Value Starts With Maintainable Earnings, Not Revenue
Maintainable earnings and adjusted EBITDA are commonly considered when assessing the value of many healthcare businesses, usually by applying a multiple to the earnings a new owner could reasonably expect to repeat after paying a market wage for the work the current owner does. The appropriate method depends on the business, the transaction and the purpose of the assessment.
Revenue matters only as far as it produces those earnings. Two practices with the same billings can carry very different values once owner hours, practitioner arrangements and premises costs are taken into account.
Adjusted EBITDA and the Adjustments Buyers Accept
Adjusted EBITDA starts with accounting profit and adds back interest, tax, depreciation and amortisation, then applies normalisation adjustments. Buyers generally accept adjustments that are documented and genuinely non-recurring.
- A market wage for the owner's clinical and management hours, deducted rather than added back
- Related-party rent adjusted to a market rent
- Genuinely one-off costs, such as a single legal dispute or a relocation
- Personal expenses run through the business, where they are evidenced
- Consistent treatment of practitioner or clinician payments across the period
Adjustments Buyers May Challenge
Undocumented add-backs, optimistic forecasts presented as current earnings, revenue from a practitioner who has already left, and recurring costs described as one-off are commonly challenged or removed during due diligence.
It is better to present a lower, defensible figure than a higher one that will not survive scrutiny, because a reduction discovered late in the process affects the buyer's confidence in everything else.
What Moves the Multiple
Once earnings are established, the multiple reflects how transferable and how durable those earnings are.
- Owner dependence: how much revenue and management sits with one person
- Practitioner or clinician retention: tenure, engagement terms and restraints
- Revenue quality: recurring patient or client activity against one-off work
- Management depth: whether the business runs without the owner present
- Premises: lease term, options, rent level and assignment provisions
- Systems and reporting: whether performance can be verified quickly
- Size and documentation: larger, well-documented businesses can attract a wider buyer group
Sector Differences Worth Knowing
A medical practice is assessed heavily on owner billings against total billings and on practitioner arrangements. A dental practice is assessed on revenue by clinician, treatment mix and surgery utilisation. A pharmacy is assessed on trading profile, gross margin and earnings after a realistic owner's wage, with stock and working capital treated separately from goodwill. Allied health is assessed on owner-generated revenue, clinician retention and referral concentration.
Applying one generic method across these sectors is a common reason an owner's expectation and a buyer's offer sit far apart.
What Is Excluded From the Business Value
Stock, work in progress, equipment finance balances, employee leave entitlements and any freehold interest are normally dealt with separately from the goodwill figure. Confirm early which basis a price is quoted on, because comparing a business-only price to a business-plus-stock price is not a comparison at all.
Appraisal and Formal Valuation Are Different Things
An indicative appraisal is a market-facing estimate of what a business would be likely to achieve, used to set a price expectation before going to market. A formal valuation is prepared for a specific purpose, such as tax, partnership separation, family law or financing, and may require an appropriately qualified professional and a method suited to that purpose.
If a figure is needed for a legal, tax or financing purpose, a formal valuation prepared for that purpose is the appropriate path. An indicative appraisal is directed at a different question: what the market might pay if the business were offered for sale. Neither this site's indicative estimator nor a brokerage appraisal is intended for taxation, litigation, family law, financial reporting, lending or partnership disputes.
How to Improve Value Before a Sale
The changes that most reliably improve value are structural rather than cosmetic: reducing the revenue that depends on the owner personally, securing practitioner arrangements, documenting systems and reporting, resolving lease uncertainty, and cleaning up the financial records so adjustments can be evidenced.
Some structural improvements take time to appear consistently in financial and operational results, so starting earlier can give an owner more options.
Limitations of This Guide
This is general information about how healthcare businesses are commonly assessed in the Australian market. It is not a valuation, and it is not legal, accounting, tax or financial advice. Any indicative range for a specific business depends on its own financial and operational information.