Tim Doswell reflects on the stark financial reality of supply-cost drift, explaining how unexamined overhead compounds into a devastating penalty when a buyer calculates your EBITDA.
Practice valuation is a function of earnings before interest, taxes, depreciation, and amortisation (EBITDA), and EBITDA is a function of overhead. Most of us focus on the wrong end of that equation for 15 years, and then a buyer’s accountant gets a closer look at our cost base than we ever did.
There is a moment that most principals experience only once, and almost always in retrospect. It is the moment you realise that a buyer has formed a clearer view of your practice’s cost base than you ever did, and has priced that view into their offer, without you ever seeing their workings.
