6 Things To Consider Before Selling Your Practice

by Donny Orengia, Business Development Manager
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6 Things To Consider Before Selling Your Physical Therapy Practice

 

We understand the challenges that come along with day-to-day life of owing and operating an outpatient physical therapy clinic. Which is exactly why we've formulated a plan a successful plan to help guide our partners that we acquire into a successful model that will benefit patients and owners.

 

Blue Sky Therapy owns and operates 6 outpatient physical therapy clinics in multiple states and we evaluate potential acquisition of clinics on a weekly basis. In this blog we want to share with several questions business owners should be asking when getting acquired is becoming an option.

 

1. Understand Valuation Methodology

 

There are quite a few ways to come to a valuation of a business and certain industries generally rely on different methods. In our industry we often see valuations coming as a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amoritization). While a multiple of EBITDA valuation tends to be the more popular methodology, this Investopedia article discusses the differences between this method and how we go about producing a valuation.

 

The upside about the Cash Flow model is that you can still back into what multiple of EBITDA it would be to compare valuations. Once you have a better understanding of these methodologies, it will get you more prepared for tip number two and allow you to do some internal self-valuation before going to market.  You can start to get an idea of your practice’s value by determining your Free Cash Flow (FCF) or EBITDA and doing a bit of research into what a practice of your revenue garners in terms of multiple.

 

 

2. Articulate Your Financials

 

In the early stages of discussions with a potential buyer, there will be an information exchange or due diligence request. The long and short of it is: the buyer needs certain information (tax returns, balance sheets, Trailing 12 Month (TTM) data, and maybe more) to determine the value of your practice.

 

Our approach is to make the initial discussions as minimally invasive as possible, but to arm ourselves with sufficient enough information to determine the most accurate offer. One aspect to have some level of understanding around would be the differences in accrual vs cash basis accounting practices.

 

This short video will help a bit. The majority of practices we’ve encountered operate on a cash basis, which is fine, but having a level of understanding of the intrinsic differences of these methodologies will only help you in your journey as the potential buyer(s) may operate under accrual principles.

 

 

3. Know Your Buyers

 

There are quite a few potential buyers in the market and some very real contrasting differences to consider. These key differentiators are size, firm type (private equity, privately held, franchise, etc.), and future goals.

 

For some practice owners, selling 51 to 99% of the stock of your business while maintaining an operational role could be the solution. This could mean a payout down the road based on the stock options offered. For others closer to a true exit strategy, it may be time to sell 100% of the practice and finish out on a predetermined transition period.

 

Determining what is important to you when working with prospective buyers is key to make sure you get the deal you want. The way in which a new owner operates could make a big impact on your decision depending on the level of involvement you seek to maintain, if at all. Some operators purchase a practice with the intention of making it entirely their own by implementing their best practices and protocols, effectively just taking over the client base.  Others may want to uphold the unique esteem of the practice and manage it with little change to the cultural aspect of the business. Understanding buyer expectations around not only this but all aspects of the “post deal world” will be immensely beneficial to understand as you prepare to sell the practice.

 

 

4. Consider Your Team

 

By this we are referencing your selling team.  Are you doing this through a long time CPA and/or legal counsel friend or are you considering a brokerage firm to assist you in the divestiture of your practice? As with all decisions in this process, there are pros and cons to ponder like time and cost.

 

There is more cost associated with a brokerage firm, but their job is to carry the burden of the deal through and through.  If you have trusted legal counsel or accounting friends that can help offset some of that cost, that is great, but will likely cause you to carry more of the weight of the sale process (gathering and submitting due diligence requests, legal documents, etc.).

 

We have seen successful transitions through both scenarios – the key factor to consider is the time allotment you have as an owner to dedicate to this endeavor. If you are not clinically active 30-40 hours a week on top of administrative duties, this could be the time to save some money and dig in to the sales process with a hands-on approach.

 

 

5. Ask Questions

 

Transparency between buyer and future owner is extremely important – you need to have all of the information necessary to make a wise decision for your business. The entire process in our industry trends around 6-8 months from initial, “Yes, this looks good. Let’s move forward.” to the final handshake and farewell (or employment agreement).

 

Ask as many questions up front so you don’t get to the 11th hour and come to find there is a major kink in the hose. Communication at all aspects of the deal cycle will allow you to make an educated decision on what is best for you, all things considered.

 

 

6. Determine Personal Expectations

 

Like we suggested in tip 3... determine your personal expectations regarding purchase price, roles, post-close expectations of both parties, and stances on other negotiable components of the deal. Having answers to the above parts of the deal process will put you in the best position headed into discussion with potential buyers. Being open and honest with yourself as well as prospective acquirers is a best practice that cannot be emphasized enough.  Both parties being in alignment creates a deal stage culture that will allow for the most successful transition.

 

We are always ready and willing to have conversations with owners like you to answer questions you may have about the selling process. We also offer a free, no strings attached practice valuation HERE

 

 

ABOUT BLUE SKY THERAPY

 

Blue Sky Therapy delivers innovative physical, occupational, and speech therapy services in skilled nursing homes, assisted living facilities, home health care, and outpatient therapy clinics. Additionally we've recently launched our In Home care ant Teletherapy solution. You can now start and/or continue on with your therapy services in the comfort and safety of your own home via computer.

 

 

 

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