A GOOD EXIT STRATEGY NEEDS A GOOD ENTRANCE STRATEGY
Legendary New York Yankees coach Casey Stengel once said, “If you don’t know where you’re going, you’re liable to wind up someplace else.”
Now that we know money is neither your primary motivation nor the ultimate goal, let’s admit that it is absolutely essential that you prosper. You will not be able to achieve your dream, fund your expansion, or achieve the financial independence you desire, if you mess up the financial part of your practice.
Profitability is essential, both in the short and long term. Without adequate take home income, without profitability and building the practice value you will not be able to provide for your family or your future, let alone have a solid base and resources for practice expansion. It is worthwhile to consider where you want to ultimately be and the end result.
When it’s time to exit your practice, buyers take into account a variety of reliable and tangible numbers related to money such as profitability, equipment, assets, etc. An accountant uses these factors to help you determine a book value: what your golden egg is worth.
Goodwill value of a clinic is a major factor that diminishes or multiplies the hard numbers, the “negotiable” part. Examples of such factors deal with the health of the business itself and how you have nurtured the goose that lays the golden egg.
Goodwill value can take the hard numbers and magnify their value. That’s extremely important, because you want to maximize your company’s value.
Here is the BIG BONUS: The exact same elements that influence goodwill value are those that make your practice a dream or a nightmare to operate. We can refer to these as the keys to practice success, and it directly relates to the goal you’ve just identified.
We’ve described what these points are, but let’s look at financial independence as a goal for a minute, and how each of these three POC factors will impact practice value and your financial freedom…
To better understand organization and practice management as it affects practice stability and value, take a step back and assume the viewpoint of the buyer. Answer the following questions:
Would you buy if a clinic were managed directly by the current owner who put in long hours and controlled all aspects of the marketing, management and finances? Might you look more favorably on buying if there were a stable executive structure in control that would remain when you, the new buyer, assumed ownership?
A buyer confronted with a departing practice owner who was the only one with referral relationships or who carried the practice on his or her back generally falls to only one workable solution if he doesn’t want to fall into the same trap: keep the old owner hostage for many months (or years!). It means added expense to the new owner while his managers gradually assume control and wean away the referral sources. Additionally, the new owner will have to confront spending the kind of hours in the practice that you have been doing.
To make matters worse, payment to the past owner is not usually up front, but doled out over a longer period while you work as an employee in your own former practice. Considering this, a potential buyer may look elsewhere or offer you far less than you want.
To provide value for your practice, you need to build a powerful stable management and clinical team. Your basic building blocks are trained and capable executives who hold their positions in marketing, clinical and administrative functions.
Look at your Organizational and Management objectives to accomplish in one year and then in three years, specifically:
- How many full-time clinicians will you have?
- When do you intend to have stable executives managing your Marketing, Clinical and Administrative affairs?
- When will you achieve full Power of Choice with regard to your ability to do exactly and only what you really want in your practice? How will you operate your practice? Will you be hands-on, operate remotely or move onto your next game?
Excerpted from “The Keys to Private Practice Success”.