There are several reasons why someone may choose to sell their private practice business, including:
- Retirement: If a practitioner is nearing retirement age or looking to transition into a new phase of their life, they may choose to sell their practice to someone else.
- Financial reasons: Selling a private practice can provide a significant financial windfall for the owner, allowing them to pay off debts, invest in other opportunities, or simply enjoy the fruits of their labor.
- Burnout: Running a private practice can be very demanding, both mentally and physically. Some practitioners may find themselves feeling burnt out or overwhelmed and decide to sell their practice to focus on their own well-being.
- Change of career or focus: Sometimes a practitioner may choose to pursue a different career path or focus on a different area of practice, making it necessary to sell their current practice.
- Market conditions: The healthcare industry is constantly changing, and market conditions may make it advantageous to sell a private practice at a particular time.
Ultimately, the decision to sell a private practice business is a highly personal one that depends on a variety of factors unique to each individual practitioner.
Is your Private Practice Sellable?
This isn’t just a question for those of you reading thinking of retiring in the next five years, this is something for all of you private-practice owners out there. Knowing what makes a Private Practice sellable is a very helpful concept that you shouldn’t relegate to the end of your career when you are ready to retire. Instead, you should apply this knowledge as you build and grow your practice. Knowing whether you intend to try and sell your practice for a profit, or simply sell your client list and shut your doors can really impact your long-term strategy, goals and planning. Let’s take a look at the top things you should consider when thinking about your ability to sell your therapy practice:
First, you need to understand what IS transferable value in relation to your business:
For a privately-held business, transferrable value is the value of your business without you, the owner, in the business. Your practice, as you own and run it today, may be generating a very nice profit, but could another person step into your role and continue to generate that profit or are all clients recurring clients because of you? Do you have other professionals in your practice, so if you stepped out, clients would stay (and may not even notice you’re gone…)? The latter shows your business has transferrable value.
Transferable Value impacts what you can sell your practice for:
Your practice needs to have transferable value to make it saleable. Without it, you can certainly get paid on some aspects (e.g. paid for your client list) but it won’t be the same value that you could get from selling your practice as a whole.
With that said, having Transferrable Value isn’t better or worse than not having Transferable Value. But knowing if you have Transferable Value is essential to make your long-term business planning and exit planning realistic.
For example, a single practitioner office is easier to run, manage, and easier to close down when you are ready to retire. But would someone pay you double or triple what you make in a year, and still risk many of your clients walking away when you are no longer at the office?
In contrast: A multi-therapist office offering several different modalities is more complex to grow, maintain and manage as the owner, but because there is a team staying on after your exit the business can continue to generate cash flow for a new owner, and therefore, a new owner will pay for that ongoing cash flow.
One of these scenarios isn’t ‘better’ than the other. But understanding and planning for the profit you can make from the sale of your business is prudent for a happy, stress-free retirement.
Levers that Practice Owners should focus on to increase the selling price:
If the idea of building Transferrable Value is intriguing — there are some areas of focus that will help you, as a practice owner, increase your selling price:
- Work ON the business, not IN the business – Delegate tasks, empower your team, capture processes and procedures of your office, focus on what you need to put in place so you can take an undisturbed vacation, and your practice continues to seamlessly run. I advocate for testing it out—fall on that sword and go on vacation as a test!
- Nurture and Grow next-level management – I don’t mean just on the clinical side. Empower and incentivize your office manager, admins and support staff too. A new owner that knows there’s knowledge staying in the business drives a stronger value.
- CLEAN financials – You’re already a step ahead if you are working with Wellness Fi! Your financials need to be clean, up-to-date and easy to understand.
- Focus on customer retention rates (recurring revenue) and track how you acquire new clients. Track your metrics and work to keep them strong. Smart buyers will look at these metrics.
- Insurance Payer Mix – Cash is king—less reliance on government-sponsored healthcare is better…simply because those rates can limit the practice’s profitability.
- Planning FAR ahead so you have ample time to transition your clients. Many owners are surprised to find that you may need to stay 6 months to 1 year (or longer!) after the sale to ensure clients are successfully handed over. If that doesn’t fit into your timeline for transition, the value of your practice will diminish, so plan ahead!
Levers that decrease the Sale Price of a Practice (or makes the Practice not Sellable)
Again – remember this is necessarily not a bad thing. It’s only disappointing when a business owner is planning on receiving a large payout on their practice…and there actually isn’t much to sell.
You won’t be surprised to find that what brings down a selling price is the opposite of what’s listed above:
- You ARE the business –it can’t run without you.
- Staff aren’t planning to stay long term — perhaps your office manager wants to retire when you retire.
- Financials are messy, unorganized, out of date or hard to understand
- Low customer retention rates or high cost of patient acquisition. Either can be a costly expense to your bottom line.
- Waiting too long and are crunched for time to sell –this decreases your negotiating power and instead creates a fire sale.
The Typical Selling Price for a Therapy Private Practice
This is the question everyone wants answered–and the true answer is…it depends. At my business brokerage firm, we aim to educate a Seller on the ‘Fair Market Value’ of their business. ‘Fair Market Value’ is the value that an objective, informed buyer and a willing seller will agree to. One misconception by sellers is that they will get paid for the ‘blue sky’ potential of their business. If there are so many growth avenues, but you have not pursued any–a buyer will not pay for those. They may pursue them once they own the business…but won’t pay you for the work they will set out to do.
I know those of you reading want to see a number, or a calculation to understand the value of your practice. Often the Value of a Therapy Private practice will depend on size of the practice, and the specialties of the practice. On one end, if you are generating a profit around what a therapist would receive working a job– there isn’t too much value there. On the other end, if your EBITDA (your earnings from the business, BEFORE you deduct interest, tax, depreciation and amortization) is $1M+; your multiples of EBITDA someone will pay for your practice increases significantly.
When should you get started planning for the Sale or Exit of your Practice?
Now! Knowing what you want the exit from your practice to look like, is something that should be incorporated into your goal planning today. Building Transferrable value doesn’t happen overnight. Understanding what your business could be worth at different levels of cash flow, offerings, number of therapists in your office should impact your planning, your lease and building investments, just to name a few. Understanding the value of your practice, what value levers will grow or shrink that value is a solid investment you can make in your practice today.
Written by Kara Gibson Brzytwa
Kara Gibson Brzytwa is the owner and Managing Principal of Exit Equity LLC. Exit Equity is a business advisory and brokerage firm that has supported business owners with the preparation and sale of their small to mid-size business. The Exit Equity team has the tenure and knowledge of a venerable business brokerage firm but the youth and energy that brings the best marketing, management and responsiveness to the sale of a business.