What Is Maintainable Earnings?

What does maintainable earnings mean?

Future maintainable earnings, usually shortened to maintainable earnings, is the profit a business can be expected to sustain year after year from its existing operations, under ordinary ownership and on arm's length terms. It is one representative annual figure, not a forecast of a particular year, a budget or a target.

The figure matters because most healthcare businesses are valued using the income approach, which the Australian Taxation Office describes as estimating market value from the income or cash flows an asset can be expected to generate, applied through capitalisation of earnings or discounted cash flow. Capitalisation applies a multiple to maintainable earnings, the reciprocal of a capitalisation rate, reflecting the risk and growth prospects of that business. The multiple comes from market evidence, the prices and asking prices in transactions for comparable businesses, which the ATO treats as a separate approach. An error in maintainable earnings repeats as many times over as the multiple, so the earnings assessment gets the closer scrutiny. Among the issues it commonly sees, the ATO lists unreasonable assumptions and proxies based on historical performance, a fair description of treating last year's profit as maintainable earnings. See healthcare business valuation methods.

A few terms recur below. Market value, on the ATO's definition, is the amount for which an asset should exchange between a willing buyer and a willing seller acting knowledgeably and without compulsion, as at the valuation date, which is the date at which value is assessed. Normalisation is the adjustment of reported profit so it reflects the ongoing economics of the business rather than the owner's arrangements, one-off events and tax planning. Goodwill is the value of the business above its identifiable net assets. Goodwill that depends on a particular person, their reputation, patients and referrers is personal goodwill; goodwill attached to the business itself, its location, systems, contracts and staff, is transferable or commercial goodwill. Only the transferable part can be sold, and in a clinical practice that split is often the central question.

Why is maintainable earnings not last year's profit?

Reported profit answers an accounting and tax question: what did this entity earn, under these arrangements, in this period. Maintainable earnings answers a different one: what would a purchaser running the business sensibly, paying market rates and taking no unusual benefits, expect it to keep earning.

They diverge for three reasons: the accounts reflect the owner's own arrangements, a single year contains events that will not repeat, and healthcare revenue turns on government programs whose payment cycles and pricing change independently of the practice.

Timing alone can move a reported result. Practice Incentives Program payments are made quarterly, in February, May, August and November, and several are calculated from a measure of practice size, the Standardised Whole Patient Equivalent, which Services Australia works out over a rolling twelve month reference period starting sixteen months before each payment quarter. A financial year can therefore contain payments relating largely to earlier activity, and a change in practice size reaches the bank account long after it happened.

The valuation date fixes what can be counted, and the ATO expects a valuation to rest on the most relevant and reliable information known, or reasonably foreseeable, at that date. Purpose usually sets the date: a valuation for a tax event is made as at the date of the event, while the date in a family law matter should be confirmed with the lawyers, because it is not necessarily the date of separation. See valuing a healthcare business for tax purposes and valuing a healthcare business for family law.

Which earnings base: EBITDA, EBIT or net profit?

Maintainable earnings has to be stated on a base, because the same business produces very different numbers on each.

EBITDA is earnings before interest, tax, depreciation and amortisation. It strips out financing and the accounting treatment of assets, which makes businesses easier to compare, but it ignores the cost of replacing equipment. That is a real limitation in capital intensive healthcare businesses: a dental practice with chairs, imaging and a sterilisation suite, a radiology or diagnostic business, or a pharmacy with an automated dispensing robot must all spend money EBITDA does not show, so capital expenditure has to be dealt with in the multiple or as a separate deduction.

EBIT is earnings before interest and tax. Depreciation stays in, which for many practices is a rough proxy for the equipment replacement the business needs, so EBIT can be the fairer base for an equipment-heavy practice. Where the accounts amortise purchased goodwill from an earlier acquisition, that charge is normally removed as an accounting entry rather than a cost of operating.

Net profit after tax reflects the current owner's gearing and tax position, neither of which transfers to a purchaser in the same form, so it is rarely the base for valuing a business as a whole. It can be relevant when valuing shares by reference to dividends or earnings attributable to shareholders, where the entity's own tax and capital structure is part of the question.

