Are you confident with your retirement plan? Are you ready for a divorce, an illness, a new hire or a merger? Healthcare units across the country are prepared for these various scenarios, in part because they’ve already had a business valuation completed.
When a valuation comes into play
A valuation of your practice can be a critical tool for a variety of reasons. In simple terms, the valuation is when outside experts analyze the details of your business – your income, your expenses, your assets, your worth in the market – and determine an overall value.
This financial assessment can be beneficial in a number of scenarios. Here are four that are common to healthcare practices:
- A sale, merger or acquisition
These are the most common circumstances that require a business valuation. But too many practice owners begin transaction discussions without fully understanding the asset they are negotiating over. Understanding your entity’s worth will ensure you don’t leave any money on the table. Whether you are discussing a sale, merger or acquisition, your knowledge about the value of your entity puts you in the power position.
- An ownership exit
Another likely scenario for your practice is a change in ownership. If one practice owner is leaving, either for a different job or for retirement, the remaining owners may need to organize a buy-out. Without a regular valuation, the figures could be vastly different than the practice’s actual worth. The process can’t be completed without a valuation, so it shouldn’t be started that way either.
- A family dispute
Believe it or not, but navigating a problem with your family may be easier if you’ve had a recent business valuation. Take a divorce, for example. You may have joint assets tied up in your practice. Your soon-to-be ex-partner may target your practice during divorce proceedings. You’ll need to have an accurate value of your business in order to protect your finances moving forward.
- A new physician
The true value of your practice can impact your income, your growth potential and a whole host of other factors. In the event you are bringing in a new physician, it would be smart to have a business valuation completed to know the worth of the practice before the hire and after. This will help you make more educated decisions and position your company as more desirable to investors, lenders and other physicians.
Let the knowledge work for you
Valuations generally have under a 12-month shelf life for serving as acceptable transaction documentation, hence the need for routine business analysis. However, don’t underestimate the additional benefits a valuation provides for your practice.
As a tool for understanding what makes your practice strong, valuations are instrumental. Owners who partake in periodic valuations are frequently learning how to quantify their greatest asset. They have the ability to monitor the trajectory of their practice and identify which operational decisions had the greatest impact on its growth – positive or negative. Then, they can respond appropriately.
Owners with this information also find themselves in the driver’s seat when they suddenly have reason to discuss any legal transaction, including an acquisition. Unless you know the value of the healthcare entity you own or have a stake in, you could sell your business for less than what it is worth or retire with fewer assets than you should have after years in the industry.
“A physician has worked for a long time and made a living, but when the time is appropriate, they want to receive value for the practice they’ve built up,” Mark Kropiewnicki, JD, LLM, president of Health Care Law Associates, P.C. and both a principal consultant and president of The Health Care Group, Inc., told Medical Economics. “The seller has a ready-made income stream to sell. The buyer is looking for a ready-made income stream to buy. In business, that’s what value is all about.”
According to Medical Economics, a business valuation has the ability to not only ensure you get the most money out of your practice, but also provide protection in the event of less-than-desirable occurrences, like a divorce or taxes.
Know the value of your practice
Overall, your goal should be to know the value of your practice at all times. There are plenty of reasons why the value can be beneficial, from a sale to a new hire or a divorce. You will be able to understand the impact of your operational decisions. You can also weather unforeseen circumstances, like an owner’s exit from your practice. Any one of these situations can catch you off guard, so it is always smart to plan ahead and work with trusted advisors.
Clark Schaefer Hackett has years of experience working with physicians and professionals in other industries for business valuation services. We will provide your practice with a snapshot of its worth at that moment in time. Then, you can make educated decisions about the direction of your business.
If you would like to learn more, we will be hosting a webinar on Thursday, Feb. 19 starting at 12:00 pm. Geared toward physicians, administrators and other medical professionals, attendees will be able to learn about the ins and outs of business valuations from two Clark Schaefer Hackett experts.