What is your business worth?
What could your business be worth?
What is your business worth to the best buyer?
Reading Time - 4 min
Why you should spend 4 minutes reading this:
If you plan correctly, you could increase the sale value of your business by +5x.
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What is your business worth?
The value of a business is typically driven by three factors:
1. The sum of the business' future cash flows
2. That future cash flow is then adjusted for the likelihood that it does not materialize in the future (aka, risk)
3. Finally, the market will either overpay or underpay depending on supply/demand
When you engage with brokers/bankers etc. they typically start your valuation with by asking for your "EBITDA".
This number aims to define your current cash flow and helps define #1 above. It stands for "Earnings Before Interest, Taxes, Depreciation and Amortization"
From there a "multiple" is applied to your EBITDA. This multiple is accounting for the forces behind #2 and #3 above.
If you stay in business long enough you will see large swings in the multiple, similar to how you'll see large swings in the stock market.
Market forces tend to control the multiple, therefore your primary focus should be on understanding how to control your EBITDA.
If you improve your ability to control your EBITDA you can:
1. Better position yourself for a higher valuation if you're looking to sell
2. Increase the amount of cash you'll have available to invest in your business
With time, we will compile playbooks etc. for your team to better control your EBITDA here.
What could your business be worth?
You're highest sale price will stem from maximizing your EBITDA and then timing the market for a great multiple.
Many of the articles on Those Who Care will help increase your EBITDA.
If you're looking to sell you should either:
1. Maximize your EBITDA if the market is offering high multiples
2. Control your EBITDA and reinvest in efforts to maximize your EBITDA on a later date
(2-7 year window)
If you're looking to grow your practice/clinic you should:
1. Control your EBITDA and reinvest in efforts to maximize your EBITDA in the long-run
(5+ years)
If you need support maximizing or controlling your EBITDA make sure to fill out the form below.
What is your business worth to the best buyer?
If you're looking to buy a practice/clinic you should be asking yourself
"What is this business worth to me?"
Therefore, if you're looking to sell your practice/clinic the question then becomes
"What am I worth to the buyer?"
There are two primary sources of value an acquiring group can make:
1. Reimbursement rates (revenue by encounter)
2. Operational efficiencies (cost of care)
The quick gain in value for acquiring group comes from increases in reimbursement rates.
If you had been contracted at 80% of Medicare allowable and the acquiring group receives 100% of Medicare allowable, your encounters will be more valuable once they are being billed out by the acquiring group.
The remaining gains will be made by decreasing the cost of care per encounter and could take years to execute.
As the acquiring group, you should understand what gains can be made from:
1. Reimbursement rates
2. Operational efficiencies
and other opportunities before purchasing a care providing organization.
As the acquired group, you should understand what gains will be made after your acquisition to ensure you were compensated fairly.
If you're looking to acquire or be acquired in the years to come, we can assist you. Let us know what you would need below.
High-level actions you can take based on this article:
1. Understand what you're worth today
2. Understand what you could be worth
3. Before purchasing a group, complete an analysis of the two actions above
