What Is Your Practice Really Worth in 2026?

Bill Walker (00:09):
Welcome back to the Aesthetic Appeal podcast. Today we're talking about what is your practice really worth in 2026? This theme is a very important theme for a lot of founders because I see it so many times they'll come to me with a number in their head, whether it's too high or too low and it's completely off of the benchmark of what they're really worth. And so it begs the question, what am I really worth as a med spa in today's market? And today we're going to fix that. We're going to answer that question. One of the most confusing parts for owners is understanding the differential between the revenue and their EBITDA. So when we talk about EBITDA and we talk about revenue, again, we're talking about top line for revenue of the sales of your practice. And EBITDA is looking more at the bottom line number and thinking about what's the net income of the practice and taking out all the expenses that you might think are more personal in nature perhaps as a small business owner and adding those back into the business to build up that net income number to a EBITDA number that's an accurate reflection of the cash flow on an annual basis of what you're looking at in true value.

(01:30):
Now, I will tell you, one of the things that a lot of owners don't properly account for in evaluating their business is you have to think about what am I doing in production in terms of patient care as the owner founder injector. And so one of the things that you really have to understand is what's a fair market value for your services as an injector? This is probably the number one factor that most owners forget to think about is that if you were to leave the business and another nurse practitioner or another doctor needed to come on board and do the injectables or do the types of services that you provide your patients, what is the fair market that you would have to pay that person to take over your role? So that goes as a burden against your EBITDA. And so that takes away from what you might think about your net income, your adjusted, let's use an unofficial term, your adjusted net income to get to your true adjusted EBITDA.

(02:37):
And so the way I think about it is a certain percent of the production that you do, if you do $2 million a year of production, $2 million a year of producing sales revenue for the company, there's a percent of that that you would pay to a nurse to do those injections, and then we get paid a W-2 salary. And so you take whatever you've built up your EBITDA, and then you do a normalization for doctor or nurse compensation for you as the owner and take that away and that kind of gets you to a ballpark accuracy of what your EBITDA is. Now, let's talk about factors that people forget about when it comes to revenue or your top line sales. A lot of times people will quote, "I'm six and a half million dollars of revenue." And that might be gross revenue, but oftentimes we'll always see an indication of some sort of a refund to a patient or a group of patients, and that might be 50, 60, 100, $150,000 a year for a $6 million practice.

(03:42):
That's not uncommon. And so while you might think that you're $6.55 million of revenue, you may only be 6.3 or 6.4 million of revenue. Why does that matter? Well, that calculation and that extra $100, $150,000 a year of sales that you're producing, when you give that back to a client as a refund, that takes away from straight from the bottom line. You'll hear people say that number drops straight to the bottom line impact. Well, why does that matter? Let's think about how businesses are valuated in our industry. And they're valuated typically the bulk of the valuation goes into multiples on your EBITDA. And so if I were to place a 5X multiple on your $1.5 million of EBITDA as just a hypothetical example, if you lost $150,000 of EBITDA and you got a 5X, that's three quarter of a million dollars of difference. Well, what happens if I'm able to evaluate that company at an 8X?

(04:51):
Well, now we're doing an 8X multiple on that $150,000 of EBITDA loss. It's $1.2 million of difference in the true estimated total enterprise value of your company. These are things that are just case study textbook examples of clients that we have that come to the table very confident in wanting to question, why do you think I'm worth this? Why do you think I'm worth so much more? Why do you think I'm worth so much less? And these are things that we do on a routine basis for our clients. And that's why I always tell people, when you're thinking about your options, it makes a lot of sense to go to a professional firm like aesthetic brokers and really have a sit down meaningful conversation and we'll look at your numbers for you and come up with an accurate assessment of what's the true value of what your company's worth.

