Most owners spend years growing profit and are surprised by the offer. The number that moves the price is usually the one nobody was working on.
| THE SHORT ANSWER A healthcare practice is valued as normalized earnings multiplied by a multiple. Owners almost always focus on the first number and almost never on the second — yet the multiple is where most of the value is won or lost. What moves the multiple is transferability: how much of the practice’s earnings survive the owner walking out the door. A practice with associate coverage, a stable team, a secure lease, documented systems and a recall-driven patient base commands a materially higher multiple than an identically profitable practice that depends entirely on one person. Most of these take one to three years to change, which is why exit planning starts long before anyone lists. |
There is a conversation that happens in this office more often than any other, and it usually comes as a surprise to the person having it.
An owner has spent fifteen years building a genuinely successful practice. Revenue is strong, margins are good, patients are loyal. They get an offer, and the number is well below what they had assumed it would be. Nothing is wrong with the practice — and nothing is wrong with the offer either.
What happened is that they spent fifteen years improving one half of the valuation equation and never touched the other.
How practices are actually valued
The mechanics are straightforward. A valuation takes normalized earnings — usually EBITDA, adjusted to remove owner-specific compensation, personal expenses and one-time items — and applies a multiple that reflects the risk a buyer is taking on.
Owners intuitively understand the first part. Grow revenue, control costs, earnings rise, value rises. That is correct, and it is only half the picture.
The multiple is the part that gets overlooked, and it does far more work than most people expect. Two practices with identical normalized earnings can sell at meaningfully different prices, and the difference is not negotiation skill. It is the buyer’s assessment of how much of that earning power actually transfers.
Why the multiple matters more than owners expect
Because it is applied to the whole earnings figure. An improvement in earnings adds value once. An improvement in the multiple lifts the value of every dollar of earnings the practice makes.
For a practice with meaningful annual earnings, moving the multiple even modestly can be worth more than a year of hard-won revenue growth — and unlike revenue growth, it is largely within the owner’s control if there is time to work on it.
The nine value drivers
These are what buyers, lenders and their advisors actually examine. Each of them moves the multiple rather than the earnings.
| Driver | Why Buyers Care | Impact | Lead Time |
| Owner dependence | Do earnings survive your departure, or leave with you? | Highest | 2–3 years |
| Associate coverage | Production not tied to one clinician de-risks the whole file | High | 1–3 years |
| Team stability | Long-tenured staff carry relationships and systems | High | 1–2 years |
| Lease security | A short or uncertain lease can stop a deal outright | High | 6–18 months |
| Recall / recurring base | Predictable revenue is worth more than episodic revenue | High | 1–2 years |
| Clean financials | Ambiguity is priced as risk, every time | Moderate–high | 1–2 years |
| Documented systems | Shows the practice runs on process, not memory | Moderate | 6–12 months |
| Equipment condition | Deferred capex becomes a price deduction | Moderate | 1–3 years |
| Growth trajectory | Three years of steady growth beats one strong year | Moderate | 2–3 years |
Owner dependence: the one that matters most
If you address only one item on that list, address this one.
The question every buyer is answering, consciously or not, is what happens to this practice’s earnings the day the current owner stops working in it. If the answer is that a substantial portion walks out with them, the buyer is not purchasing a business. They are purchasing a job, with the risk that the patients who came for you do not stay for them.
That risk gets priced. It shows up as a lower multiple, a larger earn-out, a longer transition period you are contractually required to work, or all three.
Signs a practice is owner-dependent
- The majority of production runs through the owner — patients booked with you specifically, not with the practice
- Referral sources are personal — referral relationships live in your personal network rather than the practice’s
- Staff escalate everything to you — nobody else knows how the practice actually runs
- Key decisions are undocumented — pricing, scheduling and treatment protocols exist in your head
- The practice slows when you are away — revenue drops noticeably whenever you take time off
The last one is the cheapest diagnostic available. Take three consecutive weeks off and look at what production does. Whatever that number tells you is roughly what a buyer is going to conclude, and they will conclude it from the financial statements without needing to ask.
How to reduce it
Bring in associate capacity, even partial. Shift patients toward booking with the practice rather than with you personally. Move referral relationships onto the practice’s name. Document protocols so the answer to a staff question is a written process rather than a conversation with you. Give a senior team member genuine operational authority.
None of this is quick, and that is the point. A buyer can tell the difference between a practice that has genuinely distributed its dependencies and one where the owner stepped back six months before listing.
| THE HARDEST PART OF THIS ADVICE Everything that makes a practice more valuable to a buyer — associate coverage, delegated authority, patients loyal to the practice rather than to you — reduces how central you are to it. That is uncomfortable after twenty years of being the reason it works. It is also precisely what you are being paid for at exit. |
The commercial details that quietly cost the most
Your lease
This one derails more transactions than any clinical or financial issue, and it is entirely administrative.
A buyer needs confidence that the practice can remain where it is. A lease with two years remaining and no renewal option means the buyer is purchasing a business that may have to relocate — which in healthcare means potentially losing a meaningful share of the patient base. Lenders take the same view, and financing can become difficult.
Renegotiate before you sell, not during. An owner asking for a renewal in the ordinary course has leverage. An owner asking while a landlord knows a sale is pending has very little.
Your financial records
Personal expenses run through the practice are normal and are usually normalized out of earnings without difficulty. What causes problems is when they are undocumented, inconsistent, or so extensive that a buyer starts questioning the reliability of the statements as a whole.
