Competition among buyers has, in some cases, led to higher valuations.
2. Consistent numbers can help you obtain the best offer possible
If you’re considering a sale, it’s helpful to understand your financial position from the viewpoint of a buyer. Sophisticated buyers may want to look at revenue and profitability trends for the past year, and three years of historical financials (preferably using the accrual-based method of accounting). Potential buyers may also seek to analyze key performance indicators such as per-clinician productivity and care quality.
Understanding the picture these numbers present before entering negotiations can help you ascertain what the practice’s fair market value may be and prepare you to address any areas of concern with potential buyers. In some cases, you may use these analyses to negotiate a more favorable purchase price or lessen the amount of time spent in negotiations.
However, many smaller practices do not keep the types of financial records that enable a buyer to understand this information quickly and accurately. If you’re considering selling your practice, you may benefit from working with a transaction advisory services professional who understands the healthcare space and its unique accounting issues. A sell-side advisor can help you assess your records and prepare financial and other reports that are consistent for purposes of creating transparency within a potential merger or acquisition. Being prepared and understanding your accrual-basis financial performance (including any potential pro-forma adjustments) increases value when preparing for or negotiating a transaction.
Even if you ultimately decide not to sell your healthcare practice, having a clearer understanding of the financial health and key performance indicators of your business can help you identify areas for performance improvement, such as cost savings initiatives or additional revenue opportunities.
3. Some economic factors are putting downward pressure on deal values
Inflation has increased the costs of everything from labor to supplies; buyers have taken note and, in some cases, are making offers with lower multiples to account for these increased expenses. Many buyers are particularly concerned with future wage inflation – how much they’ll need to increase compensation to keep needed staff.
Sellers that enter into potential deals with their own projections for future expenses and revenues – which take into account reasonable inflation-related cost increases – may be better-prepared to understand their practice’s fair market value, and better-positioned to mitigate buyer concerns. Similarly, if you’ve already given large raises to retain staff, or negotiated long-term deals to keep rent and other expenses down, it is useful to properly document that for potential buyers.