Essentials for Selling Your Health Care Business

Whether you are an individual, operator or health system looking to divest an entire business or service line, it is never too late to start planning. Selling a health care business takes preparation to ensure a satisfactory outcome. Even when a deal seems to be moving along smoothly, unanticipated events can occur. If you are considering this move, you should be taking these steps now.

Initial Steps:

• Develop Relationships and Contacts Early. For many health care businesses, the likely buyer pool includes local health systems, employee providers or other local or national buyers. You may have already identified potential buyers. Two or three years before officially launching a sale process, start preliminary conversations with these parties. What you learn can be invaluable in your planning.
• Identify Your Team. Finding a team of partners you trust is essential to completing a successful transaction while mitigating risk and maximizing value. You will ultimately need to involve experts in law, accounting and finance to complete your transaction. You may also want to consider an investment bank to run the sale process.
• Define Your Ongoing Role. For many individual owners, the question of lifestyle after sale is difficult to address. Do you want to retire completely? If you are an owner-operator, do you want to focus on providing service long-term without the administrative hassle? If you are a health system selling or joint venturing a service-line, what relationship do you want to have with the new owner in the market? Knowing what you really want from a sale is important to best align with the right buyer and potential future partner.
• Keep Emotions in Balance. For individuals, the process of selling can be emotionally challenging after having invested so much time and energy in the business. Maintain your perspective and know what you want to accomplish without letting these emotions get in the way.

Financial Steps:

• Organize Information. For many operators, just organizing key information takes months to complete. Financial statements, billing records, contracts, asset lists, operating protocols and licensures should be readily available, accurate and complete. Buyers will want to explore operating metrics and ensure they review final, signed versions of contracts and documents.
• Clean Up the Financial Statements. Know the story. Buyers will typically value a business based on a multiple of revenue or earnings before interest, taxes, depreciation and amortization (EBITDA). While the baseline revenue and EBITDA levels are important, potential buyers will want to understand the historical financial results to best project the future outlook of the business. That’s why it is important to properly record and regularly review the financials of the business. In addition to reviewing your financial statements regularly, start keeping a list of potential one-time and/or non-recurring activity that may not accurately reflect the normal operations of the business (e.g. personal expenses, one-time legal events, etc.).
• Consider Ordering a Valuation. A professional independent valuation may be beneficial for several reasons. These are just a few of the benefits to taking this proactive step: It can (1) require you to organize information (2) help provide reasonable expectations in the event of sale (3) shed light on areas of improvement prior to sale, and (4) provide a “dress rehearsal” for real conversations with potential buyers.
• Understand Tax Implications of the Sale. There are many different ways to structure a transaction, each with different payout terms and tax implications. Differences in these terms can have a sizeable impact on the amount of cash you actually receive from the sale. Knowledgeable M&A tax advisors can help you understand the timing of payments to you and the tax impact of those payments.
• Consider Estate Planning. For individual owners, selling a business can lead to significant proceeds. You may need to explore estate planning issues prior to sale.

Operating Steps:

• Make Necessary Business Changes. Whether you need to switch billing companies, re-negotiate contracts, optimize staffing levels, or improve your brand, preparing to sell your business is no time for procrastination.
• Stay Focused on Business Operations. Preparing for sale is NOT a reason to let operations slip. The sale process can take months and buyers will be keen to notice declining business trends. It is easy to mentally move forward to life after a sale, but maintaining strong operations will be the key to a successful transaction. Continue operating the business as if the sale were not going to happen…because it may not.
• Keep Cybersecurity Top of Mind. As you prepare for a sale, it is even more important to ensure sound security controls remain in place and operating. Health care businesses are an attractive target of various hacks, and allowing your security controls to lapse may result in a breach that could make your business less attractive to buyers.
• Lock Down Financial Processes and Controls. Tie up the valuable package that is your business. A prospective sale event can significantly disrupt standard operating procedures that keep your business running efficiently, effectively and compliant with applicable requirements. As you prepare for a sale, make sure your core processes are firmed up, formalized and documented so that critical control activities continue prior to, during and following a sale event.

Taking these steps will improve your chances for a successful transaction. For more information, contact Weaver’s Health Care Advisory Services team.

Authored by Corey Palasota, CFA, Brian Teefey, CPA, Alexis K. Kennedy, CPA, CISSP, CISA, CCSFP, Anna Stevens, CPA, CHFP, and Yoram Kappel, CA.

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