The number in your head came from somewhere. It probably wasn’t anywhere real. More likely, it came from a colleague at a conference or a buyer who called your office last spring.
Where your number came from
Start with the sources. A colleague tells you over dinner that he got twelve times for his practice. A business development rep from a private equity–backed group calls and mentions that practices like yours are trading at a certain multiple. Both stick, and over time they blend into a number you start to think of as yours.
The problem is that neither was built with your practice in mind. Your colleague is telling a story about his deal. The rep is trying to get a meeting on your calendar. Neither has seen your financials.
Stop chasing the multiple
I understand why physicians fixate on the multiple. It’s the number you can repeat to your friends. On its own, though, it tells you almost nothing about what you’ll walk away with.
First, you need to know what the multiple applies to. I worked with a physician group that had heard a multiple from a buyer, and the multiple was accurate. What they didn’t understand was the earnings it would be applied to.
Today, the physician owners take home whatever the practice earns. After a sale, they’re paid a market-rate salary, and the buyer only pays for the profit left over after those salaries. The group had been doing the math on the earnings they see today. When the letter of intent arrived, the headline value was far lower than they’d expected. The buyer hadn’t moved the goalposts. Nobody had shown the group where the goalposts were.
Second, you need to know how the money arrives. Two offers with the same headline value can look very different up close:
- How much is cash at closing?
- How much is equity you roll into the new company, which could be worth more later, or less?
- How much depends on hitting targets after the deal closes?
That mix also shifts with the type of buyer. A private equity firm building a new platform, a group already backed by private equity, and a strategic buyer will each tend to structure a deal differently.
What you should care about is the total amount you’ll receive and how it’s paid out. The multiple is just the headline.
“But I heard multiples were higher”
This is the pushback I hear most, and I get it. Nobody likes hearing a smaller number than the one they’ve been carrying around.
Unless you were at the table for that deal, you don’t know what the multiple really was, and in my experience, nearly everyone rounds up. Even if the number you heard was exactly right, it wouldn’t transfer to your practice. Specialty, geography, how many physicians you have, how close they are to retirement, and whether you own ancillaries like anesthesia or lab all move the multiple. None of them show up in a colleague’s dinner story.
I would much rather you go into a process with realistic expectations than with a number the market won’t support. That isn’t the same as settling. A competitive process, with qualified buyers bidding against each other, is how you get the most the market will pay for your practice. Realistic expectations just mean you’ll recognize a great outcome when you see one.
Sometimes the right answer is “not yet”
Some advisors will quote whatever number it takes to win your business and hope you forget it once the process is underway. Others stay vague on purpose, betting that early offers will generate enough excitement to carry you to the finish line.
We don’t work that way. Something happening in your practice, such as adding locations, physicians and clinicians, or a service line that hasn’t shown up in the numbers yet, might mean selling now would leave money on the table. If that’s the case, I’ll be the first to tell you to wait. I’d rather see you maximize your proceeds in a deal later than sell now and give up value. Physicians remember who told them the truth.
It’s also about respecting your time and ours. A sale process often runs six to nine months or longer and demands real time from everyone involved. If the numbers won’t support the outcome you want, it’s far better to know that before you start than to find out at the LOI.
If you’re carrying a number you’ve never tested, that’s the easiest place to start. A first read from us is a conversation and a handful of basic financials. There’s no pitch and no data room. In return, you’ll get a realistic range of what your practice could bring in a process. You’ll also get an honest answer to the question that matters most: is now the right time, or would waiting get you more? If you want that first read, reach out and we’ll set up the conversation.