(05:50):
Now there's two more indications that go into a valuation. We've talked about valuations in terms of the cash flow and a multiple of the cash flow. There's something that you might be most familiar with, which is what's my house worth and how much did my neighbor get for their house because it's the exact same floor plan as mine. That's a market comparison analysis. Now, when you talk about market comparisons, it's good to have a framework of what is market. It's more difficult when it comes to companies and businesses than it is with houses in the same neighborhood to do an accurate market comparative analysis. And so in a formulaic fashion, we like to look at what is the market and the competitive landscape for a practice your size, doing your revenue with the types of procedures and about the same percentage of procedure mix that your practice does.

(06:50):
But what's different? The buyer. What a lot of people fail to acknowledge is that you could be a very large, very successful practice in a metropolitan area, but if you're not the first in that metropolitan area that partners or sells to a private equity firm that comes into the market, you are probably leaving a slight discount on the table because you missed out on that first to market opportunity. So in businesses and companies that sell, many times, not always, you will find that you'll get a more premium value on your business if you can be the first in your area to sell to a buyer, because they want to establish that foothold and that flagship of market entry into your neighborhood. Okay, let's talk about the third methodology when it comes to valuating your business, and that's most commonly in an asset appraisal. Now, you might think, because I've spent hundreds of thousands of dollars bill on all of these different devices, my practice is worth a lot of money.

(08:09):
Well, let's think about when you buy a car. The minute that you drive a brand new car off the lot, everyone knows that that value of the car diminishes fairly significantly. And so you need to think about how that translates into the assets that you buy for your company. Assets depreciate the moment that they're bought. You can also get into some very, very complicated accounting discussions and tax discussions when you talk about accelerated depreciation of assets. Also, probably one of the most important things is that the true value of an asset in a company like a medical aesthetic practice is how effectively is it used? How many times a day is that device actually used to generate revenue? And so in some kind of sideways, twisted way, the value of your assets is really in how you utilize those assets to generate revenue. If you were to sell the assets in your practice, I would submit to you that many times you'll find that you will get a less premium value, a significantly discounted value for the assets that you have.

(09:28):
Many times there's a reset fee that a laser company might put into play that if you move the equipment out of your facility to another location, they'll ask you for a fee to reset it for you. And so there's hidden costs that go with this. One of the difficulties in an asset appraisal is that you have to do an asset inventory, and that commonly comes with a very discounted rate on what you truly are going to get for those machines in your practice. And so while it's nice to say, "I have all this equipment, it's valuable." It's only valuable to somebody who, one, wants to purchase it and two, believes that they can utilize it better than what you have in the past. In saying that, when we look at the three ways that we valuate a practice, we think about the discounted cash flow and a multiple of it.

(10:28):
We think about what's the house next door to me selling for, that market valuation. And the third is an asset appraisal, an asset sale. Now, we like to use a combination of all three of those at aesthetic brokers when we're looking at practices, especially large multi-site group practices, but at the end of the day, remember, you can solve a lot of problems by generating more revenue and making your dollars more efficient for your EBITDA. One of the questions that we get asked most commonly at aesthetic brokers is, what is the buyer looking for once I sign a letter of intent with them? And I think what they're really meaning when we talk about this is what does the due diligence process look like? Think about having a project manager in your corner quarterbacking all of the organizational details that are involved in the three or four or 14 years that it took to build your practice into a 90 day compilation of all the documents that it takes to close your deal.

(11:38):
That's what due diligence feels like. It's a heavier lift. And so it's always nice to have a professional team that's in the background, correlating, collating, stapling, gathering, sifting, screening, and vetting all of the checklist items that go into your business insurance, your certification documents, your credentials, your leases, your vendor contracts, your financials, your employment agreements, all of the things that you would expect over a body of work of building a company that culminates into a validation. And one of the things that I always tell people to think about is you have to inspect what you expect. You inspect the work of your treatment providers because you set an expectation level. When a buyer's ready to write that check for millions of dollars, they want to inspect what they're about to write the check for because they're expecting to get a quality, well-run, highly fine-tuned machine of a business, and that's what you've created.