Whichever base is chosen, the multiple must come from evidence on the same base, and the report should say which. See EBITDA multiples. One convention needs care in clinical businesses: earnings stated before the owner practitioner's own remuneration. That is legitimate only if earnings and multiple sit on that basis and the cost of replacing the owner's clinical work is explicit. Mixing conventions is a common way an earnings figure is overstated.

What normalisation adjustments apply to a healthcare business?

Normalisation is where most of the work sits. Each adjustment should rest on a document rather than an assertion, and apply consistently to every year used.

Owner and practitioner remuneration at market

Many owners take drawings, dividends or trust distributions rather than a wage, and family members may be paid above or below the value of the work they do. Each is replaced with the market cost of that work, including superannuation and on-costs.

In a clinical business the adjustment is two-sided. If the owner is a general practitioner working six sessions a week, a purchaser must engage a replacement, usually on the practice's standard service agreement, and that replacement retains a share of the billings they generate. Where patients are loyal to the owner personally, some of those earnings may not survive a sale at all. See practitioner dependence.

Superannuation and employment on-costs

The superannuation guarantee rate has moved. The Australian Taxation Office publishes the general rate as 12.00 per cent from 1 July 2025, after 11.50 per cent in 2024 to 2025 and 11.00 per cent in 2023 to 2024, so the same roster cost less in the earlier years of a five year analysis and the normalised figure must reflect the current cost. Under Payday Super the ATO states that employers must pay superannuation guarantee each payday, and that from 1 July 2026 the minimum is calculated on qualifying earnings rather than the ordinary time earnings basis applying to earlier quarters, which changes when the money leaves the business and so the working capital it needs.

Related-party rent and premises

Rent paid to an owner's family trust or self managed superannuation fund is often set for reasons other than the property market, so it is normalised to a market rent for comparable premises, in either direction. Where the practice entity owns the premises, the outgoings come out, a market rent goes in, and the property is valued separately. Lease security is a value driver in its own right, particularly for pharmacies and medical centres whose patient base is tied to a location. See premises and lease terms.

Non-recurring items

Redundancy payments, the legal costs of a partnership dispute, a practice management software migration, an insurance recovery, the write-off of an old fitout and gains or losses on equipment sales are removed, as is income unrelated to operating the practice.

Pandemic-era support and activity

Support payments are removed. JobKeeper finished on 28 March 2021, so JobKeeper income in a 2020 or 2021 result is not maintainable, and other temporary government support in those years is treated the same way.

Activity is the subtler half. Temporary Medicare telehealth items commenced on 13 March 2020 and extended until 31 December 2021, and many practices also ran respiratory clinics, vaccination programs or testing services. Some earned unusually well, others closed for weeks, and a few show both in one year. Telehealth activity did not stop when the temporary items ended, so the question is which part of it proved durable.

Timing of incentives and program payments

Program changes also create part years. The Bulk Billing Practice Incentive Program has operated since 1 November 2025 and, according to Services Australia, gives eligible participating practices an additional 12.5 per cent incentive payment on every dollar of MBS benefit earned from eligible services, assessed quarterly and distributed equally between the practice and the provider. Participation is voluntary and depends on MyMedicare registration and on bulk billing all eligible services, so the incentive is only as durable as the billing model behind it, and only half of it reaches the practice entity. A practice that joined part way through a year shows only part of the effect, and because practices record these amounts inconsistently on a cash or accrual basis, the accounts are reconciled to the payment statements. See government funding exposure.

Personal and discretionary expenses

Private motor vehicle costs, personal travel, home expenses, private insurance premiums, subscriptions and wages for a family member who does not work in the business are added back where they are genuinely not required to operate the practice. The discipline is to add back only what a purchaser would not have to spend. Workers compensation premiums, leave provisions, and the registration, indemnity and professional development costs of practitioners who see patients are operating costs, and treating them as owner perks inflates earnings.

