Volume 6 Issue 13, July 2, 2019
For most owners of a healthcare business, their company or practice is their most valuable asset. Yet, most of these owners do not know the value of their company nor the key value drivers that attract buyers.
Furthermore, few owners of a healthcare business ever seek to understand the value of their company unless it is a necessity, such as settling a shareholder/partner dispute, settling a divorce, securing bank financing, or selling the business. The problem with this way of thinking is that these owners miss the opportunity — through gaining a stronger understanding of the value of their company —to strategically increase value over time and to in integrating that value into their personal financial planning.
Here are four of the key reasons why obtaining an appraisal (i.e., valuation) of their healthcare company is important for your clients to do:
For example, we recently performed an appraisal of a behavioral healthcare company where the majority owner was in his mid-60s and wished to sell his company. The owner was surprised to learn that the value of the company was about half the value he expected. If we valued the company 3-5 years earlier, he would have had an independent, market-based expectation of the company’s future value and could have taken steps to increase value before selling.
For example, a durable medical equipment client of ours with several owners had one owner planning to exit the company in a few years. This partial owner presumed the remaining owners would buy his ownership interest for a price he had contrived. After we completed an independent appraisal, the owners were surprised by our value determination — especially the retiring partner whose predetermined price significantly exceeded fair market value. The partial owner advised us that due to the appraisal results, he would need to delay his retirement. In addition, he would need to work harder than he planned for the next few years to increase company value.
For example, we recently valued a sole practitioner dental practice. We discovered several characteristics of the practice that negatively impacted value:
Needless to say, the dentist was disappointed by the appraisal results. However, he learned what needed to be done to increase the value of his practice. The key takeaway: The sooner the appraisal, the more opportunity there is to increase value over time.
For example, soon after completing an appraisal of a client's OB/GYN practice, the owners were approached by a local hospital interested in acquiring the practice. The owners were well-prepared to evaluate and negotiate the hospital’s offer.
Other reasons owners of healthcare companies should consider getting an appraisal include:
Obtaining a market-based appraisal of a company is a very cost-effective way to understand value and plan for the future in today’s dynamic healthcare marketplace. Not only will owners know about their company’s value, but they will also have a keener sense of what is required to build value over time for their employees and families.
As a skilled Wealth Manager or Investment Advisor, having an appraisal of your client’s company allows for a holistic approach to managing their financial affairs. By knowing the value of their company, you can better create a road map to reaching your client’s financial goals.
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.