(12:52):
And it's about projecting that and organizing that and delivering the explanations in a very clear, crisp, organized manner to reduce friction and reduce question marks of whether or not they really want to write that check. So one of the things that you can do ahead of time as a founder owner is keep things in very organized desktop procedures that you keep different contracts, different procedures, different protocols, different facets of the company, very organized. And one thing that I always tell owners that they can do that's a great technique is do a quarterly review. Have a checklist in Excel format or on Google Sheets that you can look back to. You can have your practice administrator look at it, you could have your chief operations officer look at it, but do a quarterly review and clean up of administrative work. I like to do this on the last Friday of the quarter, because inevitably your controller or your accountant is trying to close out the books for the entire quarter, and while they're doing that, it's a good all hands on deck administrative review.

(14:08):
So having people put in a scrub of patient charts, having people put in a scrub of anybody who came in with a gift card that scheduled and canceled to rebook, all of these things that are individual tasks, line item, menial tasks for people that get away from us. That last day of the quarter is a great catchall and you can organize yourselves, whoever your administrator is, organize yourselves in a very thoughtful, clean cut way, so that when the time comes, it's just about going to the program of record and pulling that document rather than trying to find where is it at. And we've got a checklist that we can share with you of all the different facets that you want to keep track of that's very clean and it's a great 85% solution for any type of due diligence that you would prepare for in the long haul.

(15:01):
So we like to do scenario playing and war gaming inside of the firm a lot. One of the war gaming decision making trees that we do by design is what's my practice worth? So an example that we would take is we take your practice and we say, "Why is this $2 million practice only worth $3 million?" Or, "Why is this $2 million revenue practice worth $8 million?" And one of the things that you'll find owners that have the seven or $8 million valuation versus the owner that has the $3 million valuation is caring. You've got to care about your numbers and you've got to care in a way that your people hear and absorb what is important to you in their daily lives. And so you may talk to your accountant or your controller through very different language and very different key performance indicators for them than you would maybe your front desk person, but it's all driving towards an efficiency of that revenue.

(16:09):
If you do a great job of managing revenue, you could have a phenomenal seven, $800,000 EBITDA practice. That's a super high profile margin, right? On the same token, you could have terrible management of all the KPIs, the key performance indicators for your practice, and you could be a three or four or 5% margin practice. And so we kind of drive through those factors. One thing that's a long term factor that only revenue will overcome is remember your rent. When you sign a lease, you're typically signing a lease for a five or a 10 year deal. And so what I always tell owners is before you go out and put pen to paper, figure out when you have the tipping point of revenue generation to get your lease into a monthly cost of your revenue as a percent of your revenue in that five to 10% range.

(17:09):
If you can be at six or six and a half percent rent as a cost of your overall revenue percent generation, that's a great number to be at. Okay? Typically, the rest of the numbers will work themselves out. If you can get your revenue generation at 100%, and then you look down on what's the cost of my rent, and it's at five, six, 7% margin, that cost is a good benchmark of success for you because typically vendor contracts will fall into a normal median range, your employee contracts, that's probably the second thing that you're going to look at. What am I paying my employees? We would all love to pay our employees in the 99th percentile of performance. The reality is not everybody is a 99 percentile performer. And so you have to find ways to encourage your team, reward your team, and make all the financials work so that they can come back consistently month after month and not worry if they have a job because you're not being fiscally responsible for them.

(18:18):
So those are a couple of things that we like to war game and look at, but it all comes back to if you're trying to make yourself a two or three million dollar revenue practice and you want to be worth seven or eight million vice only two or three million dollars, the answer is having those consistent touch points and checkpoints on a monthly basis. And a lot of times when you're talking about revenue generation, it may even come down to how are we pacing two weeks into the month for our month goal? Because at the end of the month, it's too late to make a pivot or to make a surge. And so I always tell people it's always better to do a touch point midway through a goal so that you have time to correct it than to wait and just hope and pray that it works out for the month and then realize that we didn't do that well.

