Before selling your healthcare clinic you will need to get it valued in order to determine an appropriate asking price.
To begin this process, you will need to prepare your business information. Your accountant / bookkeeper might be able to help you with this. You will need
- financial reports such as Profit & Loss statements, cash flow statements, annual turnover (for the last three years).
- A list of equipment, stock & assets including purchase date and purchase price
- Details of goodwill – customer loyalty, brand recognition, staff performance, customer database, reputation of your business, business operation procedures.
There are various different mathematical formulas available for valuing your clinic, BUT you should always take the following points into consideration as well.
- EBIT (Earnings before Interest) and EBITDA (Earnings before Interest, Tax, Depreciation and Amortization);
- Patient numbers;
- New Patient numbers;
- Comparable sales in the area / industry;
- Marketing in place;
- Market conditions – such as details of competitors, and how your business compares to them;
Earnings before Interest and Tax is the measure of a practice’s profit. It is the difference between operating income and operating expenses. Any interest & income tax elements are omitted as they are not an indicator of trading profit and loss.
Often used if the healthcare clinic has high depreciation rates and pays large interest on loans, leaving negative profits. Negative figures can make it challenging to calculate a value therefore this method relies on Earnings before Interest, Tax, Depreciation and Amortization to represent the profits actually available to pay off the loan.
Cash flow is king. Too many businesses make a profit for years but have no cash flow continually relying on increasing credit. Turnover and profit are important variables of cash flow however it is cash that pays the bills and puts food on the table.
Patient statistics are important. You will need to know how many new patients are coming in the door, how many patients are retained or are repeat customers. How many patient visits per month etc… A healthy database of repeat patients is a good sign of a healthy practice.
COMPARABLE SALES IN THE AREA: This data can be tricky to obtain. But ask around and see if there are any other similar business to yours in the area and what they have sold for in the past and recently. Speak to business brokers and gauge their feelings about the business’ value. Check business-for-sale listings in industry magazines, newspapers or websites.
MARKETING IN PLACE: It is always easier to sell a business that has a strong marketing presence – particularly on-line. A website, Facebook, are vital for Business to Customer businesses, and your patients are your customers. A professional website gives a good first impression and credibility.
MARKET CONDITIONS: How many competitors are in your area, compared to density of population? For example, is your practice was based in a town that had suffered recently due to a downturn in mining, it would most probably be reflected in patient numbers and the likelihood of a buyer in the area. Alternatively, if your practice is located in an affluent suburb of a capital city the opposite can be true..
LOCATION LOCATION LOCATION: Is your business located in a business hub? Does it have footpath access? Car parking? Is it easy for patients to visit your practice? Is it near other shops and cafés, local GP’s, sporting clubs etc? Does it have disability access? What demographic is in your area?
Once all of the above is taken into consideration you should be able to come up with a fair asking price for your business.
At the end of the day, it is wise to remember, you don’t get to choose which method your buyer will use. They will do their own sums and base their own theories on what your business is worth to them. Be honest with yourself. Your practice may be your baby and you’ve built it up and believe it’s worth is x but the buyer will have no such illusions.
IDEAL PRACTICE are industry experts in valuing medical and allied health practices. Feel free to contact us for advice.