Characteristics to Drive your Practice Valuation

As a dermatology practice owner you will eventually sell your practice to an external party or work out an internal transfer/sale to other physicians. Either way it is advantageous for you to take steps to improve the value of your practice. Owning a practice with strong fundamentals is more likely to attract a larger pool of buyers, as well as talented physicians. This will eventually increase the value of the practice and the options available to the practice owner.

PILLARS OF VALUE:

The pillars of a strong, valuable practice are stability, profitability and growth. To support those pillars, there are a number of areas that you should focus on as a practice owner:

• Talent: In order to bolster the services of your firm, as a practice owner you should focus on hiring and retaining physicians, physician assistants, and other medical talent. Your practice’s "talent bench" would ideally be deeper than just the owner. Having a balanced ratio of physician assistants will to service more patients and increase the practice’s profitability all around.
• Financials: Sound, transparent books and records can be proven through reviewed or audited financial statements, which are provided by a practice owner’s accounting firm. By performing diligence in preparation of a sales transaction can help the seller understand the risks and opportunities within the business and help the seller best position the business. This also shows the potential buyers that you are serious about the potential sale and the use of an external firm provides a sense of credibility to the numbers. In addition to clean financials, dermatology practice owners should also target Adjusted EBITDA margin percentages of 20 percent or greater in order to demonstrate practice profitability and performance. To achieve such financial milestones, as a practice owner you should complete a periodic review and elimination of overhead and expenses, which should translate to immediate impact on the practice’s profitability.
• Diversification: Dermatology practices that offer a range of services, such as Mohs surgery, medical dermatology, laser, spa, clinical research, and dermatopathology, tend to attract more demand from the buyer’s market. These various services can help a practice to remain stable and grow during both strong and recessionary economic periods.
• Attractive Geographic Market: The size and location of the market served can be a major determinant in the ability of a practice to generate attractive performance, growth, and a healthy backlog of patients. Having a practice in the correct location is vital in terms of patient acquisition and also may decrease a physician’s marketing expense.
• Strategic Plan: By having a written strategic plan you can highlight practice financial goals and provide steps to more efficiently operate and grow the practice. This documented plan can offer the potential buyer a roadmap for success with your practice.
• Growth: Potential buyers tend to focus on the practice’s ability to substantially grow over a three to seven year period. In order to drive extra value into the sale, a practice owner should demonstrate historical practice performance as well as articulate the future growth opportunities.
• Synergies: In a transaction, buyers will also analyze the potential synergies of an acquisition. Synergies are defined as either cost savings or new revenue that are created by the combination of one dermatology practice with another one. An example of cost synergies can include the use of improved negotiating leverage to obtain cheaper supply costs with vendors or sharing of resources across multiple locations in order to minimize administrative expenses. Revenue synergies can include a recently acquired practice referring new Mohs cases to the other practice’s Mohs surgeon or sending samples to a platform’s in-house lab. In a sale process, it is critical for a practice owner to complete a synergies analysis in order to communicate those figures to buyers and obtain maximum valuation in a sale.

Practice Advisors 360 is the nation's leading dermatology advisory company. Contact us today at (844) 360-8360 or visit us online at practiceadvisors360.com

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