Live Cheap or Die Young
We recently advised a client “Paul” (53), owner of a successful medical specialist practice. Paul had started thinking about retiring and believed all it would take is not getting out of bed to go to work. Until he spoke to us, Paul was looking forward to retirement. He was planning to sell his practice to fund part of his retirement. Paul did not realise how the shortfall in his practice value affected his future lifestyle.
Based on his retirement plans, Paul’s Financial Planner had estimated that he would need $1.2 million in retirement assets at aged 60 to fund his lifestyle in retirement. His projected income earning retirement assets were calculated as $575,000 resulting in a shortfall of $625,000, far exceeding the current value of his practice.
If Paul did nothing he would face:
Accepting a lower standard of living at retirement
Continuing working well past his desired retirement date.
This case study highlights how the value of a business affects an owner’s future standard of life and how succession planning can be used to grow and realise business wealth to fund the shortfall.
Value Gap $625,000
No formal succession plan
Paul is the practice’s principal “revenue earner” with his existing staff supporting his activities.
There was a young qualified professional working in the business, but he moved on to gain more experience and build his career.
Paul has always rejected merger talks with similar practices for fear of losing control of his business.
We completed a business value gap analysis for Paul's practice. The analysis allowed us to identify his value needed for sale, business value gap and future profit target. The value gap analysis illustrated he could close this if he were able to increase his practice profit ($50,000 in the first year). Paul was confident that with our help, he would be able to achieve this.
We worked with Paul to identify his future profit target, by implementing procedures to grow income and improve patient’s profitability. Paul’s growth strategies included purchasing a new patient management system to record patient fees and practice expenses accurately. We also segmented his patients to focus on more profitable work and identified some niche marketing opportunities. He has fewer patients but is making more money.
The administration department of any medical practice is such an essential component, we reviewed the existing systems that were in place for administrative staff responsible for scheduling, meeting patients, collecting payments, etc. A large part of their time is now focussing on administering billings; we were able to deliver this message by conducting an Improved Practice Workshop with Paul and his administration staff on a Saturday. Most of the practice income is generated from third party government agencies or health funds and as such time is required to prepare a billing claim correctly, then submitting it and chasing up third parties, when bills are unpaid.
Our recent meetings between February and June 2016 with medical owner specialists show that administrative staff are not managing the billing function well, and as such outstanding billings have accumulated, which has affected cash flow, profits, and business value. It is important to factor this as a vital component of managing a profitable and successful practice.
We are also currently seeing an alarming number of medical practices that are not working efficiently and failing to recover monies owed successfully. By outsourcing the debt collection for Paul's practice, we were able to recover $80,000 which increased Paul's bottom line, in his first three months by $73,000. With the required training and our ongoing advisory team monitoring the practice billings, we have measures in place to ensure that Paul's practice manages the billings function effectively.
We also introduced Paul's succession strategy; this included joining a network of similar practices to share training and professional development costs and selected administration functions. Sharing costs and functions with similar practices is one way of retaining control but identifying “like minded” practice owners as they may be the future buyer of his practice.
Retire Financially Secure
Our world class value improvement benchmarking advice process will help you retire financially secure by transitioning your medical practice from personal goodwill to practice goodwill.
If you require Debtor Management Services for your Medical Practice or would like to grow your practice, our Medical and Allied Health Advisory Specialists are here to help. Contact Us Now