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I have been a corporate executive and consultant for more than two decades. In that time, I have been heavily involved in the sale and acquisition of several companies and, in particular, medical and dental practices. Today, I want to share with you the five most important lessons I have learned when acquiring medical and dental practices. This is in addition to an article I previously wrote, Discovering 10 Strategies Now To Sell Your Business For Maximum Value. That article provides the top 10 things that you must be thinking about as an owner of any business when selling your company to either a small or a large buyer. But today, in addition to those 10 steps, I want to speak specifically to health care practice owners about the five most important lessons I have learned to sell your practice for maximum value.
I was Vice President of Business Development at two large healthcare companies: US HealthWorks and Western Dental and acquired more than 50 practices during that time. I also looked at hundreds more that we did not acquire. Far too often, I saw a very common storyline. Practice owners had not taken all the right steps to sell their practice for maximum value.
This is the most important economic event of their career. You have been steadily building a practice, making a good living, but now is the time to capitalize on all that you have built, and money gets left on the table. At the time you are ready to sell, there are some steps you can take and certainly things you can prepare for in advance that will really drive more value.
So I encourage you to look at the Top 10 Strategies To Sell Your Business For Maximum Value I have put together. But in addition, let’s take other factors into consideration today because we can really do some things that sets you apart from other practices. This gives a buyer a lot of confidence and confirms that there is an opportunity and upside in your business. It will make them want to engage with you and, ultimately, pay the price that you want for your practice.
The first thing I want to talk about is to understand your payor mix and the opportunities for growth. If I asked 100 doctors, “Tell me your practice mix, tell me your payor mix,” 99 or 100 out of 100 would be able to say, “Well, I take 80% PPO or 10% HMO roughly,” or “I see almost all PPO patients.” Whatever the answer might be, every practice owner knows that a buyer is going to want to know that answer.
But there is more to that question and more to the answer you should be providing. Dig deeper and provide more insight. Where are the opportunities? Where are the challenges? Does the practice limit any payers? That would be an opportunity.
For example, I acquired a dental practice that limited their practice to only two Medicaid patients a day. Well, they were in a market where Medicaid patients were knocking on their door. That is a huge opportunity for a buyer who is comfortable taking on that patient population. By properly articulating that, it helps a buyer see the upside and the value that is not already being captured in your practice. It may certainly justify why a buyer should pay a higher price for the practice.
Are there any payer challenges? For example, do you not have a given contract because the payor would not credential your practice? While you don’t want to highlight negatives, you need to be prepared to answer those questions. Think through these challenges and have an answer – but be honest. Even if the answer is not what you would like to tell a buyer, the truth will come out in a transaction process. So being honest upfront is critical to giving confidence to the buyer. It demonstrates that you are a credible seller.
Help the buyer understand the untapped value. Where are there payor opportunities? Whatever you can do to help a buyer confidently understand the upside potential with your payor mix and opportunities for growth will drive value.
Data matters. Hopefully, every practice owner can tell you their daily patient volume and revenue per visit. All buyers want to know that information and whatever you can provide is valuable. The more insight you can provide is valuable as long as it is presented in an organized, digestible fashion.
Key things about billing amounts or collections by CBT code are helpful as well. What are your top revenue-generators? In the dental space, are you doing a lot of crown and bridge work? Are you doing orthodontics? Where is there opportunity? What is currently driving the patient volume? What’s driving the patient revenue?
That again helps the buyer understand what is presently there and the upside. If you are providing that data upfront, as opposed to being reactive to a buyer request, you are setting yourself apart from a large number of other practices out there that are selling. Most sellers are being reactive to the buyer, providing the bare minimum upfront.
Be the seller that is giving the right information upfront. The buyers will absolutely recognize they are dealing with a qualified, competent seller who knows their practice. That drives value. If I can just use one word with that is prepare.
Staying with your practice for six to 12 months after sale is my number three. The majority of the time I acquired practices, the doctor-owners would be looking to exit the practice as quickly as possible after they received their money. Sometimes, as a buyer, we were looking to entice the seller to stay on-board for a period of time.
In either case, recognize the value here. Clearly, the most valuable asset in many practices is the doctor who has built the practice. The patients respect and want to continue seeing as their same doctor. You have every right to retire. You have every right to move on. But if you leave, what does that do for the patient base? What does that do for the confidence of the buyer?
