Is your practice saleable?

24 Nov 2023

I have been at the Therapy Expo for the past couple of days, where I shared my thoughts on the current buy-sell market for businesses in the therapy sector and what makes a healthcare practice more saleable and valuable. I’m pleased to extend these insights to a broader audience through this article.

The Current Buy-Sell Market

Many business owners’ perception of selling a business is at odds with the reality. Some overestimate or underestimate the value of their practice, many assume that finding a buyer is a given, and most underestimate the time it takes to sell. In reality, selling a healthcare business is neither guaranteed nor easy. The process often takes much longer than anticipated, and many practices are not saleable. Several online sources indicate that around 50% of small businesses listed for sale remain unsold a year later.

However, there is good news. The healthcare sector is particularly attractive for investment, with buyers actively seeking opportunities despite economic uncertainties. At Verilo, we see a 90% success rate of businesses sold or receiving fair value offers well within a year. 

If you plan your exit early and ensure your practice aligns with what buyers are looking for, you will maximise your chance of success.

Who is Buying?

Our buyer community comprises a diverse range of buyers. Contrary to popular belief, associate buyouts are extremely uncommon and typically only apply to much smaller operations. Practices with revenues between £250k and £1M are most commonly sold to national or regional healthcare providers or buyers from other sectors looking to diversify. We are also seeing more private individuals and investor consortiums from outside the sector looking for growth opportunities in healthcare. Private equity, family offices, and larger national healthcare providers tend to be the main bidders for larger businesses.

Saleability and Valuation Drivers

The Role of Financials 

Your practice’s revenue and profitability significantly impact its saleability and valuation. Larger revenues generally attract a broader pool of buyers and command higher valuation multiples, while the converse is true for smaller practices. While valuation tends to increase proportionally with size, we find a significant difference in saleability between businesses with turnover under £250k and those over. In our experience, practices that hit the £250k threshold are 3-4 times more likely to sell at a price that aligns with the owners’ expectations than those with much lower revenues, highlighting the importance of financial growth in enhancing your practice’s market appeal.

People: The Heart of Your Practice

A critical factor in your practice’s saleability is the team structure and your involvement as the owner. Overreliance on the owner is the number one reason why businesses don’t sell or fail to achieve their target value. To enhance saleability, minimise your involvement in day-to-day operations and revenue contribution. We recommend building a well-balanced team that isn’t too reliant on any individual for revenue or business-critical tasks. We also recommend implementing robust systems and processes to ensure business continuity in the event of team or ownership changes. The lower the risk of team changes impacting future business performance, the more appealing it is to buyers.

The Importance of Your Clinic’s Location, Setup and Longevity

The location and setup of your clinic play a significant role in its attractiveness to buyers. Clinics based in well-populated, affluent areas tend to attract more interest. Similarly, clinics with good visibility, multiple treatment rooms, and potential for expansion are a more attractive opportunity for those investing in the private healthcare sector. 

Security of tenure is often a deal-breaker for buyers. The time remaining on your lease directly impacts the practice’s saleability, value, and deal structure. Securing a longer-term lease with tenant-only break clauses will balance risk and business continuity for an incoming buyer and enhance your practice’s appeal. 

Client Contracts: Diversity and Stability

A diverse and stable client base is essential for saleability. Overreliance on a few clients or contracts is a red flag for buyers. Aim for a revenue contribution of less than 10% per client or contracting body, and secure contracts with proper documentation and evidence of renewal. These factors significantly influence the business valuation and the deal structure.

Summary: Key Value and Saleability Drivers

The drivers are pivotal in making your practice more saleable and valuable:

Conclusion

Understanding these factors and strategically aligning your practice to meet market demands can enhance its saleability and value. Whether you plan to sell soon or in the future, it’s crucial to start preparing now.

Try our saleability and valuation calculators to estimate your practice’s readiness to sell and likely open market value. Alternatively, please book a discovery call with us for personalised advice on enhancing your practice’s saleability and value. 

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