Each of us knows someone who has sold their practice to a larger network, hospital, or orthopod. Who wouldn’t like the idea of a big payday and the chance to relax a bit? But if you’ve been thinking about selling your practice, read on to avoid making a HUGE mistake.
The value of a practice is based on a multiple of profit. To keep things simple, let’s focus on pretax profit. It’s common to see buyers pay 3 to 5 times pretax profit. For example, if pretax profit is $20,000 per year, 3 x $20,000 results in a $60,000 practice valuation.
Have you spoken with many practice owners who sold? Here are some typical comments:
- “I wasn’t paid much. I got enough to pay for a good vacation, but at least I know I have a job”
- “Once the deal was done, everything changed. The new owner started totally micromanaging me”
- “I still work here, but it clearly isn’t my practice anymore. Painful”
Before selling your practice it’s vital to understand what the buyer wants out of the deal. Their goal is not to help your patients. Their end-game is to make a lot of money.
In Scenario 1, the practice treats 974 patients per month and earns 1.5% pretax profit. The practice owner makes a total of $95,432 annually. “Not bad” the practice owner thinks. “But it seems like working 60 hour weeks for 22 years should be worth more. It’s hard to accept that my practice, my life’s work, is worth less than $50 grand.”
After selling, the practice owner is discouraged as the new owner berates them into increasing efficiencies, measuring everything, and stretching like they’d never stretched before. Welcome to reality, the new owner is focused on increasing profits. And as they succeed, they get to keep the 3 to 5 times multiple (even though you’ll do the work).
A Better Plan
Rather than sell out for a pittance and then make your new boss wealthy – Consider our approach.
Systems4PT is unique. Our integrated technology quantifies profit, by therapist, by month, including drill-down data for every metric that impacts earnings. We’ll give you performance benchmarks for practices your size and we provide no-charge business coaching to help you achieve those goals.
Simply put, follow our protocols and the practice owner will enjoy a six-figure salary and 10-15% pretax profit. This information is provided to you via a one-page report that is integrated with your EMR/billing system so you don’t waste time creating reports or combing through dozens of pages searching for what to do.
Let’s discuss Scenario 2. This is our sample practice, after the owner has used Systems4PT and applied our protocols
The same practice as shown in Scenario 1, with the same patient volume, now yields 12% pretax profit.
The owner’s annual income is nearly a quarter million dollars. And instead of having the option to sell the practice for less than $50 grand, the owner now has the ability to sell her life’s work for over $600,000. She also has the wonderful option to stay put, do things her way, and enjoy her success.
In Scenario 1, the practice owner who sold focused on the basics of profitability at the insistence of the new owner. And even though the former practice owner did the work, the new owner kept all the money.
In Scenario 2, the practice owner used Systems4PT’s integrated tools and measured profit by therapist. With our coaching, she then addressed the issues that improved each therapists’ earnings.
Take a look for yourself. Speak with some of our practice owners who have enjoyed this success.
We don’t charge for these services. Our goal is to work with the strongest, most successful private practices in outpatient rehab.