Increase Practice Value
Five things that move the number.
Start one of them this month.
Most owners find out what their business is worth about a year too late to do anything about it. These five levers move value in every business we see. How much each one moves it depends on what kind of business it is, how big it is, and who is buying. None of them require a transaction to be worth doing.
Before the five
Understand the one adjustment nobody sees coming.
Your profit and loss statement was built to satisfy your accountant. A buyer rebuilds it to answer a different question. What does this business earn once someone has to pay a market rate for the work you currently do for free?
That single adjustment is usually the largest gap between what an owner thinks the business earns and what a buyer will pay for. The line item changes by business. The question does not.
Here is the bridge on a general practice collecting $1.4 million where the owner is the only doctor. Hygiene produces $490,000 of it, so the doctor produces $910,000.
The owner sees $500,000. The buyer sees $227,000. In dental the adjustment is doctor pay. A buyer removes what the owner takes and puts back thirty percent of what the doctors actually produce, because that is what it costs to have someone else do the dentistry.
The five
Five things that consistently move value.
The weight of each one changes by business type, size, and buyer market. What does not change is the question underneath all five. How much of the revenue, the earnings, and the ability to run the place survives the owner?
Take your own hands off the production
Every buyer in every one of these markets is pricing the same risk, which is how much of the revenue walks out the door on the day you do. Owner dependency is one of the largest discounts a buyer applies in all four businesses, and it is the one most owners never think of as a financial decision.
The mechanism is not subtle. When you personally produce most of the revenue, the buyer pool shrinks to people who can replace you clinically, which means individuals borrowing against cash flow rather than groups buying transferable earnings. Different buyers, different math, materially different number.
What this looks like
Where to start
- Work out what percentage of collections you personally produce. Most owners guess low by ten to fifteen points.
- Pick one procedure category you could hand off entirely inside ninety days.
- If you have no one to hand it to, that is the finding. Recruiting is the project.
Build a recurring care base
A buyer pays more for a dollar that shows up again next month than for a dollar that has to be won again. Recurring care is the mechanic underneath that, and every one of these businesses already has its own name for it. Hygiene in a dental office. The annual exam and wellness plan in a veterinary hospital. A membership in a med spa. A care plan in a chiropractic clinic.
Different forms, same underlying advantage. More of next month’s revenue is already visible before the month begins. The businesses with a real recurring base price toward the top of their band, and the ones without it fight over the middle no matter how good the clinical work is.
How much a buyer pays for that visibility varies by market, and a membership in a med spa is not priced like hygiene in a dental office. What holds everywhere is that this is usually a pricing and packaging decision rather than a hiring decision, which is why it tends to move sooner than the other four.
What this looks like
Where to start
- Work out what share of last month's revenue was already going to happen before the month began.
- If very little of next month’s revenue is visible before the month begins, that is worth fixing.
- Name your version of recurring care, put one offer behind it, and put it in front of everyone who walks in for sixty days.
Make your earnings survive a stranger reading them
Your add-backs are probably legitimate. The problem is that legitimate and documented are different things, and the buyer's accountants only credit the second one. Every add-back needs enough documentation for a buyer and its accountants to verify it. Anything they cannot substantiate is vulnerable to being removed, and every dollar removed can affect value by more than a dollar once the multiple is applied.
This costs you nothing but discipline and it is the item most owners skip, because it feels like bookkeeping rather than strategy. It is worth more per hour than almost anything else on this list.
What this looks like
Where to start
- List every personal expense running through the business and find the paper for each one.
- Anything you cannot document, stop running through the business starting now.
- Get three clean years. Diligence looks back further than owners expect.
Reduce the revenue one outside source controls
There is a difference between revenue that is smaller and revenue that is outside your control, and buyers punish the second one much harder than the first. The outside source is different in each business. A payer in a dental office. A referral relationship or a single large client in a veterinary hospital. A marketing channel or one provider in a med spa. An insurer or a paid lead source in a chiropractic clinic. Whatever it is, when someone else decides whether the revenue shows up, it cannot be forecast and the new owner cannot fix it either.
Nobody is telling you to walk away from a source that is carrying your schedule. The point is to know the concentration, and to make sure the answer is a choice rather than an accident.
What this looks like
Where to start
- Rank your revenue by who controls whether it shows up. You, or someone else.
- Find your single largest outside source and work out what share of revenue it carries.
- Once one source carries a share you could not replace inside a year, that is the number a buyer will open with.
Build a management layer that is not you
Item one takes your hands out of the production. This one takes your head out of the operation, and the difference separates a business that transfers from a business that merely gets sold. A business that runs on written systems and a manager who is not the owner is a business a buyer can actually own.
A buyer is not only buying earnings. The buyer is buying the ability for those earnings to continue after the owner leaves, and management depth is the clearest evidence a buyer can find that they will. In veterinary and med spa it earns a premium on its own. In all four, its absence is a discount.
This is the slowest of the five and the one with the longest tail. It is also the only one that pays you before a transaction ever happens, because the same structure that makes a business transferable is what makes it tolerable to run.
What this looks like
Where to start
- Name the five decisions that currently cannot be made without you.
- Write down how you make each one. That document is the beginning of a system.
- Hand one of the five away this quarter and resist taking it back.
The second path
Want to know which of the five is affecting your number?
The Practice Value Tool gives you a range and names the premiums and discounts behind it, so you can see which of these five is doing the work in your business before you decide which one to fix.
The next step
Send me the one you are stuck on.
Tell me which of the five is the hard one in your situation and I will send you back something specific to it rather than a brochure. If it turns out to be worth a conversation, we will have one.
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