Getting More For Your Practice

If you are looking to sell your practice at any time during the next 5 years, there are some things you should do to ensure it is in an optimal position to sell in a more expedited timeline and for a premium. All of the following advice will help increase your practice valuation, make it more appealing to a buyer, and make it easier to finance for a bank. Consequently, it will also make it more enjoyable and profitable for you for the remainder of your tenure as the practice owner.

The first thing you need to do is to make sure you’re involved in the bookkeeping. You should review and know your Profit and Loss Statement (P&L or Schedule C from your tax returns) monthly and know what your overhead is. There will very likely be areas you can address to bring down your overhead and make sure your practice is as profitable as it can be without sacrificing the office environment for staff and patients. Your goal should be for overhead to be 60% or lower. If you can’t get it that low, get as close as you can. Note: Avoid over-inflating expenses to lower the practice income or create a net loss to cut down on tax liability. It can create issues when a lender is trying to get approval on a buyer’s loan.

Overhead Control

Some suggested areas to focus on are: Supplies, Credit Card Fees/Merchant Services, Advertising, Rent, and anything else that seems alarming to you. The suggested areas below are easier to control and/or keep in line with industry norms.

  1. The easiest way to control Supplies is to work exclusively with one supply company to capture any discounts or rewards they offer. Find out your industry’s standards for supplies and make that your budget. You should make your rep (and the person who does the ordering for your office) aware of your budget for supplies so they can work with you to keep it under control. If things don’t get better, switch supply companies to one that will work to meet your goals as if they are a business partner.
  2. Credit Card Fees are another easy one to check and remedy. Have a couple of merchant services companies do an audit on your current merchant service fees to see where they would compare and could save you on those expenses. Just like you should check your cell phone and internet fees, you should check your merchant service fees.
  3. For advertising, you should be getting back more from the marketing efforts than you’re putting in. Track where your new patients are coming from and how much return you’re getting on your investment. This applies to all forms of marketing (i.e., Yellow Pages, mailers, radio ads, and digital marketing). I’ve seen offices that spend more on marketing than they get back in increases in production/collections. If it’s not working as promised or expected, you need to either adjust the strategy or find a different marketing company that will give you results.
  4. The last item on this list is rent. This item will be discussed in depth in our next article, but the quick version is: If you own the building, you need to pay yourself rent at a market rate. Overpaying yourself will have the same negative effects that underpaying will. If you don’t own your real estate, monitor your lease. When your lease is 12 months away from expiration, contact a real estate professional to research the market and help negotiate a beneficial lease renewal that allows a buyer the terms and options they’ll need for their lender’s requirements and to keep you from being liable for the space beyond your retirement timeframe.

Why Do All This Work?

Remember, a buyer is not going to make the same amount you are as a salary or income from the practice. They will have loan payments to make for financing the purchase of your practice plus some additional working capital. They will likely also have student loan debts to pay and other personal debts from starting their independent lives/families (i.e. mortgage, car loans, etc). Additionally, if you accept insurances, they will also probably be taking less for reimbursements than you currently are (sometimes 25-30% less). The more profitable a practice is, the more appealing it will be to buyers and the easier it will be to finance for a lender. At the end of the day, your hard work with this will allow the next practice owner to hit the ground running and begin their path of ownership in the best possible situation to carry your legacy forward and honor your time, energy, and sacrifices!

Posted in Transitions