Medical Practice Valuation Calculator
Every medical practice valuation runs in two stages, and almost every calculator on the internet skips the first one. A multiple gets applied to a number nobody normalised, so the answer is wrong before the multiplication starts. This page does the first stage properly: it turns the profit on your books into the adjusted EBITDA a buyer would actually price, and it shows you every line of the arithmetic.
What this page does not do is apply a multiple. There is no general one to apply. Multiples are published by specialty, by size of earnings and by buyer type, so they sit on the specialty pages, each next to the firm that published it. Once you have a normalised number, the links further down take you to the right one.
No email required. Nothing is stored or sent anywhere. The arithmetic runs in your browser.
What is adjusted EBITDA?
Adjusted EBITDA is a clinic’s reported profit restated as the earnings a new owner would inherit: profit before the owner’s own compensation, less the market cost of replacing the clinical work the owner personally produces, plus documented costs that will not recur. It is the figure every buyer, lender and valuation professional works from, and it is usually not the figure on the owner’s profit and loss statement.
Inputs
Your practice
The bottom line your P&L already shows for a full year, after rent, staff, supplies, billing and your own compensation.
Salary, distributions and personal expenses running through the practice. A buyer adds this back, because what you choose to take out is not a cost of running the business.
Salary, benefits and payroll tax for an associate who would carry your caseload. Use a figure from your own market: what you last paid an associate, or what a recruiter quoted you. There is deliberately no default here, because provider pay varies too much by specialty and region for a guess to help you.
Costs that will not repeat under a new owner, and only the ones you can evidence line by line. If you cannot produce the invoice, leave it out. A buyer will.
Adjusted EBITDA
Enter your profit and what you paid yourself. Nothing is calculated from figures you have not entered, so this panel stays empty until then.
Every figure on this panel is arithmetic on the numbers you typed in. Nothing is asserted about the market, nothing is stored, and nothing is sent anywhere. It is a normalisation for planning, not a valuation opinion, and no transaction should be priced from it.
What a buyer accepts as an add-back, and what gets struck
An add-back schedule is the most negotiated document in a practice sale, and the negotiation is not really about the money. It is about whether the schedule is credible. One add-back that cannot be evidenced puts every other line under suspicion, which is why the discipline below is worth applying to your own numbers before anybody else does.
No firm publishes a percentage for any of this, so none is given here. What follows is the shape of the argument, not a set of figures you can apply.
Generally accepted
Costs a new owner would not carry
Owner compensation above market
The portion of your own pay that exceeds what the practice would have to pay somebody to do your job. A buyer adds back everything you took, then subtracts what your replacement costs, so this is really two entries rather than one.
Documented one-time costs
A legal settlement, a flooded treatment room, the buildout of a suite that is now finished. The test is not whether it felt unusual. The test is whether you can produce the invoice and show it does not repeat.
Non-recurring marketing
A rebrand, a new website, a launch campaign for a service line. Ordinary monthly ad spend is not this. If you switch it off, patient volume falls, which means it is a cost of running the practice.
Genuine start-up costs for a new location
A site opened part way through the year carries costs that a mature site does not, and it has not yet produced a full year of revenue. Buyers will look at that site separately rather than let it drag the whole group down.
Personal expenses run through the books
The vehicle, the travel, the family member on payroll who does not work in the practice. Legitimate to add back, and the first place a quality of earnings review looks, so expect every line to be tested.
Generally struck
Costs that stay in the earnings
Recurring expenses dressed up as one-time
Equipment that is replaced on a cycle, the consultant retained every year, the legal fees that appear in all three years of financials. Calling it non-recurring in the year you sell does not make it so.
Add-backs you cannot document
If the only evidence is your memory of what a number was for, it will be struck. Diligence works from source documents, and an undocumented add-back costs you more than the money because it makes the rest of the schedule look constructed.
Below-market rent you pay yourself
If you own the building and charge the practice under market, the earnings are flattered by that difference. This one moves against you: a buyer restates rent to market, which lowers adjusted EBITDA.
Salary for a role that still has to exist
Family on payroll doing real work is not an add-back. If the practice needs that job done, the cost stays in, whoever holds the position after closing.
Anything described as an adjustment for the future
Revenue the practice expects to win, savings a buyer could theoretically make, a service line about to launch. None of that is earnings yet. Buyers price what happened.
The adjustment that decides most owner-operated practices
Of the four lines in the normalisation, one is usually larger than the other three together: the cost of replacing what the owner personally produces. It is also the line owners are most surprised by, because it looks like the buyer is charging them for their own work.
The logic is straightforward once it is stated. A buyer is purchasing the earnings that continue after you leave. If you treat patients, somebody has to be hired to treat them, and that person will be paid the market rate rather than whatever you chose to take. So your compensation is added back as discretionary, and your replacement’s compensation is taken off as a genuine cost of the business. Those two entries rarely cancel out.
