Volume 4 Issue 14, July 5, 2017
Specialty physicians typically have high-demand skills, possess great passion for their specialty, work ungodly hours, seek out the newest therapeutic developments, and do what they can to advance the standing of their profession in the minds of the public.
Specialty physicians also face unique challenges when preparing for a life transition, such as retirement. For many, their practice is a part of who they are, making it difficult to give up control. Many wonder: What will life be like without my professional identity?
Similarly, a specialty practice's long-time patients may feel loyalty to and genuine affection for the specialist. As such, the practice may lose value when the specialist leaves – a fact that will figure into the price the practice will secure when it's sold.
Because of this, the most successful specialist transitions usually begin two or more years in advance of the actual transition. This allows the specialist time to grapple with the emotions connected with leaving as well as the opportunity to build practice value that's not dependent upon the specialist's personality and physical presence.
Here are 9 ways specialists can position their practices to get the highest selling price possible, while simultaneously preparing themselves for the emotional transition:
1. Diversify your sources of revenue
Investors feel more comfortable that a practice won't lose value in a transition if it has complementary programs for which patients or insurance companies will pay, such as concierge services, imaging, therapy, or product lines, so the practice is no longer dependent on the specialty physician as the sole source of revenue. Also, practices that are cash-oriented tend to foster a tighter connection ("Let's work this out…") between the patient and the specialist, which can be a liability when the specialist leaves.
2. Maintain an active marketing effort
Many specialty practices depend heavily upon word-of-mouth and referrals, both of which are usually dependent upon the specialist, rather than the practice. ("You should go see Dr. Bob!") Investors prefer to see marketing efforts that aren't personality-dependent and can be independently measured.
3. Create a plan for scaling up
Many specialty practices stop growing—and indeed cannot grow—once the specialist’s time is fully booked. In addition, such practices are often set up physically to service the specialist, rather than a larger team. While you may not expect to expand your practice before selling it, investors will value your practice more highly if you've laid the groundwork to scale up.
4. Get your receivables and revenue cycle in order
Rule of thumb: if 25% or more of your Accounts Receivable are more than 90 days old, you're losing money. To overcome this tendency to "let things slide", common among specialty practices, consider Implementing point of service collections and monitoring your Accounts Receivable performance monthly. Trust us: investors really want to see efficiency in this area.
5. Clean up your financials
While Accounts Receivable is the biggest hot button for investors, one of the most common complaints from potential investors is that specialty practices generate haphazard financial reports. Work with an accountant or bookkeeper to bring these reports up to a high standard. This will add to your perceived value in the eyes of potential investors.
6. Accumulate a cash reserve
Cash reserves protect your practice against delays in reimbursements and provide capital that you might want to use for expanding your practice or acquiring another practice. Even if you have no intention of expanding (because you're actually looking to transition out), a cash reserve tells investors that you're not desperate and could, if you wanted, do quite nicely without their help.
7. Create a succession strategy
Investors want to know what happens when you leave. Before offering your practice for sale you should have in place (and already be implementing) a succession strategy, such as bringing in one or more junior specialists who can maintain quality of service, or partnering with other specialists who might provide complementary or even competitive services.
8. Update your information technology
Successful specialists tend to quickly adopt the latest clinical technology; they want to be on the proverbial "cutting edge" when serving their patients. Sadly, though, specialists will often neglect the basic computer technology that allows the financial part of their practice to run smoothly. Investors will raise their collective eyebrows if your front office is running on an old version of Windows and using spreadsheets to track payments.
9. Extract yourself from the limelight
Successful specialty practices often have a “rock star” brand associated with one or more physicians. This is especially true when the specialist's name is also the name of the practice. Before you begin to think about making the transition, consider rebranding your practice so patients feel loyalty to the name of the practice, rather than just you.
Needless to say, executing these strategies can be challenging when you're simultaneously dealing with the emotions surrounding the upcoming transition and keeping your practice running smoothly. Fortunately, there's no reason why you should want - or need - to add all of this effort to your workload.
Outside experts and advisors can help you execute these steps to make your practice more attractive to investors, allowing you to focus for the time being on what you do best—helping your patients.
Note: This issue features a guest co-author, Karen Zupko, Founder of KZA, an international healthcare consulting firm based in Chicago. KZA has consulted with more than 1,000 specialty practices on issues ranging from coding and billing to revenue cycle management and marketing. She can be reached directly at email@example.com.
David is a seasoned commercial and corporate finance professional with over 30 years’ experience. As part of the VERTESS team, he provides clients with valuation, financial analysis, and consulting support. He has completed over 150 business valuations. Most of the valuation work he does at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.
David holds certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, and Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors. Moreover, the topic of his doctoral dissertation was business valuation.
He earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. He is a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.
Before joining VERTESS, David spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During my commercial finance career, he analyzed the financial condition of thousands of companies and had successfully placed over $2 billion in corporate debt.