Exploring Growth Strategies in the Therapy Sector: Buying Businesses

2 Jan 2024

The therapy sector presents a distinctive opportunity for growth. While many business owners opt for organic expansion, buying businesses can also be a highly effective growth strategy. This article explores the process of buying businesses in the therapy sector, highlighting some of the risks and benefits, and outlining practical steps to get started.

Should You Buy a Business or Open a Clinic From Scratch?

Acquiring businesses is often perceived as expensive and high-risk, or seen as a tactic reserved for seasoned investors. However, when executed properly, it can be an efficient way to achieve growth, and not necessarily more expensive or risky than other strategies. With the right support, advice, and mindset, acquiring a business is accessible to most people.

Most business owners in the healthcare sector choose to build their business from scratch. This typically requires a significant upfront investment in premises and infrastructure, followed by further investment to build a client base and establish a well-trained team. Unlike industries like retail, cafes, and restaurants, which see an influx of new customers on launch day, healthcare businesses are ‘needs-driven’ and usually experience slower growth. Achieving clinic maturity can take years, with owners usually funding the initial losses.

In contrast, when you acquire a business, you are typically inheriting an established infrastructure. This approach bypasses many of the hefty setup costs and enables the new owner to benefit from the former owner’s investments in processes, staff training, and marketing. Although there may still be costs for rebranding and upgrades, these are typically much lower than the setup costs. Acquiring a profitable business also helps to sidestep the early losses associated with a start-up, often meaning the owner can pay themselves a salary immediately and invest in further growth.

The obvious cost with an acquisition strategy is the price of buying the business. While each seller’s circumstances and business valuation will be unique, the purchase price plus acquisition costs are comparable, and often less, than starting from scratch.

Risks and Benefits of Buying a Business

The main benefit of buying a business is the speed of expansion. Making an acquisition can act as a launchpad into a new sector or dramatically increase your business size almost overnight. Buying a business can also lead to better process efficiency and help you quickly achieve economies of scale, ultimately enhancing purchasing power and improving profitability.

However, acquisitions can have drawbacks. Overvaluing a business or taking on unforeseen liabilities can put a financial strain on you and the business, but this can be mitigated by working with experienced advisors who can evaluate the business objectively.

Another challenge with acquiring a business, rather than starting from a blank sheet, is that the target business may not fit perfectly into your vision or be culturally and operationally aligned with your existing one. This can cause disharmony among teams and lead to a rapid loss of staff and clients. This risk is especially significant in the therapy sector where personal relationships are key but can be mitigated by selecting the right businesses to buy and handling the transition sensitively.

Choosing the Right Business to Buy

Finding the right business to acquire is crucial. The primary considerations will likely be location and size. If you have a single site or a small local portfolio, it is probably best to focus on acquisitions in a similar area. Choose a location not so close that it will cannibalise your existing business, but close enough that you and your existing team can oversee the transition and provide ongoing support.

Smaller businesses may cost less but carry more risk, while larger, more established businesses are less risky but will likely cost more. The size of the business will often depend on availability and your level of funding.

Before deciding to acquire a business, it is also sensible to assess the business’s stability and strategic fit with your own. For example, consider the impact of the owner’s departure and the possibility of key personnel leaving. Assess the business’s financial stability and consider any potential investments needed to align it with yours. Additionally, consider opportunities to add value, such as enhanced client retention or marketing strategies that will make the target business more profitable once you take over.

Buying a Business – Where to Start

The acquisition process is relatively consistent across sectors. To find a business to buy, you can speak with a business broker, search sale aggregator websites like businessesforsale.co.uk, or reach out to your network to see if anyone is considering selling. Once you’ve found a motivated seller, request key information to assess the business’s suitability, such as financial data, details on key personnel, client acquisition strategies, and premises. Engage with them to understand their sale motives and expectations, both of which are crucial for formulating an offer.

Once you are ready to make an offer, submit a clear, professional letter of intent outlining your offer terms, any associated conditions, and timelines. While it may seem trivial, a well-drafted letter with sufficient detail will give sellers much more confidence that you are a serious buyer and greatly increase the chance of an offer being considered.

Once an offer is accepted, you will need to engage a solicitor to handle the transaction on your behalf and conduct more in-depth due diligence. Accountants and legal advisors can do some due diligence, but don’t underestimate the importance of operational due diligence, which you may be best placed to do. The legal and due diligence phases typically last 2-4 months for most small to medium-sized transactions.

Conclusion

In conclusion, buying a business in the therapy sector presents a viable and often advantageous route for expansion. While it comes with a unique set of challenges, the potential for rapid growth, immediate profitability, and established operational infrastructure make it an attractive option. It’s essential, however, to approach this path with proper research, careful planning, and professional advice. By selecting the right business, understanding its value, and effectively managing the transition, you can significantly accelerate your business’s growth and success.

Helping facilitate major change for healthcare businesses

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