Valuing a Physio Business

Name: Physio Inq
Address: 5/20 Cliff St, Milsons Point, NSW, 2061, Australia
Telephone: 1300 731 733

Summary

Valuing a physiotherapy business involves considering both its income generation (P&L) and its financial health indicated by the balance sheet.
The balance sheet analysis starts with assessing liquidity, i.e., the ability to meet current obligations from liquid assets, crucial for business stability.
The mix of current and non-current assets impacts cash flow; heavy reliance on non-current assets can strain short-term liquidity.
Financial structure, including reliance on internal or external finance, influences legal aspects and operational sustainability.
Valuing the business hinges on its ability to generate consistent income as a going concern, more stable under management but riskier if owner-operated.
Typically, physio clinics in Australia are valued around 2.5 times their net profit, with multiples varying based on factors like management structure and profitability history.

Topics covered in this article:

So how do you value a Physio business? Is it by the income that it generates, ie the P&L? or is it via the balance sheet? This is a difficult question. The P&L might look amazing, but there may be some disturbing things going on with the balance sheet that may make the business or entity non-liquid. I.e. they don’t have the ability to obligations from their liquid assets. This could be especially true if market forces or external circumstances changed.

So the real answer is, a bit of both. Let’s look at a business sheet analysis as a place to start.

Liquidity

How well can the entity pay its current obligations from its liquid assets? This then relates to a probability of business success or failure. Strengthening or weakening its value.

Mix of Assets Held

Current vs non current. If a business purely relies on long term, non current assets for business, then short term, there may be a starvation of cash.

Financial Structure

How much reliance does the business have for external or internal finance? How does this impact the legal side of things?

So now you are happy with your balance sheet analysis, how do you value your business if things are strong on your balance sheet?

Valuation and Income Generation

It comes down to the ability of your business, as a going concern (ie the ability for it to be continually trading under any ownership) to generate an income. The more your business has demonstrated this, the stronger you may value your business.

If it is under management, it creates a strong argument for sustaining the trend. If it is solely owner operated, it increases the risk to continuity.

The market then looks to value the business as a combination of its Assets, in terms of cash, inventory and non current assets, plus a multiple, (based off market forces), on the income that it generates.

Summary

If I were to throw a number at it, Physio Clinics in Australia tend to be valued, as a rough guide at 2 1/2 times their net profit. The more robust the clinic is, ie under management, long history of profitability etc, then the higher this multiple can be. And the reverse is true, the more sporadic the results, the shorter the length of time it has been in operation and the more reliant it is on the owner, the lower its multiple.