They do not cancel because the common case is an owner paying themselves below market. Owners take what is left, defer their own pay in a hard year, or set a salary years ago for tax reasons and never revisit it. Every dollar of that gap is real profit on your books that a buyer will reverse out, and it is the single most frequent reason a practice prices below what the owner expected.
When the replacement cost is larger than the earnings, the calculator above returns a negative number rather than flooring it at zero. That result is not a bug and it is not a judgement about the practice. It says the profit on the books depends on the owner working below market rate. A practice in that position is generally sold on its equipment, patient list and lease rather than on an earnings multiple, and knowing that before a broker tells you is worth more than a flattering estimate.
The practical step is to find out what your replacement would cost. Not a rule of thumb: an actual figure from your own market, which is what you last paid an associate, or what a recruiter quoted you, loaded with benefits and payroll tax. Most owners have never worked it out. A buyer will, in the first week of diligence.
Depreciation: added back by definition, and worth a second look
Depreciation and amortisation come out by definition. EBITDA means earnings before interest, taxes, depreciation and amortisation, so removing them is not an adjustment anybody argues about. The judgement sits one level down, in what the depreciation figure was ever meant to represent.
Depreciation is a tax and accounting convention for recovering the cost of property over time. The IRS sets out how that works, including the recovery methods and the election to expense qualifying property in the year it is placed in service, in IRS Publication 946, How To Depreciate Property. Which method you or your accountant chose was a tax decision. It was never a statement about how much equipment the practice has to buy to keep operating.
That distinction matters in a valuation because the two can diverge badly. A practice that expensed a large equipment purchase in one year shows a depreciation figure that resembles nothing about its ongoing needs. A practice running chairs, lasers, imaging or a fleet of computers has a real replacement cycle, and adding back depreciation while saying nothing about that cycle produces an earnings figure the practice cannot sustain.
Buyers handle this by asking for maintenance capital expenditure separately: what do you have to spend each year to keep the practice running as it is, before any growth. You will be asked. Having the answer, with the equipment list and the replacement dates behind it, is a good deal more persuasive than producing the depreciation schedule and hoping it stands in.
Why fair market value is a compliance question, not only a price
In most industries, what something is worth matters when it changes hands. In healthcare it also matters when nothing is changing hands at all, and that catches owners out.
CMS explains that section 1877 of the Social Security Act, the physician self-referral law, prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity they or an immediate family member have a financial relationship with, unless the requirements of an applicable exception are satisfied. A financial relationship can be an ownership interest or an ordinary compensation arrangement, and the designated health services list includes physical therapy, clinical laboratory services and imaging, which is a large share of outpatient care.
CMS also records that its 2020 rulemaking defined the term “commercially reasonable” in regulation and revised the definitions of “fair market value” and “general market value”. CMS, Physician Self-Referral. Those are defined regulatory terms rather than figures of speech, which is precisely the point.
For a clinic owner, that turns several routine decisions into ones worth documenting: what you pay an associate, what a medical director stipend is worth, what rent moves between entities you control, what a partner buy-in is priced at. An arrangement priced by instinct is an arrangement with no record behind it. This page is not legal advice and nothing here should be treated as a compliance opinion. The point is narrower: valuation work in healthcare has an audience beyond the buyer, and that is a reason to keep the working rather than only the answer.
Whose standards govern a real valuation
Valuation is a professional discipline with published standards, which is the clearest way to see what a calculator is and is not.
AICPA publishes the Statement on Standards for Valuation Services, the standard that applies to its members when they perform an engagement to estimate the value of a business. NACVA, the National Association of Certified Valuators and Analysts, publishes Professional Standards and Ethics for its own credential holders, currently the set effective 1 June 2023 and applying to engagements accepted on or after that date.
Those bodies belong on this page rather than on the specialty pages, and the reason is worth stating. They publish method: how an engagement is scoped, what standard of value applies, what has to be disclosed, what a conclusion of value means as against a calculation of value. They do not publish the multiple your specialty trades at. The firms that publish multiples are advisory firms reporting the transactions they broker, which is a different kind of source and belongs next to the figure it produced.
What this means in practice: if you need a number that will survive a transaction, a partnership dispute, a divorce or a tax filing, engage somebody working to one of those standards. The arithmetic on this page is the same arithmetic they start from, and doing it yourself first makes that engagement shorter and cheaper. It does not replace it.
Multiples differ by specialty
Adjusted EBITDA is where the general part of this exercise ends. The arithmetic above is identical whether you run a dental group, a physical therapy clinic or a dermatology practice, because it is arithmetic on your own numbers and asserts nothing about the market.
