How Do You Value a Private Practice in Today’s World?

YOU ASKED: How do you value a private practice?

WE ANSWER: Knowing how to value a private optometry practice is more important than ever.

• Start with net cash flow. The most common method is based on Seller’s Discretionary Earnings (SDE) — your net income plus add-backs like owner compensation (owner’s W-2 and professional fees paid by the business), interest, depreciation, and personal expenses run through the business. This reveals how much cash the practice generates for an owner-operator. Accurate bookkeeping is key. To get a meaningful valuation, your financials need to be clean, complete, and industry specific. Having your books done by a firm that specializes in eyecare can make a big di erence. We understand how to categorize income and expenses properly, and how to present the numbers in a way that valuation experts (and lenders) trust.
• Apply a market multiple. Once SDE is calculated, it’s multiplied by a valuation multiple, usually between 2x and 4x. What influences that multiple? Things like profitability and cash flow stability, payer mix (private pay vs. insurance), location and local competition, owner involvement, growth potential, optical sales and product margins .
• Consider tangible and intangible assets. Equipment, technology, and inventory add value — but don’t overlook goodwill, which includes your brand, patient loyalty, sta culture, and referral sources. In many cases, goodwill is the most valuable piece of the practice. Get a professional appraisal. While rough estimates are helpful, serious decisions call for a professional valuation.