Most owners carry a number in their heads. It usually comes from revenue — a rule of thumb heard at a conference, or what a colleague across town said his practice went for. It is almost never how an acquirer will arrive at a figure. Understanding how they actually do is the most useful piece of market literacy an owner can have, well before any conversation with anyone.
The market thinks in earnings, not revenue
An acquirer is not buying your collections. It is buying the stream of cash the practice produces after every expense is paid — including the physicians, at market rates for the clinical work they do. That figure, stated in a standardized way, is what the market calls normalized earnings, usually expressed as EBITDA: earnings before interest, taxes, depreciation, and amortization. The vocabulary matters less than the idea behind it. Value is anchored to what the practice reliably earns, not to what it bills.
"Normalized" is the operative word. Private practices are run, sensibly, to serve their owners — not to present tidy earnings. So before valuing anything, an acquirer restates the books to show what the practice would earn under ordinary, arm's-length conditions. That means adjusting owner compensation to a market rate: if you pay yourself well above what an employed physician would earn for the same clinical work, the difference is added back to earnings; if you pay yourself below market, earnings are adjusted down. It means removing genuinely one-time expenses — a legal dispute, an EHR conversion, a build-out. And it means backing out personal expenses that run through the practice: the vehicle, family members on payroll, travel that is only nominally professional. The adjustments cut in both directions, and acquirers apply them in both directions.
This is why two practices with identical revenue can be valued very differently. One runs lean, keeps its associates productive, and holds its ancillary income inside the practice. The other carries heavy overhead and distributes everything that reaches the bottom line. Same top line. Very different earnings. Very different value.
Revenue is what the practice bills. Earnings are what an acquirer is buying. Two practices with the same collections can be worth very different amounts — and usually are.
What moves the multiple
To normalized earnings the market applies a multiple. We are deliberately not quoting figures here, because any figure quoted outside the context of a specific practice is closer to marketing than to information. What is worth understanding is what moves the multiple — because every driver is really a statement about risk, about how durable the earnings are once the practice changes hands.
- Provider dependence. Earnings that rest on the owner personally — the owner's surgical volume, the owner's referral relationships — are riskier than earnings distributed across associates and advanced-practice providers who will remain. A practice where the owner could cut back clinic time without moving the numbers reads very differently from one where the owner is the practice.
- Payer mix and contract quality. A balanced commercial mix on defensible contracts reads as durable. Heavy concentration in a single payer, or key contracts approaching renegotiation, reads as risk — whatever the current collections show.
- Ancillary income. Imaging, physical therapy, ambulatory surgery center interests, DME. These streams are valued, but each on its own terms: how durable it is, how it would fare under changed reimbursement, and whether its compliance footing is clean. Acquirers weigh ancillaries line by line, not as a lump.
- Trajectory. A practice growing steadily — new referral sources, capacity for another provider — supports a different reading than one that has quietly plateaued or leans on a referral network that is itself near retirement.
- Geography and local dynamics. The same specialty can carry different value two counties apart, depending on competitive position, hospital employment pressure, and how much consolidation has already occurred in the local market.
- The books themselves. Financial records that are current, consistent, and reconcilable are not a formality. They are evidence about how the practice is run, and acquirers treat them that way.
The quality-of-earnings review
Before closing, any serious acquirer will commission a quality-of-earnings review: an independent accounting team re-derives the earnings figure from the underlying records — billing data, payroll, contracts, and every normalization adjustment claimed along the way. Its purpose is plain. The acquirer wants to confirm that the earnings being paid for are real, recurring, and stated correctly.
For owners, the practical lesson arrives early, not late. Every discrepancy that surfaces in that review — an adjustment that does not hold up, revenue booked oddly, an expense misclassified — is read as risk, and risk is priced. This is why clean, well-organized books assembled before any process begins are worth more than any negotiating tactic employed after one starts. Preparation reads as competence; surprise reads as risk; and the difference between the two shows up in the outcome.
Clean books, prepared before anyone asks to see them, do more for an owner than any posture taken at the table afterward.
What owners tend to misjudge
Two patterns repeat. The first: owners tend to overestimate the value of goodwill attached to them personally. A reputation built over thirty years is real, but the market can only pay for what transfers. If the referrals, the relationships, and the volume are attached to the owner rather than to the practice, an acquirer sees earnings that leave when the owner does, and values them accordingly. An owner's standing and a practice's transferable value are related — but they are not the same thing.
The second: owners tend to underestimate the value of being boring. Stable earnings, low staff turnover, long-tenured referral relationships, unremarkable year-over-year consistency — none of it makes for good conversation, and all of it is precisely what acquirers pay for. A practice with a quiet, steady history often carries more value than its owner assumes, for the simple reason that durability is the thing being bought.
A range, not a number
Finally, and most importantly: valuation is not a single figure. The same practice can produce meaningfully different economics depending on how a transaction is structured — how much is paid at close, whether the owner retains equity going forward, what portion is contingent on future performance, and what the owner's clinical commitment looks like afterward. Those choices are inseparable from the number, which is why an honest answer to "what is my practice worth" is always a range, with reasoning attached.
The only honest way to learn that range for a specific practice is a specific, private look at it — the earnings, the payer mix, the market, and what the owner actually wants. If it would be useful to talk any of this through for a practice like yours, a private conversation is available whenever it suits you. It carries no obligation, and it goes no further than the two people having it.