For owners of occupational and hand therapy practices, understanding your practice’s true market value is a critical step toward a successful sale or strategic partnership. Investor-grade valuations go far beyond simple formulas. Sophisticated buyers and private equity firms assess your practice on its quality of cash flow, operational risks, and future growth potential. This guide provides a clear framework for how these factors determine what your practice is worth in today’s market.Dos
We will examine the financial metrics that buyers scrutinize, the key operational factors that can increase your valuation multiple, and how to prepare your practice for a successful transaction. Adopting an investor’s mindset from the beginning is the best way to maximize your outcome.
The Foundation of Value: Adjusting Your EBITDA
The most important metric in your practice’s valuation is Adjusted EBITDA. This figure represents your practice’s core profitability by showing the true cash flow available to a new owner. An expert valuation process focuses heavily on identifying legitimate “add-backs” specific to your field.
Common Adjustments for an Occupational & Hand Therapy Practice:
- Owner Compensation: We normalize your salary and benefits to the market rate for a non-owner clinical director. Any amount above that is added back to your earnings.
- Hand Therapy Certification Costs: Non-recurring expenses for achieving or maintaining specialized credentials like a Certified Hand Therapist (CHT) certification are often added back.
- Splinting Material Surpluses: One-time, significant purchases or write-downs of inventory like thermoplastic splinting materials can be normalized.
- New Program Development: Start-up costs for new service lines, such as a work conditioning or ergonomics program, that are not considered routine operating expenses can be added back.
Getting this calculation right is fundamental. A clean, well-documented Adjusted EBITDA is the starting point for any serious buyer conversation. You can learn more by reading our EBITDA Explained for Physicians guide.
What’s Your Multiple? Benchmarks for Therapy Practices
Once you have a solid Adjusted EBITDA, we apply a valuation multiple. This is where market dynamics and specialty-specific trends come into play. A true valuation depends on what buyers are currently paying for practices like yours.
| Adjusted EBITDA | Typical Multiple | Practice Profile |
|---|---|---|
| < $750K | 3.5x – 5.0x | Single site, high owner involvement in clinical care, some referral concentration. |
| $750K – $1.5M | 5.0x – 6.5x | Multi-therapist model, diversified referral base, stable clinical team. |
| $1.5M+ | 6.5x – 8.5x+ | Multi-site operations, associate-driven leadership, strong EMR/tech stack. |
Note: These multiples are based on 2023-2024 SovDoc transaction data and market analysis. They are illustrative and can change based on market conditions and practice-specific factors.
Key Factors That Drive Higher Valuations
Beyond pure financials, several operational factors significantly increase your valuation multiple. Buyers pay a premium for stability, efficiency, and clear growth potential.
- Diversified Referral Sources: Practices with no single referral source accounting for more than 20% of patient volume are viewed as lower risk. A healthy mix of orthopedic surgeons, direct-to-patient marketing, and primary care referrals is ideal.
- Strong & Stable Clinical Team: A key indicator of a healthy practice is low therapist turnover. Buyers prefer to see staff turnover rates below 15% annually. A team with multiple credentialed specialists (e.g., CHTs) is a major asset.
- Optimized Technology Stack: Buyers may assign a 10-15% premium for practices with a well-optimized EMR, automated patient scheduling, and integrated telehealth capabilities. These systems demonstrate efficiency and scalability.
Proper preparation before selling can significantly increase your final practice value. Explore our Services →
Common Risks That Can Lower Your Valuation
Just as there are factors that increase value, certain risks can lower your multiple. Addressing these proactively is a key part of sale preparation.
- Payer Concentration: Heavy reliance on a single insurance carrier or government payer like Medicare creates risk. With commercial reimbursement for therapy declining, practices that have successfully developed cash-pay or self-pay service lines often achieve higher valuations.
- Key Person Dependence: If the practice’s success is exclusively tied to the owner’s reputation and relationships, buyers will see that as a major risk post-transition.
- Outdated Employment Contracts: A failure to have updated employment agreements with enforceable non-compete clauses for associate therapists can reduce a practice’s value by 5-10%. Secure these well before going to market.
From Enterprise Value to Your Take-Home Proceeds
The final step is to move from enterprise value (Adjusted EBITDA x Multiple) to the net proceeds you will receive at closing. The initial offer is not the final number.
- Enterprise Value: The total valuation of the practice.
- Less: Debt: Any outstanding loans or equipment leases.
- Less: Transaction Fees: M&A advisory fees, which typically range from 3-7% of the enterprise value, plus legal and accounting fees.
- Less: Potential Earnout: A portion of the sale price may be structured as an earnout, contingent on the practice hitting future performance targets. This amount is at risk and is not part of your cash at close.
This calculation determines your estimated proceeds before taxes.
The structure of your practice sale has major implications for your after-tax returns. Learn about our Tax-Efficient Sale Structures →
Your Next Step
Understanding what your occupational or hand therapy practice is worth is the start of a major professional and personal journey. Preparing in advance and running a structured, competitive sale process are the keys to maximizing your value and securing your legacy.
Curious about what your practice might be worth in today’s market? Request a Complimentary Value Estimate →
Frequently Asked Questions
What is the most important financial metric used to value an occupational and hand therapy practice?
The most important financial metric is Adjusted EBITDA, which represents the practice’s core profitability and true cash flow available to a new owner. It involves normalizing owner compensation, non-recurring expenses, inventory adjustments, and start-up costs for new programs.
How are valuation multiples determined for occupational and hand therapy practices?
Valuation multiples depend on the practice’s Adjusted EBITDA and market dynamics. Typically, practices with less than $750K EBITDA have multiples between 3.5x and 5.0x, those with $750K to $1.5M have multiples between 5.0x and 6.5x, and practices with over $1.5M EBITDA can reach multiples of 6.5x to 8.5x or higher, especially if they have multi-site operations and strong leadership.
What operational factors can increase the valuation multiple of a therapy practice?
Key operational factors include diversified referral sources with no dependency over 20%, a strong and stable clinical team with low turnover (under 15%) and multiple credentialed specialists, and an optimized technology stack like efficient EMR, automated scheduling, and telehealth capabilities.
What common risks might lower the valuation of an occupational or hand therapy practice?
Risks that can lower valuation include heavy payer concentration on a single insurance or government payer, key person dependence where success relies heavily on the owner, and outdated employment contracts lacking enforceable non-compete clauses for associates.
How do you calculate the net proceeds from the sale of a therapy practice?
Net proceeds are calculated by subtracting any outstanding debt, transaction fees (3-7% plus legal/accounting), and potential earnout amounts from the enterprise value (Adjusted EBITDA multiplied by the valuation multiple). This results in the estimated cash at closing before taxes.