When it comes to overall business value, chiropractic businesses are often termed as undiscovered treasures. And for good reasons, as more people are keen on seeking alternative and natural healing methods such as chiropractic than ever before.

So, it isn’t surprising why some chiropractic clinics are able to attract lucrative investments and sell at favorable terms.

However, it goes without saying that valuing a chiropractic practice is complex, as one wrong method or move and you’ll end up with a way lesser value.

But how to value a chiropractic practice for sale successfully and on your own terms?

Well, we’ve compiled the best valuation methods for chiropractors after an in-depth evaluation of each of the best methodologies. Also, we’ve shed light on our chiropractic business appraisal services best practices that have helped drive profitable deals. So, let’s dive right in and have a look.

What does a chiropractic clinic valuation involve?

Before we get into the finer details of valuation methods and tactics, it is essential that you understand what a typical chiropractic valuation involves.

You see, like all businesses, a chiropractic practice also involves similar formulas and calculations for deriving a fair market value.

Nevertheless, there’s never a one-size-fits-all approach for valuing companies. After all, you’ve to factor in the individual company’s peculiarities, such as size and scale of operations, customer base, existing market conditions, etc.

And that also goes for chiropractic practices, where business valuation experts take into account factors such as the location of the establishment, reputation among customers, technologies used, intellectual property, etc.

In fact, these factors play a crucial role right from the start when you decide on a listing price for sale and until the end of buy-sell negotiations.

Not to mention, these variables also come in handy when buying a chiropractic business, as they can give you a fair edge during purchase talks.

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How to value a chiropractic practice for sale?

When valuing a chiropractic practice for sale, you’ll need to use a valuation multiple or method and calculate a fair value of the business accordingly.

For instance, EBITDA multiples are a common valuation multiple for chiropractic businesses. Herein, a valuator multiplies the EBITDA of the company to an EBITDA multiple and arrives at a fair valuation figure for sale.

Wondering how exactly you can use this multiple or any other method for your chiropractic valuation?

Let’s walk through the various valuation multiples and their working.

1. EBITDA multiples

At its very basic, an EBITDA multiple is a financial metric that compares a company’s enterprise value to its yearly EBITDA (earnings before interest, taxes, depreciation, and amortization). Now, the annual EBITDA here can be anywhere from existing data to expert estimates.

You can use this multiple not only to determine the value of a business but also to compare it with the value of similarly sized firms.

How to use EBITDA multiples to value a chiropractic practice?

Calculating a chiropractic clinic’s value using EBITDA multiples is pretty straightforward. All you’ve got to do is take the correct average EBITDA multiple and multiply it with the EBITDA of your business.

For instance, according to industry estimates, the average EBITDA of a chiropractic business should be anywhere between 2.86x and 3.83x.

So, if the EBITDA of your chiropractic clinic is $546,780, you can take 3.27x as the EBITDA multiple. As such, the total fair market value for the sale of your clinic will turn out to be $1,787,970.6.

$546,780 X 3.27x = $1,787,970.6

Why use EBITDA multiples for your chiropractic practice appraisal?

EBITDA multiples are simple, efficient, and reliable and are thus among the favorite valuation multiples for chiropractors.

But that’s not all.

You see, using EBITDA multiples, a seasoned valuator can predict the approximate ROI or return on investment that a chiropractic clinic can bring.

Also, these multiples normalize the differences in taxation, fixed assets, and overall capital structure, thus allowing for a much easier and more effective comparison with similar chiropractic firms.

2. SDE multiples

SDE or seller’s discretionary earnings multiples are numbers with which a company’s SDE is multiplied. These multiples are considered ideal for businesses with a cash flow of less than $1 million and, as such, fit perfectly for chiropractors.

The SDE itself is calculated by a business appraiser who analyzes the earnings of a chiropractic firm before taxes, interest, depreciation, amortization, and recurring or discretionary expenses. Also, they find the owner’s personal earnings or salary for SDE calculation (if needed).

This calculation eventually reflects the approximate earnings of the business owner and helps define an SDE multiple.

How to use SDE multiples for chiropractic practice valuation?

To calculate the value of a chiropractic practice using the SDE multiples, you’ll first need to factor in the average chiropractic SDE multiples. And according to contemporary market statistics, this average ranges between 1.75x and 2.27x.

Now, you can take the seller’s discretionary earnings and multiply it with the relevant SDE multiple on a SDE calculator to arrive at the total value of a firm.

For instance, if a chiropractic clinic’s owner’s discretionary earnings are $390,000, an appraiser might take 1.98x as the SDE multiple. In this case, the total value of the firm will be pegged at $772,200.

$390,000 X 1.98x = $772,200

Why use SDE multiples when selling your chiropractic practice?

When it comes to small businesses, SDE multiples are among the most frequently used cash flow multiples. And this makes it a relevant option for chiropractors who usually own a small to medium-sized operation.

Also, the fact that expenses not incurred by the new owner are added to operating profit gives a fillip to the overall value.

In short, SDE multiples can help chiropractors arrive at a legitimate valuation and receive fair compensation for their business.

