EBITDA is the number that tells you what your practice is actually worth to a buyer, a bank, or a partner. It stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In plain terms it is the profit your practice generates from operations before financing costs and accounting adjustments. Every valuation conversation starts here. If you do not know yours, you are negotiating blind.
Revenue is everything your practice collects. Profit is what remains after you pay every expense including staff, rent, supplies, and yourself. A practice can collect two million dollars a year and still have razor thin profit if overhead is not controlled. Collections are vanity. Profit is what actually matters.
Overhead rate is the percentage of your collections consumed by expenses. If you collect $1 million and spend $700,000 running the practice, your overhead rate is 70 percent. For a well-run solo practice, overhead should be at or below 50 percent. Above that and there is very little left over to build anything.
Profit is an accounting number. Cash flow is real money moving in and out of your account. You can be profitable on paper and unable to make payroll if your collections are delayed, your A/R is aging, or your expenses hit before your revenue arrives. Physicians confuse these two constantly and it causes real problems.
Accounts receivable is money your practice has already earned but has not yet collected. A/R days measures how long it takes to collect that money. The longer it sits uncollected the worse your cash flow becomes. Most practices accept A/R creep as normal. High performers treat it as a systems problem with a fixable root cause.
A profit and loss statement, or P&L, shows your total collections, every expense category, and your net profit over a given period. Most physicians review it once a year with their accountant. That is not enough. You should be reading your P&L every month and know what each line is telling you. It is your practice's diagnostic panel.
Break-even is the exact amount your practice must collect in a given period to cover all expenses with nothing left over. Below that number you are losing ground. Above it you are building. Every hire, every lease, every expansion decision should be evaluated against what it does to your break-even. Most physician owners have never calculated it for their own practice.
Patient lifetime value is the total revenue a single patient generates across their entire relationship with your practice. A cataract patient is not one surgery. They are years of appointments, procedures, and referrals. Knowing this number tells you exactly how much you can rationally spend to acquire a new patient and still come out ahead.
Working capital is the financial cushion between what comes in and what goes out on any given month. Without it one slow month becomes a crisis. With it you have options. Most physician owners run their practice with almost no buffer because they confuse working capital with profit. They are not the same thing.
A valuation multiple is the number your EBITDA gets multiplied by to determine what your practice is worth. A solo practice might sell at 3 to 5 times EBITDA. A multi-location group with consistent performance might command 6 to 9 times. What drives the multiple up is consistency, systems, and proof that the practice runs independently of any one person. The more it depends on you personally the lower the multiple.
