Valuing a Physio Business
Thursday, July 18, 2019
So how do you value a Physio business? Is it by the income that it generates, ie the P&L? or is it via the balance sheet? This is a difficult question. The P&L might look amazing, but there may be some disturbing things going on with the balance sheet that may make the business or entity non-liquid. I.e. they don’t have the ability to obligations from their liquid assets. This could be especially true if market forces or external circumstances changed.
So the real answer is, a bit of both. Let’s look at a business sheet analysis as a place to start.
Liquidity; how well can the entity pay its current obligations from its liquid assets? This then relates to a probability of business success or failure. Strengthening or weakening its value.
Mix of Assets Held; Current vs non current. If a business purely relies on long term, non current assets for business, then short term, there may be a starvation of cash.
Financial Structure; How much reliance does the business have for external or internal finance? How does this impact the legal side of things?
So now you are happy with your balance sheet analysis, how do you value your business if things are strong on your balance sheet?
Valuation and Income Generation
It comes down to the ability of your business, as a going concern (ie the ability for it to be continually trading under any ownership) to generate an income. The more your business has demonstrated this, the stronger you may value your business.
If it is under management, it creates a strong argument for sustaining the trend. If it is solely owner operated, it increases the risk to continuity.
The market then looks to value the business as a combination of its Assets, in terms of cash, inventory and non current assets, plus a multiple, (based off market forces), on the income that it generates.
If I were to throw a number at it, Physio Clinics in Australia tend to be valued, as a rough guide at 2 1/2 times their net profit. The more robust the clinic is, ie under management, long history of profitability etc, then the higher this mutliple can be. And the reverse is true, the more sporradic the results, the shorter the length of time it has been in operation and the more reliant it is on the owner, the lower its mutliple.
If you have any further questions or need assistance about valuing a physiotherapy business give us a call on 1300 731 733 today, or email email@example.com for more info.
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