5 Tips for Building a Sellable Practice

Selling a practice. It might be the largest single financial transaction of your life. And it could go very well, or it might not happen at all. Depending on the choices you make, your practice could fund your retirement…or it might be worth close to nothing. While it’s a much larger topic than this column can due justice, this month I’ll provide a few tips to help you increase the value of your counseling practice.

A stable, dedicated team

Click “Meet the team” on the website of any practice and you’ll probably see a webpage that can’t keep up with all the staff changes. Bios and pictures rarely reflect who’s actually on board (team photos are the worst, they’re never accurate). In many practices, while a few core providers are longstanding, most depart in less than 2 years.

The tenure of your staff is important because an acquirer will approach the purchase of your practice asking him/herself “How many of these staff are going to survive the acquisition process? How many are likely to quit in the next year—or even set up competing offices?” In our field, there’s no inventory, there are no patents. The value of your business is closely tied to your team. If you can find a way to develop a clinical team that’s onboard to stay, you will fetch a higher price for your practice.

Key person discount

Whenever a small business is for sale, an acquirer wants to know if it’s self-sustaining, or if it only works because of a talented owner-manager. An acquirer doesn’t want the task of replacing the heart of the practice after the current owner departs, and he/she will lower their offer if that’s the case. This is such an important issue, persons experienced with mergers and acquisitions have a name for it—the key person (or “key man”) discount. Hence, the more you aren’t a “key person” necessary for day-to-day operations the better.

Growth

There’s an old adage “If you’re not growing you’re dying” and basically it’s a false platitude. However, showing year-after-year revenue growth—even slow growth—demonstrates to an acquirer that your practice is headed in the right direction. Contrarily, practices that are financially up and down show instability (and practices with declining revenues are a red flag).

As a side, my father used to say “Quit painting when you’re 80% tired. You’ll need the last 20% for the cleanup.” Think about this when timing the sale of your practice. Too often owners decide to sell only after they’ve begun “winding down.” Don’t do this! Sell when you still have passion and energy for your practice. Your last year should be your highest revenue (and hopefully most profitable) year.

Be a Strategic investment

A common misconception among sellers is that an acquirer will buy their business and grow the seller’s brand. In truth, a buyer is usually already working in the industry and is more interested in building his/her own brand, and a smart strategic acquirer is asking her/himself the question “how will acquiring this company help me to sell more of my stuff?”

To be most valuable, have a practice that helps an acquirer to sell more of his/her own stuff. For example, if your practice provides something unique—say forensic consulting—this makes your practice more valuable than if you just did counseling appointments. Why? Because it’s likely the acquirer doesn’t have forensic consulting in his/her practice(s), but by learning your processes the acquirer learns how to add such offerings to his/her existing practice(s).

Show a Trajectory

You want to show an acquirer that your practice has a future, not just a track record. An example of the later is a longstanding practice that has consistent referrals coming in, but doesn’t have any current marketing program (maybe it doesn’t even have a website!). All the networking was done 20 years ago, and now the practice just gets referrals from those who’ve always given referrals. Why is this bad? Because it’s voodoo! An acquirer doesn’t know what to do with that—doesn’t know how to grow or sustain it, and doesn’t know when the magic will end. For all the acquirer knows, the people referring might be 6 seconds from retirement, or there might be a competitor slowly chipping away at that book of referral business.

Important, Even If You Don’t Want to Sell

The best time to prepare your practice for a sale is now. The stakes are just too high to ignore this important part of the life of your business. Even if you never plan to sell, the things that make your business valuable to an acquirer also happen to be healthy disciplines for running a successful, profitable company.

If you’d like to read more valuable information about selling your practice—like how you can think like a buyer instead of a seller, as well as how you can increase the value of your practice—keep reading here, How to Sell Your Counseling Practice.