asset-based approach determines a clinic’s value by calculating the total net value of its tangible and intangible assets.
Why we use it:
It provides a clear picture of a clinic’s intrinsic value based on its assets and liabilities. This approach is often used for clinics with significant tangible assets or when it’s being considered for liquidation.
Example for Chiropractic Clinics:
Imagine a chiropractic clinic with the following assets and liabilities:
- Tangible Assets: Real estate valued at $400,000, equipment worth $50,000, and office furniture worth $10,000.
- Intangible Assets: Goodwill (brand value, patient loyalty) estimated at $100,000.
- Liabilities: Outstanding loans totaling $200,000.
Using the asset-based approach:
Valuation = (Total Assets) – (Liabilities) = $360,000
2. DCF (Discounted Cash Flow) Valuation
What it is:
DCF valuation determines a clinic’s value based on its projected future cash flows, discounted to present value. This reflects the principle that a dollar received in the future is worth less than a dollar today.
Why we use it:
DCF captures the future earning potential of the clinic, making it especially relevant for clinics that are growing and expect future cash flows to be higher than current levels.
Example for Chiropractic Clinics:
Suppose a clinic projects the following net cash flows for the next five years:
- Year 1: $80,000
- Year 2: $85,000
- Year 3: $90,000
- Year 4: $95,000
- Year 5: $100,000
Assuming a discount rate of 10%, the present value of each year’s cash flow would be calculated and then summed to derive the clinic’s valuation:
Given these assumptions, we’ll calculate the present value (PV) of each year’s cash flow using the formula. We have.
- Year 1: $72,727.27
- Year 2: $70,247.93
- Year 3: $67,627.67
- Year 4: $64,884.36
- Year 5: $62,091.32
Now, summing up the present values of all the cash flows:
Total Valuation = $72,727.27 + $70,247.93 + $67,627.67 + $64,884.36 + $62,091.32
Total Valuation = $337,578.55
So, based on the DCF method with the given assumptions, the chiropractic clinic has a valuation of approximately $337,578.55.
3. Transaction Multiples Approach
What it is:
The transaction multiples approach values a clinic by comparing it to similar chiropractic clinics that have recently sold. Common multiples include EBITDA, Price-to-Earnings (P/E) or Price-to-Revenues.
Why we use it:
It provides a market-driven perspective on valuation. By examining what buyers have been willing to pay for similar clinics, it gives a sense of what the market might deem appropriate for the clinic in question.
What is EBITDA?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It’s a widely used metric to measure a business’s operating performance, ignoring non-operating costs such as interest and taxes and non-cash expenses like depreciation and amortization.
Why use EBITDA for valuation?
EBITDA provides a clearer picture of a business’s operational profitability by eliminating the effects of financing and accounting decisions. When valuing businesses, especially in the same sector, EBITDA multiples offer a way to compare them on an “apples to apples” basis.
Example:
Suppose recent sales of similar chiropractic clinics have shown they sell for an average of 4x their EBITDA.
If a chiropractic clinic has an EBITDA of $100,000, using the EBITDA multiple approach:
Valuation = EBITDA x EBITDA Multiple = $100,000 x 4 = $400,000
Thus, based on this method and the given multiple, the chiropractic clinic’s value would be estimated at $400,000.
Note: It’s vital to ensure that the EBITDA multiples used for comparison come from sales of very similar businesses, in the same region, and of the same size. The more comparable the businesses, the more reliable the valuation.
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Download an expert-built 5-year Excel financial model for your business plan
Medical Clinic Financial Model Template | Excel Spreadsheet
Download an expert-built 5-year Excel financial model for your business plan
Factors impacting a chiropractic clinic valuation
When valuing a chiropractic clinic, it’s not just about the numbers. Various elements, from location to patient loyalty, play crucial roles in determining its worth. Let’s explore these key factors and their influence on a clinic’s valuation.
1. Patient Base & Loyalty
What it is: The number of regular patients visiting the clinic and their loyalty towards the clinic’s services.
Impact on Valuation:
- A large and loyal patient base indicates steady revenue streams. A clinic with recurring visits from long-term patients can be valued higher compared to one that relies heavily on one-off or infrequent patients.
2. Location & Accessibility
What it is: The physical location of the clinic and its proximity to patient demographics, major roads, and other amenities.
Impact on Valuation:
- A clinic located in a densely populated area or close to major transportation hubs might have a higher footfall, leading to increased revenues. Prime locations can significantly increase the valuation.
3. Equipment & Technology
What it is: The state and age of the equipment and technology used in the chiropractic clinic.
Impact on Valuation:
- Modern equipment that offers advanced treatment options can enhance the clinic’s appeal to patients, increasing its valuation. Conversely, outdated equipment might necessitate upgrades, potentially reducing the valuation due to anticipated capital expenditures.
4. Staff Qualifications & Reputation
What it is: The credentials, experience, and reputation of the chiropractors and support staff.
Impact on Valuation:
- Clinics with well-known, respected practitioners can command higher valuations due to the prestige and trust they bring. Conversely, frequent staff turnover or less experienced staff might negatively impact the valuation.
5. Competitive Landscape
What it is: The number and quality of other chiropractic clinics in the vicinity.
Impact on Valuation:
- A saturated market with numerous competing clinics might limit growth opportunities, potentially reducing the valuation. Conversely, a clinic operating in an area with limited competition might command a premium.
6. Regulatory & Licensing Factors
What it is: The regulatory environment specific to chiropractic practices in the clinic’s jurisdiction.
Impact on Valuation:
- Stringent regulations, or anticipated changes in licensing requirements, can impact operational costs and compliance. A clinic that’s ahead in compliance or operates in a more favorable regulatory environment might be valued higher.
Medical Clinic Financial Model Template | Excel Spreadsheet
Download an expert-built 5-year Excel financial model for your business plan
Medical Clinic Financial Model Template | Excel Spreadsheet
Download an expert-built 5-year Excel financial model for your business plan