Ambiguity is always priced as risk. Two years of clean, clearly presented financials with owner adjustments properly identified is worth real money at closing, and it also shortens due diligence — which reduces the chance of a deal losing momentum.
| Know your number before you need it. IS Advisory provides independent valuations for dental, medical, pharmacy and veterinary practices across Canada — so you can see where value sits today, and which drivers are worth working on while there is still time. Book a confidential consultation at isadvisory.ca |
What doesn’t increase value as much as owners think
Some of the most common pre-sale efforts produce very little return, and a few are actively counterproductive.
- New equipment bought right before listing — a large capital purchase in the final year reduces cash and rarely lifts the price by what it cost. If equipment genuinely needs replacing, do it early enough that it contributes to earnings.
- Revenue growth without margin — buyers look at earnings and margin, not top-line. Revenue growth achieved through discounting can lower value.
- Renovating the space — cosmetic improvements matter far less than the financial and operational file. A buyer’s advisor is reading statements, not admiring the reception area.
- Working more hours in the final year — buyers normalize owner compensation regardless of how it was structured, so the presentation changes nothing.
- Deferring investment because you are selling soon — this is the most common and most expensive mistake. Practices that coast into a sale show declining trajectory at precisely the moment a buyer is deciding what to pay.
A realistic timeline
The drivers that matter most take the longest, which is why the useful planning window opens years before a sale rather than months.
| When | Focus | Why Now |
| 3+ years out | Get a baseline valuation; begin reducing owner dependence | The highest-impact drivers need the most time |
| 2 years out | Associate capacity, team stability, document systems | These need to be visibly established, not recently arranged |
| 18 months out | Lease renewal, clean up financials, address deferred capex | Leverage is highest before a sale is known |
| 12 months out | Structure planning with your accountant; tax positioning | Some structures require a 24-month look-back |
| 6 months out | Assemble documentation; prepare for due diligence | Preparedness shortens diligence and preserves momentum |
| Listing | Go to market with a defensible position | The work is done; now it just needs presenting |
Note the overlap with tax planning. Structure and value are separate questions with the same timeline — both benefit from a two to three year runway, and both become far harder to influence once a transaction is underway. They are best worked on together rather than sequentially.
Where to start
1. Get an independent baseline valuation. Not a broker’s opinion attached to a listing pitch, and not a rule-of-thumb multiple heard at a conference — a defensible number that identifies where your value currently sits and why.
2. Have the value drivers assessed specifically. A valuation that only produces a number is half the exercise. What you need is which drivers are dragging your multiple down and what each is worth.
3. Pick the two or three with the best return for your timeline. Owner dependence and lease security are the usual starting points, because they carry the most weight and the most lead time.
4. Revalue in eighteen to twenty-four months. Measuring the change tells you whether the work is landing, and gives you a documented trajectory a buyer can see.
Frequently asked questions
How can I increase the value of my practice before selling?
Work on the multiple, not just the earnings. The highest-impact drivers are reducing owner dependence, adding associate coverage, stabilising your team, securing a long lease with renewal options, and building a recall-driven patient base. Most take one to three years to establish credibly, which is why exit planning should begin two to five years before you intend to sell rather than in the year you list.
What do buyers look for in a healthcare practice?
Primarily transferability — how much of the earnings survive the current owner’s departure. Buyers examine whether production is concentrated in the owner, whether associates and staff will stay, whether the lease is secure, whether revenue is recurring or episodic, and whether the financials are clean enough to rely on. Each of these affects the multiple applied to earnings, which is where most of the value difference between similar practices comes from.
How is a healthcare practice valued in Canada?
Most valuations apply a multiple to normalized earnings — typically EBITDA adjusted to remove owner-specific compensation, personal expenses and non-recurring items. The multiple reflects the risk a buyer is assuming, and varies by discipline, size, location and above all by how transferable the earnings are. Two practices with identical earnings can be worth materially different amounts for that reason.
How far in advance should I plan a practice sale?
Two to five years. The drivers with the largest impact on value — reducing owner dependence, establishing associate coverage, building team stability — need time to become visibly established rather than recently arranged, and buyers can tell the difference. Tax structure planning runs on a similar timeline, since some structures involve a 24-month look-back.
Does buying new equipment increase my practice’s value?
Less than most owners expect, particularly late in the process. A large capital purchase in the final year reduces cash and rarely raises the price by what it cost. Where equipment does matter is the other direction: significant deferred capital expenditure becomes a deduction, because a buyer prices in what they will need to spend. If equipment genuinely needs replacing, do it early enough to contribute to earnings first.
Should I get a valuation if I’m not selling yet?
That is arguably the most useful time to get one. A valuation when you are three to five years out identifies which drivers are limiting your multiple while there is still time to change them. A valuation obtained once you are already in a transaction tells you what your practice is worth — which is useful, but by then the opportunity to improve it has largely passed.
This article provides general information for Canadian healthcare practice owners and is not accounting, tax or legal advice. Valuation depends entirely on the specific circumstances of a practice. Obtain an independent valuation and work with your accountant and legal counsel on any transaction.
| The work that raises value takes years. The conversation takes an hour. IS Advisory provides independent healthcare practice valuations and transaction advisory across Canada — dental, medical, pharmacy and veterinary. Know what your practice is worth, and what would make it worth more. Book a confidential consultation at isadvisory.ca |