Percentage-of-collections method

The percentage-of-collections method values a practice as a share of its trailing twelve months of collections, commonly landing somewhere between 60% and 75% for a typical general practice, without directly accounting for how profitable those collections actually are. It is popular because it is simple and fast to calculate from one number most sellers can produce immediately.

That simplicity is also its weakness, and it is the exact trap Ryan warns buyers about repeatedly: a practice collecting $1 million a year is not automatically a good buy, because collections alone say nothing about overhead, doctor compensation already baked into expenses, or how much of that revenue survives as actual profit. Some seven-figure practices are barely breaking even, and the percentage-of-collections method, used alone, would still price them as if size equaled health.

This is why the method belongs alongside an EBITDA multiple, not in place of it. Where the two methods agree, that overlap is a genuinely useful sanity range; where the percentage-of-collections number implies a price the EBITDA multiple can't support, the earnings-based number should carry more weight, since profit, not revenue, is what a buyer is actually purchasing.