Every practice owner knows their collections. Very few know what the practice is worth, and the difference matters long before a sale: the valuation is the number behind a partner buy-in, a bank loan, a divorce settlement, a retirement plan, and the honest answer to whether the last 5 years built anything.

There are 3 ways to get at the number, in increasing order of usefulness.

1. The revenue shorthand

Multiply annual gross collections by roughly 0.65. A practice collecting $900,000 pencils out around $585,000.

That is the whole method, which is both its appeal and its problem. Two practices collecting $900,000 can run wildly different economics: one nets 30% with a disciplined optical and a full schedule, the other nets 8% after discounting, lab-cost creep, and a payroll that grew faster than production. The shorthand prices them identically. Use it the way brokers do, as a sanity check, and never as the answer.

2. The equity floor

Equity is simple: everything the practice owns minus everything it owes. Equipment, inventory, receivables, and cash, less loans, payables, and lease obligations.

Think of it as the shutdown number: what would be left if you closed the doors tomorrow, sold the assets, and paid the debts. No buyer pays only equity for a running practice, because a running practice earns, but equity is the floor under every negotiation, and tracking it annually shows whether the practice is accumulating value or quietly borrowing against its future.

3. The earnings method

Serious buyers, banks, and their accountants price a practice on what it earns, not what it collects. The method we use:

Start with adjusted net. Take practice revenue and subtract operating expenses, excluding the cost of the ODs who produce the revenue. Then add back what does not transfer to a buyer: depreciation, and the personal expenses the practice has been carrying.

Convert to EBITDA. Add back interest, taxes, and amortization. Now you have the practice's earning power, stated the way every buyer's spreadsheet expects it: earnings before interest, taxes, depreciation, and amortization.

Weight the recent years. One good year is not a trend. We weight 3 years of EBITDA with the most recent counting most: one sixth for the oldest year, one third for the middle, one half for the latest. A growing practice gets rewarded; a declining one cannot hide behind an old peak.

Apply the multiple. The weighted EBITDA gets multiplied by a market multiple, 4.25 in the method we use, to reach practice value. The multiple itself moves with the quality of what a buyer inherits, which is the part owners control.

What moves the multiple

This is where 2 identical-revenue practices separate. Buyers pay more, and banks lend more readily, for:

  • Margins on both sides of the practice. A profitable clinic and a profitable optical, measured separately. Blended books that hide one side leaking are a discount waiting to be found in diligence.
  • A schedule that is not you. If the practice's production walks out the door when the owner does, the buyer is purchasing a job, not a business. Associates who stay transfer value.
  • Payer mix and fee discipline. Heavy dependence on a single vision plan is risk, and risk prices in.
  • Clean, current books. Every surprise a buyer's accountant finds costs more than the bookkeeping that would have prevented it.
  • The unglamorous stuff. Equipment age, a transferable lease in a good location, staff tenure, and frame inventory that turns.

Value it yearly, not eventually

A valuation only at sale time is a report card you cannot study for. Run the earnings method once a year, alongside your year-end close, and the trend becomes your real performance measure: equity growing, weighted EBITDA rising, multiple-movers improving. Owners who track it make different decisions, on hiring, on optical buying, on their own compensation, years before those decisions become a sale price.

We build this valuation into the annual rhythm for optometry clients: books kept clean enough to price, clinic and optical margins measured separately, and a yearly number you can plan retirement, partnership, or the next 5 years against. If you want to know what your practice is worth right now, bring your latest financials to a 30-minute call, on video, from anywhere in the country.

Questions owners ask about this

What is the rule of thumb for valuing an optometry practice?

A common shorthand multiplies annual gross collections by roughly 0.65. It is fast and useful for a sanity check, and inaccurate in both directions: a high-margin practice is usually worth more than the shorthand says, and a practice where the revenue never becomes profit is worth less.

What actually makes an optometry practice more valuable?

Profit that survives the owner's departure. Concretely: healthy margins on both the clinic and optical sides, a payer mix that is not dependent on one plan, associates and staff who stay, current equipment, a transferable lease, and books clean enough that a buyer's accountant finds no surprises.

When should I get my practice valued?

Annually, even with no sale in sight. A yearly valuation is the scorecard that tells you whether equity is growing, and when a sale, a partner buy-in, or a loan application arrives, you negotiate from a number you already trust instead of scrambling for one.

Does selling my practice create a big tax bill?

It can, and the structure of the deal, asset sale versus entity sale, how the price is allocated, and the timing, changes the answer significantly. The time to plan the tax side of a sale is before the letter of intent, not after.