How to Calculate Your MedSpa's Adjusted EBITDA
Buyers don't price your tax return. They price normalized earnings. Here is how to estimate adjusted EBITDA, and which add-backs tend to get challenged.
Adjusted EBITDA is an estimate of what your clinic earns in a normal year under a new owner. It's often the most negotiated number in a deal, because every $1 of it gets multiplied.
Start with the basic calculation
EBITDA is earnings before interest, taxes, depreciation and amortization. Start from net income on your profit and loss statement, then add those four items back.
| Line | Example |
|---|---|
| Net income | $180,000 |
| Interest | $15,000 |
| Taxes | $25,000 |
| Depreciation and amortization | $40,000 |
| EBITDA | $260,000 |
These figures are an example only.
Then normalize it
Adjustments remove costs that won't continue, and add costs that a new owner would have to bear.
- Owner pay. This is the most common adjustment. If you pay yourself above the market rate for your role, the excess can be added back. If you pay yourself below it, or treat patients without a full provider salary, a buyer will deduct the difference.
- One-off costs. A legal settlement or a one-time rebrand may be added back with documentation.
- Personal expenses. Costs that run through the business but don't serve it may be added back, with your accountant's guidance.
- Related-party rent. If you own the building and charge below or above market rent, expect it to be adjusted to market.
Add-backs that get challenged
A contested add-back can slow or reshape a deal. Expect pushback when something can't be documented, recurs every year but is called "one-time", or depends on a future plan rather than past results.
Marketing is a common example. Cutting ad spend might lift this year's EBITDA, but a buyer will ask what happened to new patient numbers.
Why owner production matters here
If you personally produce most of the revenue, replacing you has a real cost. A buyer may reduce EBITDA by the cost of a provider, and also apply a lower multiple for the risk. That's why owner dependency can hurt twice. Our guide to the owner-injector problem covers how to address it.
Before you share your numbers
- Have a CPA review your adjustments, ideally well ahead of a sale.
- Keep support for every adjustment in one place.
- Separate revenue and margin by service line where you can.
Sources
This article is general information, not legal, tax, financial or medical advice. Rules change and vary by state, so confirm how they apply to you with a qualified advisor.