3. Revenue multiples

Yet another method for chiropractic practice valuation is the revenue multiple, which is used to calculate the value of a company relative to its revenue generation.

Herein, a business valuation expert derives a multiple for a company based on the total revenue.

For instance, a chiropractic clinic bringing in high revenues will have higher revenue multiples and attract premium valuation. However, those with low revenues will have a lower multiple and a lesser overall value.

How do you use revenue multiples to value a chiropractic practice for sale?

To find the fair market value of a chiropractic business using the revenue multiple, you’ll first need to compile the latest 12-month revenue of your firm. In fact, we suggest you use the revenue of the last 12 months and nothing older for an accurate valuation.

Thereafter, you should take a revenue multiple and multiply the annual revenue generated by the business to derive the business’s value.

For instance, going by the latest industry stats, the average revenue multiple for chiropractic clinics should range between 0.37x and 0.74x.

So, if your chiropractic business has generated a revenue of $569,000 in the last 12 months, you can take a 0.45x revenue multiple. Now, if you use a chiropractic practice valuation calculator, it will give you a total company value of $256,050.

$569,000 X 0.45x = $256,050

Why should you use revenue multiples when selling a chiropractic practice?

Valuation multiples using earning ratios or book value ratios can bring negative results for startups or loss-making firms. And this can result in business owners ending up with unfair compensation after selling their business.

But the fact that revenue multiples derive a fair value for the said businesses, which also includes chiropractors, means that the owners will still have some advantage.

Also, revenue multiples are difficult to manipulate, and this ensures that both sellers and potential buyers are assured of the valuation’s reliability.

Finally, a revenue multiple withstands market volatility, which isn’t the case with many other multiples.

You might also want to read – How to value a law firm

Chiropractic practice valuation: FAQs

How to sell a chiropractic practice?

The idea of selling a chiropractic practice for fair compensation is easier said than done. That’s because, unlike other common businesses, a chiropractic clinic has far fewer potential buyers.

In fact, the only people looking to buy a chiropractic firm would be chiropractors themselves.

And that’s exactly why we suggest you take into account all essential factors, including your business’s condition and present-day market scenario.

It all starts with choosing the right valuation method, something you should consider very carefully after analyzing what best suits your business’s interests.

For instance, if your chiropractic practice has been making losses for some time, then revenue multiples will suit you better than SDE multiples.

Similarly, if you own a profit-making firm or if your business has a potential for high future profitability, you should definitely go for the EBITDA valuation multiples.

Next up, you should take the time to analyze the strengths and weaknesses of your chiropractic clinic, as this will help you effectively list your USPs.

For instance, if your clinic is located close to the city center and has a high footfall, there’s a good chance you can list it at a higher price.

Lastly, you should equip yourself with the legal and accounting blueprints of your business with the help of a seasoned forensic accounting consultant.

How much does it cost to buy a chiropractic practice?

According to estimates from The Strategic Chiropractor, the price of a small or startup chiropractic firm can range anywhere between $150,000 and $200,000.

However, depending on the size and scale of the business, a chiropractic practice can even cost you upward of $500,000.

Also, it goes without saying that the actual price you pay for purchasing one such business will also be determined by the location, the business’s revenue, goodwill among customers, etc.

How much does it cost to start a chiropractic practice? 

Unlike buying a chiropractic practice, starting a practice involves a different cost calculation altogether. That’s because apart from purchase or lease, you’ve also got to factor in other expenses like furniture, operational costs, maintenance, and more.

Overall, you can expect to pay between $80,000 and $250,000. Here, while leasing an establishment will cost you on the lower end, purchasing a space will be on the costlier side. 

When should you get a chiropractic practice valuation? 

While you should get your practice evaluated before sale, it’s also a good idea to get a valuation on a regular basis even if you’re not looking to sell. 

After all, with an up-to-date valuation, you can make informed financial decisions regarding ongoing expenses, potential future expansion, etc. 

All in all, here’s when you should get a chiropractic business valuation apart from an upcoming sale: 

1. Every one year to evaluate your business’s finances. 
2. If you’re planning to raise capital. 
3. If one or more of your business partners want an exit.  
4. If you’re planning to sell the practice a few years down the line. 

Know Your Chiropractic
Practice’s Value Today!

With our special focus on chiropractic valuations, you’ll get insights designed for your profession and know the actual worth of your practice.

Book A free Consultation

Conclusion

As you can see, the question as to how to value a chiropractic practice for sale has no singular answer. And for obvious reasons since there are multiple ways you can value these businesses.

However, how exactly you evaluate your chiropractic firm should be determined by what method can provide you with the best fair market value.

Unsure about the ideal valuation method for your business?

You can get in touch with us!

At Arrowfish Consulting, we are a team of seasoned chiropractic practice appraisers with more than two centuries of combined expertise in the valuation industry. And from the best valuation practices to chiropractic market tips and tricks, our business appraisal services provide them all.

You might also want to read – How To Value A Dental Practice.

Jeremiah Grant

Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.

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