Evaluate Care Services: How Much is a Care Service Worth?

Business Valuation for Care Services – How to Determine the Realistic Value

Whether buying, selling, or transferring a care service – the central question is: How much is the care service worth? It is not just about revenues, but primarily about future earnings and profits.

Why Rules of Thumb are Problematic in Valuing Care Services

Many rely on simple rules of thumb to determine the value of a care service, such as:

• 15% of annual revenue

• Two to three months' revenue

However, such rules of thumb have a significant disadvantage: They assume that revenue and profit are in a standardized ratio. If a care service is particularly profitable or has low margins, these methods lead to unrealistic business values.

The Better Method: Income Approach for Care Services
A realistic business valuation is achieved with the income approach. This is based on estimating the future profits of the care service. The value is derived from the sum of future earnings – but discounted, as future profits are worth less than today.

The formula for the perpetuity is:
Expected Profit / Capitalization Rate

Example:
A future profit of 50,000 EUR and a capitalization rate of 25% result in a value of:
50,000 / 0.25 = 200,000 EUR

Capitalization Rate and Risk Factors

The capitalization rate consists of several factors:

• Base interest rate (e.g., interest on government bonds)

• Market risk premium (approx. 5%)

• Company-specific risks

• Growth discount (inflation & market trends)

A crucial point: How sustainable are the profits of the care service? The more uncertain the future, the higher the risk – and the lower the value.

Important Factors Influencing the Value of a Care Service

• Owner and employee dependency

• Qualifications & corporate culture

• Location, catchment area & competitive situation

• Digital presence & social media marketing

• Quality management & customer reviews

• Network with other healthcare providers

Conclusion: Why a Professional Business Valuation is Crucial

A care service valuation is not an exact science, but always based on assumptions and estimates. Therefore, it is important to critically question the underlying valuation methods and figures – especially when sellers and buyers have different interests.

Tip: Always have the valuation bases explained in detail to make an informed decision.