Key Financial Metrics Investors Look For—And Why You Should Too
Most healthcare practice owners believe that their clinic’s value is driven by patient volume or gross revenue. But any seasoned investor—or private equity group—will tell you: volume is vanity, profit is sanity, and cash is king. What really determines your business’s value and long-term viability are specific financial metrics that reveal how efficiently your clinic operates, how resilient your model is, and how attractive your practice would be if someone were to buy it.
Whether you're considering selling in the next 5 years or simply want to build a stronger, more profitable business, understanding these financial levers is not optional—it’s foundational.
Let’s break down four of the most critical metrics that every investor looks for—and why you should start tracking them now.
1. EBITDA: The Gold Standard of Practice Value
What It Means
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s essentially a clear lens into how profitable your operations are, excluding accounting or financial decisions outside your core business.
Why It Matters
When investors evaluate a business for acquisition, EBITDA is the starting point for calculating valuation. Most deals are based on a multiple of EBITDA. If your practice earns $500,000 in EBITDA, and your industry is trading at 5x EBITDA, your business could be worth $2.5 million.
But more importantly: EBITDA tells you how healthy your business is today. It's the single best metric to assess operational efficiency.
How to Improve It
Cut operational fat: Streamline unnecessary expenses.
Increase production per provider: Optimize clinical schedules to maximize productivity without burnout.
Evaluate vendor contracts: Are you overpaying for EMR, supplies, or marketing?
Adjust compensation models: Align bonuses with actual profit-generating behaviors.
2. Margins: The Profit Hidden Beneath Your Revenue
What It Means
Your profit margins reflect how much money you keep after covering your operating costs. Gross margins tell you how efficiently you generate income from services; net margins show what’s left after all expenses.
For most outpatient practices, a net margin above 15–20% is considered healthy. Anything below 10% is a red flag.
Why It Matters
Margins show how well you're managing your resources. You might have a high-grossing clinic, but if your margins are razor-thin, you're essentially working harder—not smarter.
From an investor’s perspective, tight margins = high risk. From a business owner’s perspective, tight margins = less cash to reinvest in growth, talent, or systems.
How to Improve It
Audit your payroll: Labor is your biggest cost. Ensure staff are working to their license and productivity expectations are clear.
Shift low-margin payers: Not all revenue is good revenue. See payer mix below.
Review unbilled or underbilled services: Revenue leakage from poor coding, documentation delays, or non-billable services can sink margins.
3. Collections Rate: Are You Actually Getting Paid?
What It Means
Your collections rate measures how much of your billed charges are actually being collected. A strong practice typically collects 95–98% of what it bills. If you’re below 90%, there’s a leak in your financial pipeline. (Based on expected collections not what you bill out at)
Why It Matters
Many practice owners make decisions based on gross charges or expected payments—but what you bill isn’t what you keep. If you’re not watching collections closely, you could be unknowingly throwing away tens of thousands each month.
Investors want clean financials, and high collections rates signal:
Strong front-end processes
Reliable patient eligibility verification
Efficient billing workflows
Minimal aged accounts receivable (A/R)
Low collections suggest operational inefficiencies, staff training issues, or deeper billing and coding compliance problems.
How to Improve It
Improve front desk collections: Collect co-pays and deductibles up front, not after the fact.
Analyze claim denials: Fix recurring issues like authorization errors or code mismatches.
Track aging A/R: Anything over 90 days is at high risk of not being collected. Act fast.
Outsource to a billing specialist (if you’re consistently under-collecting and internal bandwidth is maxed out).
4. Payer Mix: Not All Revenue Is Created Equal
What It Means
Payer mix is the breakdown of how much of your revenue comes from private insurance, Medicare, Medicaid, cash pay, worker’s comp, and personal injury.
Why It Matters
A poor payer mix can undermine even the busiest clinics. For instance, 100 visits reimbursed at $80 each doesn’t carry the same financial weight as 100 visits reimbursed at $125 each.
Private equity groups and smart operators pay close attention to this. A practice overexposed to Medicaid or worker’s comp may struggle with profitability and operational complexity. A diversified mix with strong private payer rates is ideal.
How to Improve It
Negotiate rates: Use volume, outcomes data, and local leverage to renegotiate.
Attract a higher-quality patient base: Update your marketing to speak to ideal clients based on value, not volume.
Drop underperforming contracts: If the math doesn’t work, and it hurts profitability, reassess whether it's worth keeping.
What These Numbers Say About Your Practice’s Health
Tracking these metrics does more than make your business investor-friendly—it makes it owner-friendly.
These numbers:
Reveal what’s working (and what’s not)
Help you set realistic goals
Allow you to plan for growth, hiring, or expansion
Put you in control of your practice’s financial destiny
Here’s what red flags to watch out for:
Metric
Red Flag
EBITDA
Less than 10% of total revenue
Margins
Net margin under 10%
Collections
Under 90% of billed charges
Payer Mix
Over 50% low reimbursement plans
These aren’t just investor concerns. They’re signs that your business may be working against itself—and that every hour you’re putting in isn’t generating the return it should be.
Turning Insight Into Action
1. Implement Financial KPIs by Division
Every division (billing, front desk, clinical, etc.) should have KPIs that tie into the broader financial picture. Create weekly scorecards and review them in leadership meetings.
2. Run Monthly Financial Reviews
Whether you do it alone, with a bookkeeper, or with a consultant—don’t let the books sit untouched. Know your P&L, identify cost creep, and evaluate revenue per provider.
3. Benchmark Against Best-in-Class Practices
Look at national data for similar-sized clinics. Are you underproducing per therapist? Are your costs too high for your revenue band? Knowing the benchmarks gives you something to aim for.
Bottom Line: Numbers Don’t Lie
The most successful practice owners don’t run their businesses on gut feel—they run them by the numbers.
You don’t have to be ready to sell to think like an investor. You just need to care about building a business that is efficient, profitable, and sustainable. The same metrics investors obsess over are the same ones that will make your life as a practice owner dramatically easier.
So stop flying blind. Open your books, check your KPIs, and start building a practice that works for you—not just because of you.
Want help understanding or optimizing these metrics for your clinic?
Let’s talk. AG Management specializes in helping private practices not only grow but grow profitably—whether you're aiming to sell or just want a business that funds your lifestyle, not controls it.