Compliance exposure not yet in the accounts

Where a practice engages practitioners under service or facility arrangements, the accounts may contain no payroll tax on those payments. State revenue offices have set out how the relevant contract provisions apply, including Revenue NSW ruling PTA 041, effective from 1 July 2018 and current at the time of writing, which covers medical centre businesses and expressly includes dental clinics, physiotherapy practices and radiology centres that contract with practitioners to give patients access to their services. A purchaser prices an exposure likely to crystallise on their watch, so the valuation should say whether it sits in earnings, in the risk assessment or nowhere. How the rules apply in your state should be confirmed with your accountant or lawyer. See payroll tax and contractors.

How are years chosen and weighted?

A valuation typically looks at three to five completed financial years plus the current year to date. How much weight each period carries is a judgement about which periods represent the future, not a formula.

A simple average suits a stable practice with consistent activity, a settled practitioner group and no change in funding; a weighted average leaning towards recent periods suits a practice with a clear trend. The most recent normalised year, or an annualised run rate, suits a practice that has changed size: a clinic that added a fourth physiotherapist in March has a different earning capacity from the one its full year accounts show.

The reason for a trend matters as much as its direction. Earnings rising on added capacity, extended hours or a second site are more likely to continue than earnings rising on a fee increase whose effect on patient numbers is untested. Earnings falling because a practitioner left may recover on replacement; earnings falling because a competing clinic opened nearby may not.

Some periods are excluded outright: pandemic-affected years, the year a practice relocated or a dispute consumed the principals' time, and any year whose records make normalisation guesswork.

When does the past stop being a guide?

Maintainable earnings looks forward, so material changes known at the valuation date belong in the figure even though the accounts do not show them yet.

A departed practitioner is the clearest case. Where a specialist with a substantial personal following resigned shortly before the valuation date, earnings are reduced by their contribution net of the cost of engaging them, with allowance for recruitment and the likely vacancy, and the question becomes whether their patients stay. See transferable goodwill.

A new revenue source is the mirror image, held to a higher standard of evidence: a signed contract, a completed registration or a funding approval already in place can be reflected where the workforce, premises and systems exist to deliver it and the pricing is known. Proposals and budgets generally cannot, because a purchaser does not pay for intention.

Regulatory and funding change can reset a whole sector's history. The Support at Home program replaced the Home Care Packages Program and the Short-Term Restorative Care Programme on 1 November 2025, so a home care provider's earlier margins were earned under a different funding structure, and the department has published changes to personal care contributions taking effect on 1 October 2026. Similar resets follow wherever price limits, item descriptors or eligibility rules change. See aged care valuations and NDIS business valuations.

Where the next several years are expected to differ from one another, capitalising a single figure is the wrong tool. A discounted cash flow analysis, which projects cash flows year by year and discounts them to a present value, suits a ramp-up, a known contract expiry or a staged expansion.

From maintainable earnings to a value

Once maintainable earnings is settled and a multiple selected, capitalisation produces the value of the business operations, the enterprise value, on the base used. Surplus assets, such as excess cash or a property in the same entity, are added and interest bearing debt deducted to reach equity value, what the owners' interests are worth. Working capital, the debtors, stock and creditors needed to trade, is stated explicitly: capitalising maintainable earnings assumes a normal level comes with the business, so a practice carrying materially more or less is adjusted, and a pharmacy's stock is usually handled separately in the contract rather than assumed to sit inside goodwill.

The adjustments above assume a purchaser who can set remuneration, renegotiate the related-party lease and change the cost structure, so maintainable earnings is normally assessed on a control basis. Someone buying a minority parcel of shares can compel none of that, so a valuation of a small holding may not adopt every adjustment and may be adjusted for the absence of control, described as a minority discount or, from the other direction, a control premium. See share and equity valuations.

Value is also not price. A valuation assesses what the business is worth on stated assumptions at a stated date; a price reflects the particular buyer and seller, the contract terms, restraints, transition arrangements and how the consideration is paid. See valuation versus appraisal.

The result is checked against the net assets of the business, its assets less its liabilities. Where maintainable earnings supports little above the value of plant, fitout and stock, the practice carries limited transferable goodwill, and saying so plainly is more useful to an owner than a flattering number.

HPNA sets out the normalisation schedule, the years used, the weighting applied and the reasoning for each adjustment, so an owner, accountant or lawyer can test every step. See what information is needed and how it works, or request a valuation to discuss purpose and scope.