What is pro forma EBITDA in a practice valuation?
Pro forma EBITDA adjusts historical earnings for known future changes like new providers hired mid-year, fee schedule increases in effect, or a recently-opened location running below capacity, typically reflecting a full year of annualized performance.
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Definition
Pro forma EBITDA is the calculation of what EBITDA would look like if a known change had been in effect for the full period, used to bridge historical results with a forward-looking run rate.
The detail
Pro forma adjustments can be legitimate or aggressive. Legitimate examples: a new associate who started in month 8 whose annualized contribution is already proven, a fee schedule increase signed and active by year-end, a second location that opened in Q3 and is tracking to plan, closure of an unprofitable service line already completed. Aggressive examples: pro forma contribution from providers who have not yet signed employment contracts, run-rate from new services that are untested, expected cost reductions from operational changes that have not been implemented. Buyers scrutinize pro forma adjustments heavily because they directly lift the purchase price. A credible pro forma EBITDA needs evidence: signed contracts, completed hiring, and several months of actual results after the change. Sellers who present pro forma EBITDA without supporting documentation usually see the buyer strip it out in diligence and chip the price to compensate.
What this means for clinic owners
From Sorso
Pro forma is where seller credibility is won or lost. Overclaim and the buyer assumes every other number in your deck is inflated. Underclaim and you leave real money on the table. Work through the adjustments with a finance advisor who has seen what holds up under QoE, rather than relying on the broker's pitch deck.
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How do PE firms value medical practices?
Private equity firms value a medical practice as a multiple of its trailing-twelve-month adjusted EBITDA, and the multiple rises with scale. Published ladders run from 2.5–4x for a single owner-operated physical therapy clinic (Breakwater M&A) to 10x–20x for large primary care platforms (Scope Research), and payer mix, growth and owner dependence move a practice within its band.
What are EBITDA add-backs in practice valuation?
EBITDA add-backs are non-recurring or owner-related expenses added back to reported EBITDA to show normalized earnings, the figure a buyer applies its multiple to. In an owner-operated practice they usually cover above-market owner pay, personal expenses run through the business, one-time costs and pro forma adjustments, and each one needs documents to survive a buyer's diligence.
What is a quality of earnings report?
A quality of earnings (QoE) report is a financial due diligence analysis, usually commissioned by the buyer, that normalizes EBITDA, tests whether revenue and expenses are reliable, and flags risks that affect the purchase price. Breakwater M&A puts the fee at $10,000 to $25,000 for a business with under $1M of EBITDA, rising to $50,000 to $150,000 at $10M to $25M.
What is an LOI in healthcare M&A?
A letter of intent (LOI) in healthcare M&A is a mostly non-binding agreement that sets the proposed purchase price, structure, exclusivity period, and diligence timeline before a buyer commits the resources to close a deal. The exclusivity and confidentiality clauses are the parts that usually bind.
What is a typical EBITDA margin for a chiropractic practice in 2026?
No public survey publishes a chiropractic EBITDA margin, so any figure you see is an estimate. A Sorso estimate from the 2025 Chiropractic Economics survey puts the average DC-only practice at roughly 23 percent: the DC's average total compensation of $140,640, less the $79,200 BLS median wage for a chiropractor in May 2025, leaves about $61,000 above a market wage on $269,303 of average collections. Cash-pay and insurance-heavy practices spread widely around that, and a buyer will recompute the figure after normalizing owner pay, personal expenses and rent.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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