When we recommend to our clients to make your practice “investment grade”, we mean more than what most people assume. Most people go right to the idea of maximizing the sale value upon exit. That’s true for us, but even more importantly, a practice that rises to the level of investment grade brings numerous benefits to the owners today.
Even if you are years away from retiring or unsure if a sale is your end goal, implementing the right strategies now can help your bottom line today and give you flexibility in your exit, whenever that might be and however it might look. In this article, we’ll cover three main categories of value that you can focus on to make your practice sale-ready.
Improving Value to You
The first value of your medical or dental practice that you should improve is the value to you. Building reliable, recurring revenue not only unlocks more profitability, but it also gives you opportunities to expand your practice and secure a higher sale price. Let’s say you are able to generate an extra $5,000 in income each month. How could you use those funds? Could you invest in new equipment, reward your team, or open another location? Improving recurring revenue might look like developing a patient retention strategy to increase their lifetime value, focusing on collections, or adding new services.
Increasing revenue is one component of optimizing the financial performance of your practice. Finding the right strategies to maintain effective cash flow, improve profitability, and lower overhead are other strategies that provide value to you now and in the event of a future sale, helping foster owner independence. Just like a well-oiled machine, you aren’t needed in the day-to-day management when you have the right policies and procedures in place that promote financial effectiveness.
Increasing Value to Associate Providers
One of the main value components in your practice is talent. The right team changes the dynamic of your practice, leading to efficiency in operations and profitability in your financials. The value of your medical or dental practice relies on creating a supportive and collaborative culture. Team members should be able to openly communicate any potential problems, suggest solutions, and feel heard. In fact, employees who feel valued experience higher levels of job satisfaction and have more motivation, according to a study published by BMC Health.
Providing mentorship and clinical autonomy are two more factors that can increase your value to associate providers. Offer a clear path to partnership or advancement to give your team benchmarks to work toward. These values need to be instilled throughout your work environment. Everyone should see the value in working with your practice, from the front desk staff to providers looking to join a new practice.
Maximizing Value to Buyers
Maximizing value to buyers is also important to achieve your desired sale price. First, demonstrate sustainable operations. By increasing the value in your financials and team, you can show low turnover, high profitability, and growing revenue. These factors are key components that go into the ultimate sale price. A practice that is constantly growing and retaining key talent is much more appealing than one plagued with turnover and stagnant financial results.
Moreover, your financial statements should be transparent. You should be able to pull any document request that a buyer has, from an income statement two years ago to a detailed ledger of a specific account category. This often requires consistent and regular bookkeeping procedures years in advance. If you don’t have the time to keep up with your bookkeeping in-house, consider outsourcing.
The growth potential of your practice should also be apparent to maximize value to buyers. Year-over-year, your margins should be increasing. For example, revenue should be growing at a steady pace, while overhead costs remain stable or in line with revenue growth. This goes back to improving your financial value by focusing on cash flow, new revenue streams, and collections. Overall, buyers want to see clean, stable, and improving financial and operational results.
Summary
Improving the value of your medical or dental practice is important regardless of whether you are planning on selling next year or ten years down the road. Many of the value-add strategies, like revenue growth, take years to cultivate. If you have questions about making your practice investment grade, please contact us.