What Is My Physical Therapy Practice Worth?

Most PT owners ask this question long before they plan to sell. It is a good question to ask early. The answer shapes how you run the practice for the next few years.

A buyer is not paying for your equipment or your lease. They are paying for future profit. Value comes from two numbers: how much the practice earns, and how much a buyer will pay for each dollar of those earnings.

Start with earnings, not revenue

Revenue tells a buyer how busy you are. It does not tell them what they get to keep. Two clinics with the same collections can have very different profits.

Buyers use one of two earnings measures:

• EBITDA. Earnings before interest, taxes, depreciation and amortization, after paying a market salary for every role, including yours.
• Owner earnings (SDE). Seller's discretionary earnings. This is EBITDA plus the one owner's salary and benefits. It shows what the business produces for a single owner-operator.

Which one applies depends mostly on size. Larger practices are priced on EBITDA because a buyer expects to install or keep a manager. Smaller practices, often those under about $150K of EBITDA, are usually priced on owner earnings. The buyer there is often a clinician who will step into your role.

Typical multiple ranges

Once earnings are set, a multiple is applied. These are the typical ranges we use as a starting point. They are not guarantees.

• 1 location: 3.0 to 4.5x EBITDA
• 2 to 3 locations: 4.0 to 6.0x EBITDA
• 4 to 7 locations: 5.5 to 8.0x EBITDA
• 8 or more locations: 7.5 to 10.0x EBITDA
• Under about $150K EBITDA: roughly 1.5 to 3.0x owner earnings (SDE)

Multiples rise with size because bigger practices carry less risk. One therapist leaving matters less. One referral source drying up matters less. A buyer pays more for earnings that are likely to continue.

A quick example

Say a single-location practice produces $400K of normalized EBITDA. At 3.0x, that is $1.2M. At 4.5x, it is $1.8M. The gap between those two numbers is $600K.

Now say a smaller clinic produces $200K of owner earnings. At 1.5x, that is $300K. At 3.0x, it is $600K. Again, the range is wide.

The question that matters most is where you land inside the range.

What moves you within a range

Buyers move you up or down based on risk and growth. The same factors come up in almost every PT deal.

Owner dependence. If you personally treat a large share of visits, a buyer worries those patients and referrals leave with you. This is often the biggest discount we see.

Referral concentration. Heavy reliance on one physician group is a risk. A broad mix of physicians, direct access patients and other sources is safer.

Payer mix. Buyers look at collections per visit by payer. A mix weighted toward lower-paying contracts, or toward contracts that may not transfer easily, pulls value down.

Staff stability. Long-tenured therapists and a clinic director who can run the day are worth real money. High turnover is a red flag.

Clean financials. Monthly books that tie to bank statements and tax returns build trust. Messy books make buyers assume the worst and price that in.

Trend. Growing visits and collections over the last two or three years support a higher multiple. Flat or declining numbers do the opposite.

Capacity. Room to add therapists or hours without a new lease shows a buyer a path to growth.

None of these are pass or fail. Each one nudges the number. Several working together can move you from the bottom of a range to the top.

Why the earnings number gets negotiated

The multiple gets the attention. The earnings number usually moves the price more.

Your tax return is not your EBITDA. Buyers rebuild earnings from your financials. They adjust your salary to market, adjust rent if you own the building, and review every add-back you claim. A $50K disagreement on earnings at 4.0x is a $200K swing in price.

This is where sellers lose the most money. They accept the buyer's version of earnings without a documented version of their own.

How the deal structure fits in

We represent sellers in asset sales. The buyer purchases the clinic's assets, including equipment, patient relationships, the name and goodwill. Most of the price is paid in cash at closing. Some deals include a seller note or an earnout for part of the price.

The headline number and the cash you take home are not the same. Taxes depend on how the price is allocated across assets. Work with your CPA and transaction attorney on those details before you sign anything.

Your next step

Pull your last three years of profit and loss statements and tax returns. Write down what you paid yourself and what personal expenses ran through the business. That gives you, or us in a free valuation, a real starting point for your earnings number.