If you’re looking to sell all or a portion of your practice, determining an accurate value is key for selling a practice. You may have checked an online practice value calculator which pulls in simple data such as earnings, member compensation, growth, risk, and discount rate and churned out a number that feels right, yet it misses the mark with regard to market position, operational and process efficiency, assets and liabilities, and future opportunity. A simple calculation like this could either dramatically inflate or deflate the value of a practice. Let’s dig into a few areas of consideration calculators often miss, which a practice valuation expert will capture.
Proper Documentation Contributes To Practice Value
When you think of documentation for a practice valuation, does your mind immediately go to P&L statement? While this is important, but in addition to high-level financials, understanding the ins-and-outs of a business’ operation is key. Standard operating procedures (SOPs) clearly documenting processes, critical steps, KPIs, and who the key players/roles are in the practice. If you haven’t already created them, develop SOPs for every department in your business. In addition to SOPs, produce a marketing plan including KPIs and projected production. Providing these documents articulates to the broker how the practice operates and sets expectations for the earning potential for the practice.
Record Clear and Complete Financial Information
Practice owners often manage their practice finances in a manner to reduce taxable income, however this can artificially deflate the value of the practice, as it does not accurately demonstrate the earning potential of the practice. In light of this, you may need to adjust the historical financial records to more accurately represent the practice’s earning, profitability, and asset utilization.
Who Are The Patients?
Supply a patient list and patients metrics such as retention rate, acquisition cost, customer lifetime value (LTV), and any exclusive contracts you have with customers/dealers/vendors. If patient recall is low and acquisition cost is high, consider it your mission to improve patient recalls in the months (or years) as you prepare for sale. Don’t consider the recall program the next owner’s nightmare, tackle it now and develop an SOP for post treatment patient engagement.
Partner With The Right Practice Broker
Selling a practice can be a complex process; having a seasoned practice broker guide you through the process can both expedite and maximize the deal. Owners must remember, though, even the best M&A firm cannot waive a wand or shoot a sale price off the cuff. A practice owner must remain engaged in running the practice and providing as much detail as possible to the broker for the most accurate practice valuation and deal possible.