What is my therapy practice worth?

Most owners asking this question have already been given a number by someone with an interest in the answer — a broker who wants the listing, a competitor who wants the practice, or an online calculator built for restaurants. This guide sets out how behavioral health practices are actually valued, so you can work out your own and know why it is what it is.

I built a group practice and I have been through the sale process as the seller — assembled the memorandum, ran the buyer conversations, sat through diligence. What follows is what actually moved the number, not a textbook formula.

The short answer

A practice is worth its earnings multiplied by a number that reflects how transferable those earnings are without you.

Both halves do more work than they look. “Earnings” is almost never the profit line on your tax return. And the multiple, for practices this size, sits in the low single digits — but the spread between the bottom and the top of that range is enormous in dollar terms, and almost all of it comes down to one question a buyer is asking the whole time: what happens to this revenue when you leave?

Two practices can bill the same and sell for amounts that differ by hundreds of thousands of dollars. That is not the market being irrational. It is the market pricing risk.

What counts as earnings

The number a buyer works from is seller’s discretionary earnings — SDE. It starts at net income and adds back everything the business spent that a new owner would not have to:

• Your own compensation and distributions
• Non-recurring expenses — the legal bill for the lease dispute, the one-time build-out
• Personal expenses run through the business, if you are honest about them
• Interest, depreciation and amortisation

That is the standard build-up, and most valuation content stops there. It is also where most owners overestimate their practice by a wide margin, because of what comes next.

The adjustment most owners miss

If you still carry a caseload, some of that revenue is yours personally. You generated it. When you leave, a buyer has to pay somebody else to generate it.

So the buyer subtracts the cost of replacing your clinical production before applying any multiple. A W-2 therapist at roughly half of collections plus payroll burden lands somewhere near 55 cents of every dollar you personally collect.

Work an example. You collect $150,000 personally. Replacing you costs about $82,000. That comes out of earnings before the multiple, so at a multiple of three it removes roughly a quarter of a million dollars from your valuation.

This single line is the most common reason an owner’s expectation and a buyer’s offer are far apart. It is also why “my practice bills two million” tells you almost nothing about what it is worth.

A note on the opposite error: do not add your clinical revenue back on top as a “contribution margin.” It is already in net income — you billed it and it landed on the profit and loss. Adding it again double-counts it and inflates every solo practice’s number.

What sets the multiple

Size first. The buyer pool changes as earnings grow, and the buyer pool sets the price.

Below roughly $400,000 of SDE, your buyer is an individual clinician with an SBA loan, buying a job as much as an asset. Above about a million, you are talking to platforms and private-equity-backed groups buying a management team they would otherwise have to build. Those two buyers value the same practice differently, and the second one pays more.

Structure comes next, and it matters more than size:

• A solo practice where the owner is the practice sells for meaningfully less than anything else on this list. The buyer is purchasing a caseload that may not transfer.
• A group where the owner still directs clinically does better, but the owner is still a single point of failure.
• A group with a clinical director who is not the owner commands the top of the range, because it is the only one of the three that demonstrably runs without the seller.

Then the qualitative factors — payer mix, clinician tenure, credentialing, documentation, systems, lease, demand. Individually each moves the multiple a little. Together they are the difference between the top and the bottom of the range.

Why two practices with the same revenue sell for different amounts

Everything above reduces to one word: transferability.

Payer contracts. Are they held by the group under a group NPI, or do they follow individual clinicians? If a buyer has to re-credential every clinician after closing, there is a revenue gap between closing and getting paid, and they will price that gap into your number or push it into an earnout.

Clinician tenure. A bench of eight averaging five years is a different asset from a bench of eight averaging fourteen months. Buyers underwrite turnover because turnover is what actually destroys the revenue they just bought.

Licensure and accreditation. A state certificate of approval, CCBHC status, CARF or Joint Commission accreditation — anything a buyer cannot quickly obtain themselves is worth real money, because buying you is faster than applying.

Documentation. Not whether your notes are good clinically. Whether they would survive a payer audit. Weak documentation is a contingent liability, and diligence will find it.

Systems. Whether the practice runs on documented process or on what is in your head. This is the one most owners underrate, and it is the one you can actually fix in twelve months.

A worked example, end to end

Numbers make this concrete. Take a group practice billing $1.4 million a year with eight clinicians, where the owner still carries a modest caseload.

Start with the profit and loss. Net income of $260,000. Owner compensation of $180,000. Documented non-recurring expenses of $15,000, personal expenses through the business of $12,000, interest of $8,000, and depreciation and amortisation of $14,000.

Build up to earnings. Adding those back gives $489,000. The owner personally collected $120,000 last year, and replacing that production costs roughly $66,000 fully burdened. SDE lands near $423,000.

Apply the multiple. A group of this size with associates, where clinical direction still runs through the owner, sits in the middle of the range rather than the top. Say the qualitative factors are mostly favourable — clean group contracting, average clinician tenure over three years, documented processes — and the multiple lands a little above three.

The result is a range, not a number. Something like $1.1 million at the low end and $1.5 million at the high end, with a midpoint around $1.3 million.

Notice what that $66,000 replacement line did. It removed roughly $210,000 from the midpoint — more than the practice’s entire net income for six months — because it comes out before the multiple rather than after.

Why the answer is a range

A single precise figure from a short form is a sales technique, not a valuation.

The spread exists because the same practice genuinely is worth different amounts to different buyers on different days. An individual clinician with SBA financing and a regional group with cash on hand are not going to arrive at the same number, and neither is wrong.

The range widens further when the inputs are uncertain — if your figures are estimates rather than pulled from the books, if you have under three years of history, if there is no growth trend to read, or if documentation is weak enough that a buyer will discount for audit risk.

Treat the low end as the number you should be able to achieve with a competent process and a buyer who is not excited. Treat the high end as what is available with genuine competitive tension and everything in order. The midpoint is not a prediction — it is the middle of a distribution.

What this does not tell you

A valuation range is not an offer, and the headline price is not what lands in your account.

Deal structure moves the real number as much as the multiple does. Escrow holdbacks, seller notes, earnouts tied to post-close performance, the length of the transition period you are required to work, and how the whole thing is taxed depending on whether you sell assets or the entity itself. A higher number with a long earnout can be worth less than a lower all-cash offer.

For a licensed practice, that last point is not a preference. State authorizations and payer contracts are frequently attached to the entity rather than its assets, which can force a sale of the entity and change your tax position substantially. Talk to your CPA and an attorney before you are in a negotiation, not during one.

Working out your own number

The calculator below applies all of this to your practice — the SDE build-up including the replacement adjustment, the multiple for your size and structure, and the thirteen factors that move it. It takes about four minutes, and it tells you which three things are adding the most to your value and which three are costing you the most.

It is free, there is no account, and nobody calls you.