The Core of Your Practice’s Value is Adjusted EBITDA
The foundation of any serious practice valuation begins with Adjusted EBITDA. This metric measures your practice’s true, repeatable profitability.
EBITDA itself stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. The “Adjusted” part takes this a step further. It normalizes for expenses unique to your ownership or costs that are not part of the ongoing business. Think of it as the clean, repeatable profit a new owner could expect to generate.
For an OT practice, buyers will typically make several key adjustments.
* Owner’s Salary Buyers will adjust your compensation to reflect a fair market rate for a clinical director or lead therapist.
* Discretionary Spending They add back personal expenses run through the business, such as a vehicle lease or personal travel.
* One-Time Costs They will normalize for unusual expenses, like a major equipment purchase for a new sensory gym or a one-off legal fee.
An Example of an EBITDA Calculation
An OT practice reports a net profit of $250,000.
– The owner’s salary of $200,000 is adjusted to a market rate of $110,000, adding back $90,000.
– Personal family cell phone plans are added back at $2,400.
– The one-time purchase of a new therapy van is added back at $45,000.Starting with a reported profit of $250,000, the final Adjusted EBITDA is calculated as $250,000 + $90,000 + $2,400 + $45,000 = $387,400.
To better understand this key metric, review our EBITDA Explained for Physicians and our EBITDA Normalization Guide.
What’s Your Multiple? Key Factors That Drive OT Practice Valuations
Your Adjusted EBITDA is the starting point. This figure is then multiplied by a number—the “multiple”—to arrive at your practice’s Enterprise Value. This multiple reflects the quality of your earnings and the perceived risk and growth potential of your practice. Smaller OT practices might see multiples in the 3.5x to 5.0x range, while larger, multi-location groups with strong growth indicators can command multiples of 6.0x or higher.
Here are the key drivers that determine the multiple for an Occupational Therapy practice.
| Factor | Why It Matters to Buyers | Impact on Multiple |
|---|---|---|
| Therapist Team & Owner Reliance | Practices that do not depend solely on the owner are less risky and more scalable. | Higher |
| Referral Source Diversity | A broad base of referral sources (pediatricians, schools, surgeons) is more stable than relying on just a few. | Higher |
| Service Mix | A mix of services like pediatric, geriatric, and hand therapy with varied payer types can increase stability. | Higher |
| Payer Mix | Over-reliance on a single insurance payer introduces concentration risk. | Lower |
| Geography & Competition | Operating in a market with high demand and manageable competition is ideal. | Higher |
| Scalability | A practice with a strong reputation and processes that can be replicated in new locations is very attractive. | Higher |
Valuation multiples vary quite a bit. You can learn more in our guide on Valuation Multiples by Medical Specialty and see how your patient base affects value in our article on the Impact of Payor Mix on Valuation.
Calculating Your Net Proceeds from the Sale
Enterprise Value is the value of the entire business. To understand what you will personally receive, you need to calculate your estimated net proceeds. We understand that sharing your practice’s financial details can feel vulnerable. It’s a deeply personal process to open your books to a potential buyer, but this transparency is what builds the confidence they need to make their best offer.
Enterprise Value - Debt - Fees +/- Working Capital = Estimated Net Proceeds
- Debt This includes any outstanding loans, equipment leases, or lines of credit.
- Transaction Fees These are fees for M&A advisors and legal counsel.
- Working Capital This adjustment ensures the new owner has enough cash to cover immediate operational needs. It is typically minimal in therapy practices.
Understanding the costs is part of the process. Learn more about M&A Advisor Fee Structures to see how professionals are compensated.
Deal Structures that Boost Your Final Payout
Modern deals often include structures that can increase your total payout. An earnout offers additional payments if the practice hits certain performance targets after the sale. Equity rollover, where you retain a minority stake in the new, larger company, offers a “second bite at the apple” when that larger entity is eventually sold.
These structures can significantly increase your total payout beyond an all-cash offer. However, earnouts come with risk. If post-sale performance doesn’t meet the targets—sometimes for reasons outside of your control—you won’t receive the additional payment. This makes it critical to negotiate clear, fair, and achievable goals from the start.
Common Pitfalls in OT Practice Valuation
- Relying on outdated “per therapist” revenue rules.
- Not having clear, documented processes for billing and collections.
- Failing to track referral source data.
- Having messy or incomplete financial records.
- Selling without a structured, competitive process, as one-off offers rarely yield the best price.
Your Practice, Your Future
Valuing your Occupational Therapy practice is a detailed process. Good preparation and expert guidance are the best ways to ensure your hard work is properly recognized and rewarded.
Understanding your practice’s true, market-based value is the first step toward making the best decision for your future.
Curious about what your practice might be worth in today’s market? Request a Complimentary Value Estimate →
Frequently Asked Questions
What is the core metric used to value an Occupational Therapy practice?
The core metric used to value an Occupational Therapy practice is Adjusted EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, adjusted to normalize for owner-specific expenses, discretionary spending, and one-time costs to reflect the practice’s true, repeatable profitability.
How do buyers adjust the owner’s salary when calculating Adjusted EBITDA?
Buyers adjust the owner’s salary to reflect a fair market rate for a clinical director or lead therapist. For example, if the owner’s reported salary is higher than the market rate, buyers will add back the difference to the EBITDA calculation.
What factors influence the valuation multiple of an Occupational Therapy practice?
Key factors influencing the valuation multiple include therapist team and owner reliance, diversity of referral sources, service mix, payer mix, geography and competition, and scalability of the practice. Practices with less owner dependency, diverse referrals, varied services, balanced payer mix, good market positioning, and scalability typically receive higher multiples.
How do you calculate the estimated net proceeds from selling an Occupational Therapy practice?
The estimated net proceeds are calculated as Enterprise Value minus Debt and Fees, plus or minus Working Capital adjustments. Specifically: Enterprise Value - Debt - Fees +/- Working Capital = Estimated Net Proceeds. Debt includes loans and leases, fees cover M&A and legal costs, and working capital ensures operational cash for the new owner.
What deal structures can increase the final payout when selling an Occupational Therapy practice?
Deal structures like earnouts, which provide additional payments if performance targets are met post-sale, and equity rollover, where the seller retains a minority stake in the new company, can increase the total payout beyond an all-cash offer. However, earnouts carry risk if targets are not achieved.