Home Health M/A FAQ – What is My EBITDA & How Does it Affect the Value of My Agency?
As a management service organization, we partner with home care and home health care agencies here in the northeast to provide solutions to help home care agencies thrive. Sometimes a company will have areas that need improvement or assistance possibly with staffing, billing or other areas. Or, it’s possible that you as an owner of a home care agency, are considering retirement. Each case is different, and as we expand into new territories to seek relationships to grow, we wanted to take some time on the blog today to talk about how a home care agency is valued.
Our goal is to help home care owners better understand the world of mergers and acquisitions, so they can make smarter decisions if and when there becomes a time to sell, or partner with a management service organization.
So, let’s talk about EBITDA and what it means to the potential value of your agency.
What is EBITDA?
In order to break down how EBITDA can help determine your company’s value, let’s first take a second to talk about what EBITDA is. In a nutshell, EBITDA stands for earnings before interest, taxes, depreciation and amortization. If you’ve aversed yourself in the world of M/A, you already know this, but for those who perhaps have yet to ever consider selling their business, it’s vital to have a keen understanding of these values. These figures can make a huge difference in how much a valuator may offer for acquiring your agency. When evaluating decisions based on the future of your company, the wellness of these figures could be the difference between selling or making changes to enhance your agency.
You may find your EBITDA isn’t where you want it to be by seeing your agency isn’t worth as much as you thought, or you may be pleasantly surprised to find out what your agency could be worth, all depending on your EBITDA. We can help you understand what your agency is worth after just a few introductory questions.
Simply put, EBITDA is used as a measure of a company’s overall financial performance. It provides a more precise measurement, since it is able to show earnings before the influence of accounting or financial deductions.
How is EBITDA Calculated?
You should know your EBITDA, so that you can make positive changes to ever evolve and have an idea of what your agency could be worth. That being said, a company is only worth as much as someone is willing to pay for it, and there are many other factors that influence a buyer, but EBITDA is a big step in the right direction.
The EBITDA formula is essentially calculated by subtracting all expenses except interest, taxes, depreciation, and amortization from net income. Alternatively, EBITDA can also be calculated by starting with net income and adding back the ITDA.
EBITDA = Net Income + Taxed + Interest Expense + Depreciation & Amortization
and/or
EBITDA = Operating Income + Depreciation & Amortization
This EBITDA figure can be used to analyze and compare profitability for a home care owner who is trying to get an idea of how much they could sell their agency for in 2022. Each case varies, but home care owners can estimate that their company currently could sell for somewhere between 3x-5x their EBITDA. This can vary when looking at home health care agencies, which could value even higher.
How Does My EBITDA Impact My Home Care Agency’s Value?
We have worked with home care companies in New York and New Jersey to help them better understand how much they could sell for, and we have even seen those valuations evolve into acquisitions. We invite you to review some of our affiliates in the Northeast to see how they are doing once deciding to work with our team. We are currently opening up lines of communication with our colleagues in North Carolina to seek partnerships through finding what people are struggling with most. We have been able to assess that things like emerging technology, staffing cases, and back-billing are all tremendous obstacles for agency owners in 2022. We can help you by providing immediate solutions to issues you may be facing as an agency owner, or if you are preparing to retire or evaluating your worth we may also be interested in providing you with an idea of what we would offer for your business.
If you or someone you know is struggling with keeping all your balls in the air as an agency owner, Prestige Healthcare Group has solutions to your issues. Whether you need help with staffing, tech, IT, billing or another challenge, you are not alone. Home care agencies all over the country are struggling in these areas and we are here to help. If you’re interested in speaking with a member of our team who can help you better understand how your EBITDA can multiply from a valuation into an offer, feel free to fill out the form below to get in touch with our M/A team and we can get down to business! Stay tuned to the blog for more news & tips on the home care industry and remember to follow us on Linkedin for weekly news and updates!
Owners can Speak Directly with a M/A Professional from our team at this link. Book a Meeting
