The right time to think about maximizing the value of your medical practice is long before you consider selling the clinical business. Put yourself in an optimal position by affecting change, in advance, that will help you achieve the most favorable outcome.
Although there are many factors that influence the value of a clinical practice, the six that follow are an excellent starting point and warrant specific attention.
Simply stated, earn more. Purchase prices are, in essence, the frontloading of future earnings stream. As such, it is typical that higher levels of quality, pre-compensation profitability will result in a higher price. Manage your practice for profitability.
- Growth Trajectory
The more positive an earnings trend line is, the more likely a buyer is to pay a premium on that cash flow stream. Do what’s necessary to create a positive trajectory, make a case for its sustainability, and enjoy a higher return. Make the decision to grow profitably.
- Depth and Diversification
Buyers like predictability. A contributing factor to predictable future performance is depth in contribution. Ensure a broad base of high-producing professional contributors and secure the chain of business succession to de-risk an acquirer’s buying decision. Diversify your productivity.
Attractive markets drive attractive pricing. A practice with good demographics (population trends, age distribution, payor mix / agreements) will be likely viewed as capable of earning more over time. Limited by geography today? Think creatively about how you might improve your market potential before seeking a suitor.
Financial buyers, especially, place higher value on practices they believe they might be able to consolidate future acquisitions into. As such, legitimate systems (IT / EMR / finance), appropriate back-office infrastructure, and competent administrative staffing may be viewed favorably. Purposely position yourself as a legitimate, sustainable “business” in addition to being a competent clinical practice.
If you are giving up profitable revenue to unrelated entities, you won’t be paid for it in a transaction. Capture and control available revenue sources when practically possible. This may include, but isn’t necessarily limited to, such things as lab and diagnostics, pharma, and ASC capacity.
If there is any possibility you might wish to monetize your investment in your clinical business within the next five years, taking actions now to impact some, or all, of the areas above should be a current priority. If you are unsure of specifically what actions to take, ask for help. Our team at MMG Healthcare Solutions would welcome the opportunity to provide you with a complimentary evaluation of where potential valuation opportunity may exist.
Jerry L. Kelsheimer is President of Medic Management Group and MMG Healthcare Solutions. His background includes extensive work in areas including leadership development, strategic planning, process improvement, and capital markets / financial management. MMG is a national provider of advisory and consulting competencies, transaction support services, and back office administrative support to independent and system owned physician practice groups.