Private Practice Valuation
Buying in or selling out? Estimate the fair market value of a medical practice based on profitability.
Financials
(sends these numbers to Ask; we don't keep them)
The multiples are illustrative, not from a published survey. A real sale needs an independent appraisal.
Clinical Context & Calculation Details
How to Use This Calculator
Input the annual collections (Revenue) and Adjusted EBITDA (profit margin) of the practice. The calculator applies standard industry multiples to determine a rough Enterprise Value.
Adjusted EBITDA includes the net profit plus any "owner add-backs" like personal car leases or excess salary above fair market value paid to the owning physicians.
Why Doctors Need This
Whether you are a senior physician looking to sell your life's work to private equity (PE), or a junior physician looking to buy out a retiring partner, knowing the fair market value of the practice is the starting point for negotiation.
Many doctors erroneously believe their practice is worth 1x to 1.5x of annual revenue. In reality, buyers purchase cash flow (EBITDA). A high-revenue practice with massive overhead and small profit margins is worth far less than a smaller, highly efficient practice.
The Math Behind It
Valuation: Adjusted EBITDA × Multiple (e.g., 3.5x to 5.5x).
The "Multiple" expands based on the size of the practice and the buyer. A solo doc selling to another doctor might get a 3x multiple. A 15-doctor mega-group selling to Private Equity might command an 8x to 12x multiple.
Pearls & Pitfalls
- Pearl: If a hospital or PE firm buys your practice, they usually require the selling docs to stay on as employees for 3-5 years to guarantee revenue doesn't plummet post-sale.
- Pitfall: Overlooking the "Fair Market Value" replacement doc. If a solo owner takes home $500k, but paying a new doctor to do that exact same work costs $400k, the true EBITDA profit of the business is only $100k, not $500k.
- Pearl: Never attempt a practice sale without specialized healthcare M&A attorneys and accountants. The legal structure of the sale (asset purchase vs. stock purchase) has massive tax implications.
Worked Example
The calculator's default inputs: $1,200,000 of annual collections and $450,000 of adjusted EBITDA.
| Step | Calculation | Result |
|---|---|---|
| Profit margin | $450,000 ÷ $1,200,000 | 37.5% |
| Low estimate | $450,000 × 3.5 | $1,575,000 |
| High estimate | $450,000 × 5.5 | $2,475,000 |
| Estimated enterprise value | Midpoint of $1,575,000 and $2,475,000 | $2,025,000 |
| Implied revenue multiple | $2,025,000 ÷ $1,200,000 | 1.69x |
Adjusted EBITDA drives the result: every $10,000 of add-backs you can document moves the midpoint by $45,000. Collections only affect the margin and the implied revenue multiple.
Assumptions & Sources
- Fixed multiples of 3.5x to 5.5x adjusted EBITDA, an illustrative assumption, not a figure from a published survey: we found no free, published source of sale multiples for small physician practices, and the figures brokers quote vary widely. Specialty, size, payer mix, location and buyer type (another physician, a hospital or private equity) can put a real offer well outside it.
- Enterprise value is before debt, working capital adjustments, deal structure (cash at closing vs. earnouts or rollover equity) and taxes on the sale.
- Your EBITDA input is used as entered; normalizing owner pay to market rates is up to you.
A rough range for planning, not an appraisal.
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About the Author
Joshua Dunigan, DO | Family Medicine Resident & Founder
I'm a family medicine resident physician in Des Moines, Iowa (class of 2027). I founded MedMoneyGuide to give physicians specialty-specific financial guidance, with sources you can check.