Tips to Consider when Selling a Medical Practice
These tips can make a medical practice more attractive and help secure the highest asking price.
The healthcare industry in the United States is massive and growing at an exponential rate. As our population continues to rise, so does the need for access to adequate healthcare. Patients currently have a plethora of options for seeking healthcare ranging from state-of-the-art hospitals to private family practices to specialists, all with varying services and offerings. In an industry so large and so personalized, it is not surprising that our government has a hand in the decision making process and due to recent and impending policy changes, the industry is constantly evolving.
Healthcare is expected to grow by 4.9% in 2015 and create almost 5 million jobs within the next 7 years. While the industry as a whole is thriving, the Affordable Care Act has opened the door to even more government involvement. The Affordable Care act has drastically changed the way smaller medical practices operate and has actually made it more difficult for them to stay competitive against major hospitals and networks. If you own a medical practice and have been considering an exit strategy, this might be the best time for you to begin planning. Right now, practices have a lower value than we have seen in the past and fewer physicians are interested in the burden of owning a practice. Because of these trends, the best case scenario when selling a medical practice is to sell to a local hospital and merge with the existing network in place. Merging with a hospital is not easy and to do so, your medical practice needs to be highly successful; this means having a good cash flow and recurring patients, among other factors. To get an idea of what goes into valuing a medical practice, please see the formulas below. Remember that only a business broker can tell you the true value of your business, and this serves merely as a guide.
- 45-85% of annual gross sales including inventory
- 75-2.75x SDE including inventory
- 5-4x EBITDA
Now that you understand what goes into calculating the worth of a medical practice, owners can begin taking steps to increase the value and separate their practice from the rest. We have helped several owners of medical practices in succession planning and we hope that these 4 tips can help you prepare for the sale of your own practice.
Digital marketing has taken precedence in the marketing world over the past 4 years and several industries are still struggling to use it to their advantage, including the medical field. While we see well-thought out posts and visually appealing graphics for companies like United Healthcare and WebMD, smaller practices still are not utilizing this valuable tool. The first step is developing a web presence is to see where you are now – Google yourself. If you can’t find anything, the good news that you can only improve from here. Start by creating social profiles on sites like Facebook and Twitter and try and dedicate some times to posting atleast twice a week. More people are using social sites to learn about businesses and they help bump up your ranking in search engine results. Social sites are also a good avenue to explore referral incentive programs. Next, create a page on review sites such as Yelp, HealthGrades, or RateMD and ask clients to rate their experience with you. Finally, if you are financially able, contract an SEO company to optimize your website and ultimately, put you in front the eye of more potential clients.
Build a Team
Another way to increase the value of your medical practice is to build up your team. There are two route an owner can take in developing their team of physicians; recruiting young talent to replace our retiring baby boomers and recruiting specialists to fill a need. Like many industries, the retirement of baby boomers is beginning to effect recruitment in the medical field. 10,000 baby boomers turn 65 every day, triggering a massive wave of retirement and those jobs will need to be filled. Recruiting a team of young professionals will separate your practice from others because younger professionals mean longer tenure, starting pay, and enthusiasm. As the owner of a medical practice, eventually, you will need to think about finding replacements for your retiring physicians so that your practice can continue to be successful. Second, you may want to consider hiring specialists to help alleviate some of the work in overcrowded departments. Start by doing an analysis of your patients and see what services are being used the most. If you’re finding that a certain type of client is dominating your charts, consider hiring another physician that is solely dedicated to those services. This will help bring in additional clients leading to increased traffic and cash flow.
Increase Cash Flow
As the owner of a medical practice, you know that every dollar counts. Finding ways to increase your cash flow can be challenging, especially with insurance restrictions and Medicare/Medicaid patients. Medical practices have a rare advantage to reinvent themselves as more than a medical practices by offering other services related to health. For example, clinics can offer classes as an additional revenue stream. Classes can focus on anything from aerobics to grief therapy, ranging from kids to adults. Another way to increase revenues to offer after-hours service or house calls. Doctor’s rates increase when being summoned after hours or to a patient’s home and the medical practice should be able to recoup some of that through increased billing rates. By adding just a couple extra services and using marketing to spread the word, your practice could increase the cash flow and tap into a new market.
Keep Profits & Revenues Up
To look good in the eyes of a buyer or major hospital, your revenues need to be consistent and your profits need to be sound. Consistent revenue is critical when selling a medical practice and to do this, you need to closely manage your accounts receivables. Aging AR loses value as time progresses, so it is important to try and collect on patients with net 30 terms. Training your staff on how to collect is vital, and even asking questions like “how will you be paying today?” or “how much can you pay today?” can help reduce your AR. Profitability is also important and average industry profit margins are around 11%. As smaller practice, you may not be at that mark, but you should be close. If you aren’t then you are probably due for an increase.
If you have been thinking about how to increase the value of your medical practice business prior to selling, we hope these tips have helped you. The medical industry is slated for extreme growth over the next few years, and more practices are merger with major hospitals as a way of staying profitable and complying with government regulations. If you are thinking about selling your business, the first step is finding out how much it is worth and we can tell you with a no-cost, no-obligation valuation. Even if you are 6 months to a year away from selling, taking these steps now can help you increase the sales price for when the time is right for you.