To remind you, the 5 steps we listed are:
- Understand your value proposition and value drivers
- Balance and Sustainability*
- Manage the business
- Train staff and the team*
- Have up-to-date Financial Statements
* These two drive transferability of practice income (and therefore value). Without these the practice may have limited value beyond the personal goodwill of the practitioner.
Driving and building practice value is complex. However, focusing on these five steps will help you build a better practice and improve value.
What are you doing to build and retain practice value?
Ultimately value is created by cash flow (real profitability) and risk management.
What are buyers looking for?
We discussed last week that buyers are look for profitability and the future prospects for the practice.
A recent group of young prospective practice buyers attending a Medici Capital Ownership Ready workshop highlighted some interesting insights into what young professionals are looking for.
Is it worth buying?
This the perennial question: Should I buy a practice?
For many professionals, limited attention is paid to management training. Accordingly, they often know little about the financial benefits of business ownership or indeed how to assess a business. The financial aspects of practice management is rarely taught to professionals. For that matter, often practice management is not part of the undergraduate course.While many professionals are lead to believe the ‘easy or cheaper path’ is to set-up a new practice – start one from scratch. They ignore the benefits of buying and established business (see previous blog) and the cost of getting a practice to break-even point.
The answer: It will depend on the practice and its financial results. It is an investment decision driven by profitability, cash flow and risk. Our view is that good sites (that is practices performing well with room for improvement) are generally good investments and worth purchasing. Get good advice and do your homework.
How do we mitigate risks?
Risk is inevitable with business ownership. It is unlikely that any practice will not have risks associated with business. Professional, client/patient, staff, financial, and general economic risks need to be assessed and managed.
The answer: Risk management is a function of identification, assessment and establishing procedures to minimise, monitor, and control the impact of the risks on your practice. In the case of purchasing a practice, it comes down to getting good and independent advice, as well as, doing your homework.What’s the outlook?
The answer: The outlook will vary for each profession and market sector.
Regardless of the history for your profession, without doubt the future will be tougher than the past. This is the case for most sectors of the economy. Consumers and governments will inevitably want more service for less cost.Am I better off setting up a new practice?
Refer to previous comments.
The answer: This will depend on the site, profession, and local market drivers. While often setting up a new practice will appear cheaper than buying an established practice, you should also take account of the investment required to achieve break-even and/or profitability (including lost wages and/or profit); time frame to achieve sustainable income and viability; and wealth creation.Do the risks and returns vary depending the business model?
The answer: YES. There is no such thing as an average practice.
Consider the options available for you and use www.practice4sale.com.au to buy or sell a practice.
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