The Sad Truth Of Why Healthcare Businesses Don’t Sell
There have been numerous successes and failures when healthcare businesses are up for sale by their owners.
Some of these issues associated with selling a medical practice are unique to the healthcare industry, however, many are applicable across all types of businesses. Consider these reasons why some medical professionals had troubles the first time around:
Technology. Electronic Healthcare Records are the norm and digital equipment medical equipment is the norm. Are buyer of a practice wants to see these ‘norms’ as its part of their mindset when considering making an investment to own and operate their own practice. Plus they don’t want to pay extra for it or have to do the work to bring these items up to date.
Poor financial reporting. This is a common issue for medical practices. With all of the effort in providing quality care for patients, a practice can fail to provide consistent attention to appropriate financial metrics. It’s not unusual for a business advisor like Andrew Rogerson in Sacramento to see a medical practice seller who hasn’t regularly monitored his or her business’s financial performance and then make adjustments to potentially improve their results. Some owners of medical practices manage a “lifestyle business” focused on short-term personal compensation (or “excess compensation”), instead of long-term value in their life-long investment.
Changes in the market. The market changed, and the medical practice owner failed to respond, even with ample warning. For instance, many small durable medical equipment businesses that were dependent on Medicare reimbursement failed to move their business model in the wake of competitive bidding. Most markets had considerable warning, but some business owners had difficulty changing from their traditional way of operating.
Drop in business. Some medical practice owners sat back and watched their business performance tank… then decided to sell it when it was about to hit rock bottom. This type of distress and panic can result in delusions that a medical practice will rebound if they wait it out. Sadly, this rarely happens without a major course correction.
Regulations. Of course, the practice of medicine is in a highly regulated environment that’s subject to change. While this issue can apply across industries, it’s a significant issue for healthcare businesses where some of the rules and regulations for operating a practice can vary dramatically by state.
Turnover. Specifically, management turnover has been high, and salaries may have been below industry standards for some time. Most buyers are aware of this and see it as warning of even greater problems for the practice. Issues with human capital can lead to success that financial capital by itself can’t achieve.
Location, location…The location of the medical practice wasn’t ideal for expansion or growth. Most buyers want to expand their acquisition to increase their return on investment—particularly private equity investors. If there’s not perceived scalability, they’re rarely interested in acquisition.
Medical practice owners need to honestly assess their circumstances, re-engage with their companies…and, after some time and effort, successfully close a transaction.
The big difference from initial failure to sell their healthcare businesses and subsequent success was the courage and discipline to apply the advice and counsel of a trusted business advisor who has years of experience selling medical practices in California.
Successfully Sell Your Business – Read the Book
Andrew Rogerson specializes in helping business owners sell their business including a Medical Practice and its many steps. This includes a practice valuation, creating a marketing strategy to find qualified buyers, and handling all phases of the transaction including third-party finance for the buyer, due diligence and escrow. He is the author of Successfully Sell Your Business which is available for a free download.