How To Sell A Physical Therapy Center

Strong Demand for Physical Therapy Centers in South Florida

Physical Therapy clinics provide treatment for patients in need of physical rehabilitation. Common reasons to seek physical therapy are for back pain, neck pain, sports injuries, car accidents, and orthopedic post-surgical care. Licensed physical therapists must evaluate the patient and oversee all clinical treatments, but oftentimes clinics use physical therapy assistants or physical therapy technicians to help implement the treatment plan. Because of the growing numbers of senior citizens living in the South Florida area along with the recession-resistant nature of the healthcare industry, owners of successful physical therapy clinics often realize high sales prices for their clinics.

Determining Owner Benefit of Physical Therapy Center

The first step in valuing a physical therapy center in South Florida is to determine its adjusted owner benefit. This represents the true economic profit derived by the owner. The adjusted owner benefit includes personal expenses that the owner incurred which are expensed through the business, non-cash expenses such as depreciation, and the owner’s salary.

Owner’s Salary and Role Critical

For a physical therapy business, one must pay close attention to the owner’s salary, the owner’s role in the business, and the replacement cost of what a buyer would incur to replace the owner. In many small ‘mom and pop’ physical therapy centers, the owner is the lead (or only) physical therapist in the clinic. If that is the case, then the the owner’s replacement cost should be deducted from the ordinary owner benefit of the business in order to reflect the properly adjusted owner benefit.

Example of Determining Owner Benefit of Physical Therapy Center

  • Let us assume that Paul is the owner-operator of Paul’s Physical Therapy Center.
  • Paul has decided to sell the clinic and is obtaining a business evaluation from a professional business broker.
  • Paul is the only physical therapist working in the clinic, but does have two physical therapy assistants (PTAs) and a massage therapist on staff.
  • Paul pays himself a salary of $100,000 per year.
  • The business broker determines the annual owner benefit for the seller to be $250,000.
  • This includes Paul’s salary as well as other economic benefits that Paul derives from the business.
  • The broker also determines that in order to replace Paul’s duties in the clinic, one must hire and pay a full time physical therapist approximately $100,000 per year.
  • Thus, the owner benefit to the buyer of the business would be $150,000 (after deducting Paul’s replacement cost of $100,000 from the normalized $250,000 profit).
  • It is true that a physical therapist may buy Paul’s business and replace Paul with herself and thus avoid paying the replacement cost.
  • But even if that were the case, the buyer’s labor is not free and is not being provided by Paul (or any other employee of the business) as a part of the sale.
  • Thus the true owner benefit is $150,000 per year for Paul’s Physical Therapy Center.

Valuing Physical Therapy Centers

The typical range of multiples for physical therapy centers is 2-4 times the adjusted owner benefit. The valuation range is affected by many factors including the growth of the business, referral sources, the physical assets included in the sale, the insurance mix, patient demographics, length of time the business has been established, and the lease of the facility. If the overall owner benefit for the clinic (or chain of clinics) is over $1M, then the multiple valuation range increases.  For buyers that already own physical therapy centers and are seeking to expand through acquisitions, certain aspects of the clinic such as the insurance mix will be of paramount importance and significantly affect their valuation of the business.

Insurance Mix of Physical Therapy Center Affects Valuation

  • Physical therapy patients are seldom cash-payers and are usually covered by insurance.
  • Most clinics accept patients covered by Medicare, major private insurance carriers (such as Aetna, Humana, or Blue Cross Blue Shield), or PIP (personal injury protection).
  • Medicare patients are senior citizens and the most common.
  • Private insurance can be either HMOs (Health Maintenance Organizations) or PPOs (Preferred Provider Organization).
  • PIP patients have had some sort of a personal injury from an automobile accident and are covered by the state-authorized PIP program.
  • No matter the insurance coverage, what is most important for a buyer of a physical therapy center is whether the insurance mix of the clinic fits in with their own goals and plans for the clinic.
  • If for example, a potential buyer of a physical therapy center already owns and operates clinics that primarily serve Medicare patients, then the buyer will be more comfortable with acquiring a clinic with a Medicare-based patient population.
  • Such a buyer will already understand the intricacies of billing Medicare and will employ synergistic cost savings from billing the acquired clinic’s Medicare patients through its pre-existing billing infrastructure.
  • Other buyers tend to shy away from physical therapy centers with an emphasis on HMO patients because of the generally lower reimbursement levels for those patients.
  • Conversely, many buyers seek out practices with a high PIP population of patients.
  • These patients tend to have the best reimbursement levels, which increases the overall level of margins for the business.

Increase Valuation by Making Owner More Absentee

Generally speaking, the more absentee the owner is from running the business operations, the higher valuation for the business. This is due to the buyer’s replacement cost of having to replace the owner, and the risk that a buyer generally faces from losing customers or employees when a ‘hands-on’ owner leaves after the sale. Never is this rule of thumb more appropriate for physical therapy clinics.

Best To De-Emphasize Seller’s Role in the Physical Therapy Clinic

As discussed, buyers face substantial replacement costs from having to replace a working owner-physical therapist who plays an active role in treating patients.  If the owner of a physical therapy center also plays an active role in marketing the clinic and has established relationships with referral sources, then a buyer will also face the risk of losing these referral sources (and patients) after the sale when the owner leaves. It is thus wise for the owner of a physical therapy practice to take any prudent steps possible in de-emphasizing their own role in the business prior to the sale.

Do not discount the value of your valuable physical therapy practice. A properly priced and marketed physical therapy practice in South Florida generally commands a premium valuation.

Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.