(19:12):
There's only 12 months in a year, right? One 12th of your revenue is generated in each month that you're in business. And so if you can make a pivot halfway through that one 12th factor, you're taking it down to a minimalization of risk to a one / 24th. And that is a way better odds. That's taking you down to about like a 5% error and that takes you to 95% accuracy. Once you can get closer to 98% accuracy, that's within two standard deviations of scientifically accurate. That's really tightening the window. And so the best companies that we see typically will do an end of week review and then they'll do a future forecast at the end of that week of what do they already have scheduled for the next week for production of sales. That helps you stick very tightly to your revenue goals as a company.

(20:11):
We work with hundreds of founders across the United States in the medical aesthetic and the longevity space. And one of the most common trends that I see founders wish they would have done slightly differently after going to market and closing their deal is think about what they want for their goals for life and for the next five years with the practice. A lot of people think about the number and the number is very, very important because it facilitates a lot of other decision making triggers within your own life and within the business. One of the things that gets overlooked is the lifestyle and the work style that people end up in for the next five years of their life. And so I always advise founders, look, you're probably going to go through five pivots within your professional career, five, right? You first start out, you come out of college, you're in your first career field, and you're just learning.

(21:18):
You're absorbing a professional lifestyle of what is that like? And then somewhere along the line, you make a pivot into a career field that you're like, "I want to be committed in this field." The next pivot is really into growth. You're trying to grow your professional acumen to an executive level. Owners of Med Spas, when they hit that third gear, you're in that third gear for a really long time because you are on a pathway as an owner and a founder of having to learn a lot of sets and reps of decision making and consequence management as an owner of a business. Those that reach the highest levels, those that reach the top 80th percentile and above level, the top practice owners in the country, those individuals hit their fourth gear when you start to shift into a partnership with a very sophisticated financier firm.

(22:20):
And so when you partner with a private equity firm or a strategic buyer that we broker the deal for you on, you're in that fourth gear because that is a five, seven, sometimes 10 year commitment that you end up on a journey with of making an incredible amount of wealth out of, but also it's at that gear shift that you start to pivot into other decision making trees in your lifestyle and your work style because this whole time you've bore all of the risk and all of the consequences for your decisions as the founder owner. But when you enter into this financial partnership, especially with a very mature, very well oiled machine of a private equity firm type organization, this partnership takes some of the risk off of your shoulders, but there's also someone that you're holding yourself accountable to that's in a very different light and a very different mentality.

(23:18):
So I always tell founders, the most important thing that you should be thinking about for the post-transaction is what do you want your lifestyle to be like, and what do you want your work style to be like? And make sure that those are aligned with the monetary trade off that you're going to receive in that process. That fifth gear, because some of you are probably like, "Well, Bill, you said five years, but you only talked about four." The fifth gear usually comes about five or six years after you've done that transaction, and then you see this iterative, multiplicative effect of like equity rollover that has a waterfall effect. And now you're kind of in this like life-changing moment where you now operate out of true freedom. And I think it's important for people to think and realize that like a lot of times for entrepreneurs, that is a place where it can be very exciting with the private equity firm that you're a partner with.

(24:18):
It can be very exciting for you to start a new idea that's completely separate from what you've been doing for the past 20 or 30 years. It can be exciting to think about what are the things in your lifestyle that you want to incorporate more of now that you didn't focus on, not that you sacrificed, but that you didn't focus on as much in earlier phases of your life because that is an incredibly exciting track as well, and it's very different than what you've been doing before. But when you think about the journey, when you think about the different gears that you shift up into, I always tell people, I think there's really about five gears that most highly successful founders end up achieving in their life. And it's important before you do a deal to think about what you want gear four and gear five to look like so that it's the right gear for you.