As opposed to having the buyer try to entice you to stay, be upfront that you would be willing to stay on-board to see an orderly transition. That gives a buyer a lot of comfort. You understand the importance of a smooth transition that helps the patients stay on-board, gives the patients confidence that you are still going to be there. Help patients to understand that it is good for the practice to have a new partner involved and that they will be left in good hands. Patients will have been introduced to the new team and feel comfortable that this is the place where they should keep coming to be treated as a patient. That is going to drive value for the buyer post-close and, therefore, that gives comfort. Plus, you will earn additional income after the transaction closes.
In addition, if you are an owner of a multi-doctor practice or a small group or a large group, a sophisticated buyer is going to be very concerned or focused on the other providers. Will the providers stay on-board and how will they keep happy?
In that regard, you are going to need to be prepared to speak with the providers shortly before your sell your practice and potentially give the buyers an opportunity to speak to the critical providers as well. A buyer may want to give either a written contract or obligation to stay on-board, or at least have a dialog to know that those other providers are likely going to stay on-board post-close.
Because if you sell your practice, and the next day there is not anyone there to treat patients, obviously, there is going to be a tremendous amount of problem and value lost. So be prepared as an owner and as a manager of other providers to stay on-board post-transaction and to have your staff and key providers do the same.
This can be a dicey topic. If you have unresolved issues or open items, it’s certainly not something that you are looking to highlight for a buyer. That being said, a buyer is going to understand this or learn about it in due diligence, so you need to be prepared and be upfront in the best way possible. Position yourself from a point of understanding the situation and addressing it, as opposed to being reactive to a buyer.
If you have had audits from an insurance payers of any type in the last three years prior to close of the transaction, prepare the relevant information. Let the buyer know what the nature of the audit and the results. If there were any findings that required correction on your part, what was the plan of correction, and how was it resolved? Give the buyer confidence that while there have been some specific items of concern or interest, they have been addressed.
If there is an open matter, the same should apply. Tell the buyer, “Here is where we stand in the process. Here is all the documentation. We feel the outcome will be X or Y.” Let the buyer know before you sell your practice.
If you do not disclose this information, it is going to come out at some point, and post-transaction, if the buyer is hit with any compliance or legal issues, there will likely be recourse to you as a seller which can be much more expensive than having dealt with it upfront.
If you have disclosed it and the buyer is comfortable, you won’t have any material concerns post-closing the transaction.
The same applies to employee litigation or patient litigation, in addition to any insurance payor audits. Be proactive, be prepared, and be ready to address these matters.
For the majority of transactions I have worked on, a seller did not have every single box checked of all the credentialing materials that were needed for a buyer. While you as a practice and owner already have contracts in place, when the transactions closes, particularly if a business is transferred to a new tax ID or a new medical group, new contracts have to be set up with insurance payers.
That is going to require re-credentialing of doctors. If all that information is not available or prepared in advance of closing, there is going to be a gap or challenges of getting some of those contracts on-boarded. Buyers understand this and it is a big concern because of the huge financial risk for them. So they want to shorten the timeframe of any transition of payor contracts or having any doctor properly credentialed.
Having everything up-to-date if important for your own compliance and credentialing needs. But you will also need to have these materials ready for a buyer to create additional value. I can assure you, that you are separating yourself from other sellers because it is uncommon that these materials are well-prepared. You will behanding the buyer something that they desperately need prior to closing. Again, what you do today can drive a lot of value tomorrow. Being prepared is going to set you up for getting maximum value on the deal.
We have talked about five key things if you are going to sell your practice. They are all highly relevant and very particular to medical and dental practices. Reviewing the top 10 strategies that I have previously outlined for any business, coupled with these five strategies, you are going to drive more value, give a buyer more confidence, be better prepared, and most importantly for you as a seller, get maximum value in a transaction.
Every practice is unique and has different challenges and different opportunities, so you certainly would have something specific and unique to your practice that is worth discussing further. Having a qualified adviser as somebody who can guide you to some items specific to your practice is going to be very critical.
I welcome the opportunity to talk to any owner or any in his management team about any unique aspects of their practice. Inflection 360 can help you address these matters and prepare to attract the right buyer and receive maximum value in a transaction.
P.S. If you would like to learn more about how Inflection 360 can help your business, schedule a call here. Schedule Call
P.S.S. Click here if you would like to read my previous article, Discover 10 Strategies Now To Sell Your Business For Maximum Value.
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