The multiple is the opposite. It is specific to the specialty, to the size of the earnings and to the kind of buyer those earnings attract, and the firms that publish it publish it that way. A single blended multiple across every outpatient specialty would be a guess with a decimal point on it, so this page does not print one. Take your normalised number to the page that names the firm behind the figure.
Dental practice valuation calculator
Which kind of buyer acts at your size of earnings, and the published band that buyer pays. Covers the difference between being bought as an add-on by an existing group and being bought as a platform, and why two advisory firms describe the top of the market differently.
Physical therapy practice valuation calculator
How much of the clinic still depends on the owner, and the published ladder that sets. Two clinics earning the same money sell for different prices, and this is the page that shows what separates them.
In a specialty neither page covers, the normalisation above still applies without change. The honest position on the multiple is that you have to find a firm that publishes one for your specialty and read what it actually says, rather than accept a figure a calculator produced. The research behind our two specialty pages is set out on the dental EBITDA multiple answer page and the PT EBITDA multiple answer page.
Common questions
What is adjusted EBITDA for a medical practice?
Owner compensation is discretionary. What you chose to draw is a decision about your household, not a cost of running the practice, so a buyer adds all of it back: salary, distributions and personal expenses running through the books. A buyer cannot inherit unpaid owner labour. If you see patients, somebody has to be hired to do that work, and their salary, benefits and payroll tax come out of earnings. Use a figure from your own market rather than a rule of thumb. What remains, after documented one-time costs are added, is the earnings figure a buyer prices. The calculator on this page shows every line of that arithmetic next to the result.
How do you value a medical practice?
In two stages, and most owners only ever hear about the second one. First you normalise earnings, which is what this page and the calculator on it cover: add back owner compensation, subtract the market cost of replacing the owner's clinical production, add only the one-time costs you can evidence. Second, a multiple is applied to that figure. There is no general multiple. It is published by specialty, by size of earnings and by buyer type, which is why the specialty pages carry those figures and this page does not.
Which add-backs will a buyer accept?
The ones that will not recur under a new owner and that you can evidence with a document. Owner compensation above market, one-time legal or repair costs, a rebrand or launch campaign, and genuine start-up costs for a new location all qualify. Recurring costs relabelled as one-time, anything you cannot produce paperwork for, and salary for a role that still has to exist after closing all get struck. Rent you pay yourself below market moves the other way and reduces adjusted EBITDA.
Why does a buyer subtract a salary I never paid?
Because they are buying the earnings that survive your departure. If you see patients, that clinical production has to be replaced by somebody who expects to be paid at market rate, and that cost belongs in the earnings a buyer is pricing. It is not a comment on what you are worth. For an owner carrying a full clinical schedule, this is usually the largest single adjustment in the whole exercise, and it is why a practice that looks profitable on the profit and loss statement can price well below what the owner expected.
Do I add back depreciation?
Depreciation and amortisation are added back by definition, since EBITDA is earnings before them. The care is needed one level down. Depreciation is a tax and accounting timing convention rather than a measure of what the practice spends on equipment, and the IRS sets out the mechanics of it in Publication 946, How To Depreciate Property. A buyer will ask what you actually have to spend to keep chairs, lasers, imaging and computers working. Where that recurring spend is real, adding back the depreciation while ignoring the replacement cost overstates earnings.
Why does fair market value matter if I am not selling?
Because the federal physician self-referral law reaches arrangements that have nothing to do with a sale. CMS explains that section 1877 of the Social Security Act prohibits a physician from referring certain designated health services payable by Medicare to an entity they have a financial relationship with, unless an applicable exception is satisfied, and a financial relationship includes an ordinary compensation arrangement. CMS states that its 2020 rulemaking defined the term "commercially reasonable" in regulation and revised the definitions of "fair market value" and "general market value". Associate pay, medical director stipends and rent between related parties all sit inside that framework, which is a compliance question first and a valuation question second.
Who is qualified to produce a formal valuation?
Valuation is a professional discipline with published standards behind it. AICPA publishes the Statement on Standards for Valuation Services, and NACVA publishes professional standards of its own, currently the set effective 1 June 2023 for engagements accepted on or after that date. If you need a number that will stand up in a transaction, a partnership dispute, a divorce or a tax filing, you need somebody working to one of those standards. A calculator is not, and cannot be, that.
Can a calculator replace a formal valuation?
No, and it is worth being precise about why. The adjusted EBITDA on this page is arithmetic on figures you entered, so it is exactly as reliable as your inputs. What a calculator cannot do is read your payer contracts, test whether your add-back schedule survives a quality of earnings review, price provider concentration, or account for the lease, the real estate or the associate agreements. Use the number to decide whether a conversation is worth having. Do not use it to price one.
Want somebody to check the add-back schedule?
The arithmetic on this page is the easy part. The hard part is whether each line survives contact with a buyer’s quality of earnings review, and what your replacement actually costs in your market. That is a conversation with your financials open, not a calculator.
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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.