If you are a practice owner, you should know that, in most cases, getting in is easier than getting out. That is, exiting a practice is often more difficult than building it. Exiting is a process, not an event, that should be planned far in advance of the day you turn the keys over to someone else.
The factors that make your practice salable include a good management team, steady profits, patient/client loyalty, a solid reputation, predictable transferability and much more.
With these factors in mind, let’s look closely at ten vital actions that you should take NOW, so that when the time arrives, you will have developed a truly marketable and valuable practice.
1. MAINTAIN STRONG REFERRAL SOURCES
Professional relationships add tremendous value to a practice. Do professionals in your community routinely refer their patients/clients to you? If so, are those relationships so strong that you can bridge them over to a new owner?
For example, if you have several professionals who reliably refer a significant number of patients/clients to you, you would want to ensure that those referral sources will continue to send patients/clients to the new owner. Otherwise, your prospective buyer might want to factor in a sale price reduction that takes into account the loss of the projected income represented by those referral sources.
Most professionals will continue to refer to the practice after your departure, as long as they are assured that the clients/patients they refer will receive the same good care that you currently provide them. It is also important for your referral sources to know that the new owner will reciprocate with referrals to them (if that is the type of relationship you currently have).
Maintaining your referral relationships and then transferring them to a new owner during transition will help your patients/clients too. By doing so, you maintain both continuity and quality of care for them, and that fosters tremendous goodwill.
2. MAINTAIN FACILITIES AND EQUIPMENT
Generally speaking, people are inclined to pay more for something if it looks attractive. The same principle applies when buying a practice. If your facilities are pleasing to the eye, you might be able to command a higher price. While a clean carpet is only just that, it might demonstrate to the buyer that every aspect of your facility and practice is probably well maintained.
Well-maintained, state-of-the-art equipment also speaks well of you. It says that you have a growing practice that is keeping in step with technology.
3. INCREASE YOUR GROSS SALES
The best indicator of the value of a practice is its cash flow. Your successor will want assurance that he is acquiring a reliable income stream. Now is the time to concentrate on reactivation of old patients/clients, increasing your marketing budget to attract new patients/clients, setting goals for the staff and moving the practice toward maximum productivity.
4. IMPROVE YOUR BOOKKEEPING RECORDS
Part of selling a practice requires that you develop and present an accurate picture of what you have accomplished. In order to command the best possible price, you must be able to prove that the practice is highly profitable.
Plan to have at least five years’ worth of strong financials as the buyer wants predictability. Have an accountant prepare “compiled statements.” That lends credibility. The practice buyer will want well-maintained, accurate accounting records to help with future planning. Additionally, thorough records can even help you explain a slump period.
5. DECREASE OVERHEAD EXPENSES
Analyze your payroll, department by department, function by function, employee by employee. If personnel are underutilized, eliminate a job position and reassign its duties to other employees.
Improve your bookkeeping procedures so that you can readily and accurately track your expenses and potentially cut them. Eliminate nonessential monthly expenses, taking care not to hinder expansion activities. Keep a close eye on your discretionary expenditures, such as advertising, travel, new equipment, seminars, utilities, telephone, etc. By decreasing the overhead of the practice, you will consequently improve cash flow and thus be likely to sell your practice for a higher price. You gain a tremendous amount of control by just knowing where your money is coming from and where it is going.
6. TRAIN YOUR STAFF AND ESTABLISH GOOD COMMUNICATION AMONG THEM
A trained and stable staff can pay off in many ways. A well-informed staff operates more efficiently and will raise your practice to the highest-possible level of efficiency. More of your time could then be spent with patients/clients instead of doing tasks that your staff should be doing. If routine duties are done in a checklist fashion, less time is required to rethink tasks and the likelihood of error will diminish. Available time with patients will increase, resulting in better quality care. A well-trained staff assures better patient/client control and greater morale. Also, when you are not in the office, it gives you the peace of mind of knowing you can leave the facility in good hands.
Good communication among staff and routine training reduces stress for everyone. The lower the staff’s stress level, the lower the owner’s stress level, which enables everyone to work better. Consequently, the patients/clients feel more relaxed. The salable aspect of this is that the buyer would prefer working with a well-trained, committed staff.
7. MANAGE YOUR RECEIVABLES
This factor is essential for you to control. Ideally, you should collect all of your fees within 30 days of billing. Realistically, no outstanding bill should be more than 60 days old. And if receivables are 180 days old, your practice will be valued much lower than you might expect it to be. Past-due fees cut into the new owner’s cash flow. It also indicates that you have been doing a bad job of communicating with patients/clients. Thus, with overdue accounts, the new owner would have to spend extra time correcting bad payment patterns among patients/clients.
There is always the risk that “slow payers” will become “no payers.” The older the bill, the odds that you will never collect increase dramatically. And that can affect your gross sales and earnings.
8. IMPLEMENT A VIABLE MARKETING PROGRAM
If you do not have a marketing program, develop one. If you do have one, is it producing results and are those results measurable?
An active marketing program tells the buyer that you are not just selling yourself (the owner), but rather that you are marketing and delivering your practice’s services. This enhances predictability, which can translate into increased practice worth. A marketing program that is regularly producing results shows that it is not just your personality that keeps both new and established patients/clients coming in. A marketing program that works indicates that the practice is more important than any one person, including the owner. This instills the buyer with confidence that new patients/clients will continue to arrive long after you’ve left.
9. DEVELOP A TRANSITION PLAN
Very few practice owners supply the buying owner with a transition plan. If you were to do that, you will be far ahead of most owners who want to sell their practices. You should develop a plan because it not only can increase the worth of your practice, it can make life easier for all involved. Put the transition plan in writing, then review and outline all the systems and how they work. The marketing plan, referral sources, management policies and accounting systems should all be recorded.
Part of an effective, valuable transition plan can involve a good loan package. It shows that you have put together a transition plan that is easily understood by a third party. It indicates that you have a good relationship with the bank. That can enhance the value of your practice, since the banker knows that the systems will remain in place and generate cash flow to repay any loans.
10. SEEK PROFESSIONAL ADVICE
You probably already have a lawyer and an accountant. That’s a good start. But you also need specialists in the fields of preparing a practice for sale. Seek out advisors who have a working knowledge of the complexities of exit strategy planning. Utilize objective, competent practice management professionals to review your practice’s systems, procedures and all other factors involved in a sale. Advisors are most valuable when called in at least 5 years prior to putting your practice up for sale. It gives you time to make necessary improvements. A competent and impartial third party can pull you up out of the weeds of day-to-day operations and help you to see the bigger picture. They can tell you what you need to do to shore up any weaknesses within your practice.
They will have you deal with a professional broker to handle the sales negotiations to ensure they go smoothly. Selling will likely be a very emotional process for you — you’re parting with something that you built and have nurtured for many years. It is also an emotionally charged time for the buyer too, since they could be filled with fear of the unknown. Having a team of professionals working in concert with you will virtually guarantee the successful sale of your practice when the time comes.
The actions we’ve highlighted here are just a mere fraction of what you need to consider when planning to sell your practice. An exit strategy should be built around your personal objectives (what you DO know) as you move into the next phase of your life. Don’t limit your exit strategy planning with what you DON’T know!
If you feel you would benefit from a one on one consultation on any practice management questions or concerns, please fill out the form on this page and we would be more than willing to assist you.