By George DaSilva
One of the few things that is more exciting than building a successful healthcare business is the prospect of its profitable sale. A well-managed and smartly executed exit rewards business owners financially for all the blood, sweat and tears invested over the years. On the other hand, poor planning and inadequate preparation can quickly derail a sale.
Whether you’re planning to sell in the near future — or haven’t given the idea much thought — it’s wise to remain prepared for the possibility.
With that in mind, let’s review some smart preparation tips for healthcare business owners.
Make Sure Your Financial Documentation Is in Order
Any serious buyer will insist on comprehensive and verifiable financial data during the course of a sale. Sellers should be prepared to furnish bank deposits, invoices, monthly statements and other documents that will help a buyer arrive at an appropriate offer. Because of this, business owners should invest enough resources to ensure that in-house accounting practices are effective and up to date.
Have a Firm Grasp of Your Valuation
It’s unfortunate how many business owners lack the market context and informational grounding to make an informed valuation of their own firm. When arriving at a figure, it’s important to go far beyond basic book value (assets minus liabilities). By researching competitors, market share, demographics, transaction comparables and other variables, business owners can maintain a firm grasp on the fair value of their enterprise. This is important, because valuation experts hired by prospective buyers rarely know the intricacies of a business or market the way a seller does.
Know What Buyers Want
Anticipating what buyers are looking for helps secure the best possible price for a healthcare business. One basic example: Buyers are generally far more interested in profitability rather than revenue numbers when reviewing purchase opportunities. Additionally, recent performance (over the last 12-18 months) counts for more than how the business performed in the more distant past. Sellers who can provide buyers with hard, compelling and relevant data — rather than anecdotes or a sales pitch — will earn greater confidence.
Review Current Contracts
Maintaining continuity is one of the core challenges that comes with integrating a new business. That’s why it’s critical to review all existing contracts with customers, suppliers and other third parties before initiating a sale. This helps potential buyers identify any useful relationships they may wish to preserve. Additionally, it’s a good idea to review employment contracts for non-compete provisions and other relevant attributes in the event of a sale.
Check Your Leases
Buyers will be interested in the current condition of your leases. This applies to both equipment and real estate. A favorable lease that can be extended may make a business that much more attractive. On the other hand, business owners seeking an exit in the near term should avoid entangling long-term leases, as they are often expensive to terminate early.
Anticipate and Identify Potential Hurdles
Having a sale derailed halfway through due to an unpleasant surprise is an outcome that can devastate both sides. That’s why it’s imperative to identify any trouble areas during pre-sale due diligence. Buyers will appreciate these disclosures upfront, and it saves sellers from having to accept a lower price (or, worst-case scenario, a dead deal) if something negative pops up after papers have been signed.
Healthcare business owners will benefit from always being prepared for the possibility of a sale. By following the advice outlined above, owners can ensure they navigate the process as smoothly — and profitably — as possible when the time comes.
George DaSilva brings to Fleetridge Pacific over 20 years of marketing experience. He directs all of Fleetridge’s marketing, advertising and branding activities. Founded in 2006 as a mergers & acquisitions advisory firm, Fleetridge specializes in the sale of a wide array of companies in the healthcare services arena.