Practice “Sellability”

Ten Keys to Selling Your Practice at a Premium

By Tom Bowen

Every week, I get the call. It’s like a recorded message… “I’ve had several people look at my practice, but nobody’s bought it yet.” Or, stated as the million-dollar question, “Is anyone really buying practices?”

Many colleagues wrongly believe today’s young doctors don’t want ownership. They just want to make a good income and not deal with the headaches.

Well, there’s good news:We help young doctors buy practices every week, and the passion to own is alive and well. But for you to capitalize on that opportunity with the new generation, you have to think beyond a good gross and long-standing patient base. Today’s buyer wants to own something that fits her idea of a great practice to own, and she’ll pay a premium when she finds it.

WHAT SELLS/WHAT DOESN’T

We call it the Tale of Two Practices. Two practices gross the same, are in similar communities, and have similar ownership structures and histories. They both value at $450,000. One sells immediately while the other sits on the market. Why did one sell just like that, and the other, a seemingly similar opportunity, did not?

More often than not, it’s not a dispute about the value of the practice. If a reputable practice appraiser appraised it, the value is likely right-on. That’s not to say it wouldn’t sell faster and easier if you took way less than the appraised value, but why, after all that work, would you?

If I really want your practice, I’ll pay what it’s worth. But for you to get a premium, I have to want it the way it is NOW, not the way it will be after I replace all the equipment, for example, or put in an EHR system.

Can you imagine being a young doctor who just bought a practice, and hear something like this from the seller:

■ “Congratulations on buying the practice, doctor. Now fire the problem employee since I didn’t want to deal with it.”

■ “Congratulations, doctor. Now go out and buy all new equipment…”

OK, you’d never say such things. But by not taking steps that should have been undertaken in the final five years of ownership, you almost are saying them.

MAGIC QUESTION

So what can you do to get a buyer (better yet, several buyers) excited about buying a practice for what you’re asking or more? After helping thousands of colleagues do it, Williams Group has nailed down 10 keys.

As you ponder each one, ask yourself this magic question: How far to turnkey? That is, how far is your practice right now from a buyer being able to take it over and not miss a beat? The further it is from exactly that, the less sellable it is.

TEAM SPIRIT

Evolve operations so that rather than managing your practice, you resource your team. In other words, your team manages the practice. Remember, the less the business relies on you, the more sellable your practice!

1 MAKE SURE THE LOCATION IS CONDUCIVE TO FUTURE GROWTH

Remember, location isn’t as big a deal when you’ve owned the practice for 30 years. Many patients are loyal to you, and they’ll find their way even to a weak location. But if you’re out of the picture, why would a patient beat a path to the location that isn’t convenient?

While you still have time, move the practice to a more desirable location. Benefit by owning it there for a few years, then again by selling it for a premium.

2 MAKE PHYSICAL IMPROVEMENTS NOW

There are so many practices for sale right now as baby boomers retire that young doctors have a lot of choices. Perhaps you can leave some of the really big changes to the new owner. But updating frame boards, opening up the floor plan for patient flow, expanding the dispensary area, updating carpet and paint—you need to get those done now. Enjoy these improvements for a few years, and watch what happens to frame and lens sales after dispensary improvements! Then benefit again by selling the practice for a premium.

3 ADD STATE-OF-THE-ART EQUIPMENT

Provide better care, wow your patients more, enjoy the new toys, take the expense/depreciation while you can, grow the asset base, and pay it all off with high utilization through great patient care and good marketing. Benefit as owner now and as seller later.

4 BEEF UP THE FRAME INVENTORY

Regardless of patients’ purchasing tendencies (high-end, low-end, etc.), the young doctor wants some great frames on the boards. Sit down with your frame reps, find out what younger practice owners want, and get those frames in your dispensary…now.

5 GET THE EHR THING DONE

Remember, if you have the EHR conversation behind you with all its initial stresses, staff frustrations, and lost production, the buyer has it behind her as well. That means you’re in a much better position to keep patients happy, the team on an even keel, and see this thing through than the new doctor is who doesn’t know what’s going on yet.

Which practice would you buy—the one that has a great EHR system already in place or the one that hasn’t? Do it now while you can get the Meaningful Use bucks, and benefit now and later.

6 EVOLVE YOUR ORGANIZATIONAL MANAGEMENT MODEL

Read that one again: it’s the single most important factor in sellability. And, it’s very simple, really. The more the operation and its results depend on you, the less sellable your practice is. The readiness question you can ask yourself is this:Am I confident my practice is well managed and things are humming along smoothly when I’m gone for two weeks?

If not, you have your answer. And that means it’s time to make the patient care team the management cabinet. You’re the CEO, not the COO. Endow every member of the patient care team with a serious role on the management team, help them become excited about that role (rather than seeing it as more work). Have them report weekly to and interact with the team at large on their initiatives. Ask any of our clients—this one changes everything! More joy, less stress, a shorter to-do list as owner, and a better premium as seller.

7 HAVE TEAM REPORTS ON PRODUCTION WEEKLY

If I were doing weekly production reviews, the first thing I’d do with a serious buyer candidate is invite her to attend one. When she sees staff managing production results, and me, the owner/doctor, not saying a lot, the thought would be: “It looks like the staff are running this place, so they’re staying here after doctor leaves.” Exactly! More fun while you own it, and better sellability when you sell it.

8 EVOLVE THE PATIENT BASE

Owners often complain about some ways their patient base is evolving—fewer private patients (yet some practices are nothing but private pay), more cost consciousness, etc. With the right marketing plan, however, you can control who your patient is, and, therefore, what your patient base is. Evolve your patient base to more of what you want and less of what you don’t, and you’ll get a premium when you sell.

9 IMPROVE THE MARKETING PLAN

First, look at your brand (see sidebar above). Then address three must-have components of the Internet portion of the practice: information (a killer website); connection (a great social media program); and consumption (a strong e-commerce/buying set-up).

And finally, consider education, internal and external marketing, and creative strategy. Define what you want existing and targeted potential patients to know, and internally and externally teach them exactly those things. The more they value the relationship with the practice, the more sellable it is.

10 DO ALL APPRAISAL METHODS

If a practice value is questioned by a buyer, it’s typically because she prefers a different appraisal method. Have your practice appraised by an expert practice appraiser and have that person employ all four prevailing methods—the asset, discounted cash flow, market valuation, and price-earnings multiple valuations. That way, nothing has been missed and all perspectives are addressed.

Remember the key question: How far from turnkey is your operation for the new owner? Sellability will depend completely on that. EB

Tom Bowen is executive vice president,Williams Group, which specializes in eyecare practice consulting and is based in Lincoln, NE.