If you are thinking about selling your dental, medical, or veterinary practice, you are likely wondering how to secure the best possible outcome, which includes price. The health care M&A market is competitive and to stand out you need to present a well-prepared, valuable practice. When selling a health care practice, the sale price is not just about current financial performance and profitability. Factors like patient base and capacity come into play. And with strategic efforts to improve operational efficiencies, reduce liabilities and optimize expenses, and ensure financial collections are optimized, you can elevate your practice's worth.
Selling a health care practice can be both an exciting and daunting process. But selling a practice is more than just listing it on the market. And achieving the best possible sale price requires more than just good timing. Ensuring that you receive the highest possible return on your investment requires thoughtful planning and strategic actions. This blog article explores factors that influence the value of a health care practice and provides actionable steps to maximize the value before putting it on the market. With the right preparation you can increase the value of your practice. By investing a little effort at the beginning and making targeted improvements, you will increase your practice’s value and appeal, attract the right buyers and better offers, and set yourself up for a successful, profitable sale.
Factors That Determine the Value of a Health care Practice
Selling a health care practice involves more than putting up a "For Sale" sign. Buyers are scrutinizing various aspects of your practice to determine its value, including:
- Practice Size, Infrastructure, and Patient Base: The size of your practice, in terms of revenue (e.g. patients), expense (e.g. staff), and physical space, plays a significant role in determining its value. Larger practices with well-established infrastructures, modern equipment, and the ability to serve a large number of patients are often more attractive to buyers. A scalable practice with room to grow adds further value. A strong, loyal patient base is also essential. Buyers will evaluate your patient demographics, how long patients have been with your practice, and patient retention rates. Practices with a high percentage of returning patients and positive patient feedback will be more attractive to buyers, as this signals a stable and reliable revenue stream.
- Referral Networks and Partnerships: An established network of referral sources—such as other health care providers, insurance companies, or local organizations—can increase the perceived value of your practice. Buyers are looking for practices that have solid connections that drive patient volume and expand business opportunities.
- Profitability (Revenue and Expenses): Your practice’s financial health is a key determinant of its value. Buyers will look at both your revenue and expenses to assess profitability. It is important to show consistent growth or stable financial performance over the past few years. Buyers will analyze your historical revenue and profit margins, as well as scrutinize key expenses such as staff salaries, overhead costs (rent, utilities, equipment), and supplies.
- Revenue Trends and Growth Potential: It is not just about current earnings—buyers want to see a strong history of financial performance and revenue growth. A practice that has shown steady growth and has clear potential for expansion will often command a higher price. Highlighting future opportunities, such as higher capacity by adding new services or expanding patient access, can further increase perceived value.
Practical Steps to Enhance Your Practice's Value
With these factors in mind, here are actionable steps you can take to boost the value of your health care practice before putting it on the market:
- Optimize Operational Efficiencies: Streamlining your practice’s operations can make it more attractive to buyers who want a turnkey solution. Implementing efficient scheduling, adopting robust electronic health records (EHR) systems and processes, and training staff to be proficient in key administrative tasks can enhance overall productivity. Buyers appreciate practices that are well-organized and easy to manage.
- Reduce Liabilities and Expenses: Before listing your practice for sale, it is crucial to address liabilities and expenses. Buyers will perform a financial due diligence, so tackling these issues early can prevent negotiations from stalling or offers from being lowered. Reducing liabilities and keeping expenses in check are critical for increasing the value of your practice. Buyers will closely evaluate both your financial liabilities (such as outstanding loans, debts, or legal obligations) and your operational expenses (e.g. staff). Before listing your practice for sale, resolve or reduce legal issues, renegotiate contracts if necessary, and settle any outstanding debts. Review your expense structure—high operating costs can diminish profitability, which may turn off potential buyers. Practices that have optimized their expenses, such as by negotiating better rates with third parties or implementing cost-saving technologies, are more attractive to buyers looking for a well-run, low-risk investment. Proactively managing both liabilities and expenses will improve the financial health of your practice and make it more appealing during the sale process.
- Improve Collections and Revenue Cycle Management: Ensure your billing and collections process is efficient. Delays or errors in payments can reduce the perceived value of your practice. Take steps to minimize unpaid claims, improve patient payment methods, and streamline insurance reimbursements. Clear financial statements that reflect timely payments and minimal debt can significantly increase your asking price.
- Enhance Curb Appeal: Just as curb appeal matters in real estate, it also matters when selling a health care practice. Make sure the physical space of your practice is well-maintained and appealing to patients and staff alike. This includes updating equipment, ensuring compliance with current health regulations, and creating a welcoming environment that attracts patients.
- Build and Maintain a Strong Online Presence: A robust online presence not only attracts new patients but also enhances your practice’s reputation. Buyers are likely to research your practice online, and a well-maintained website, positive online reviews, and an active social media presence can boost perceived value.
- Diversify Revenue Streams: Practices that rely on multiple sources of revenue tend to be more valuable. If your practice offers services through multiple channels—including hybrid care delivery models and technology-driven care solutions—you may have a competitive edge. Diversified income streams can make your practice more resilient to market changes and attractive to buyers.
Prepare Your Practice to Maximize Value and Secure the Best Deal
Selling your health care practice is a significant decision and preparing it for sale can make all the difference in the final deal. By optimizing operational efficiencies, strengthening revenue and expenses, and reducing liabilities and risk, you can enhance your practice’s value, attract qualified buyers, and increase its value and sale price.
It is never too early—or too late—to prepare your health care practice for sale. At SpringParker, we specialize in helping health care professionals maximize the value of their practices before they sell. Whether you are just starting to consider selling, you are ready to take the next step, or you have started and need assistance, we are here to help and can provide you with the support you need to navigate the complexities of selling your practice. Contact SpringParker for a personalized assessment and visit springparker.com to learn more about how we can support you through every phase of the selling process.