Dental and Medical Counsel Blog

When it comes to selling your physical therapy practice, it's more than just finding interested buyers. Maximizing the value of your practice requires careful planning, expert valuation, and strategic improvements. At Dental & Medical Counsel, we specialize in assisting physical therapists with the sale of their practices. The key question to consider is, "How can I minimize the perceived risk for potential buyers?" 

For sole practitioners, planning for the sale should ideally begin 1-2 years in advance, while practices with multiple partners may require even longer preparation. Once you've made the decision to sell, the first step is to have your practice professionally valued. While you can estimate its value by tallying assets and liabilities, this method often overlooks intangible assets like goodwill and client base. 

A neutral third-party appraisal provides a more accurate assessment, aligning with what potential buyers are likely to see. If the valuation exceeds your expectations, you're ready to list the practice for sale. If it falls short, you can either adjust your expectations or take steps to enhance the value before listing. It's crucial to remain realistic about the practice's worth, and we offer actionable tips to help improve its value during this period. 

Here are 10 ways you can increase the presale value of your physical therapy practice: 

Grow your revenue:

• To increase the value of your physical therapy practice before selling, focus on growing your revenue. Optometrists often sell their practices when nearing retirement, leading to decreased practice time and declining revenue. Potential buyers will scrutinize two to three years of tax returns, and a downward revenue trend can raise red flags and increase perceived risk.
• Invest time in rebuilding your patient base and increasing practice hours to boost revenue. As revenue grows, so does the value of your practice, making it more attractive to potential buyers. 
  

Reduce your accounts receivable:

• To enhance the appeal of your physical therapy practice to potential buyers, focus on reducing your accounts receivable. High levels of outstanding accounts can signal risk and instability to buyers. Implement a robust billing and collection system to ensure consistent cash flow. Follow up with patients promptly for payment and consider outsourcing billing to improve collections efficiency.
• Additionally, consider implementing a policy where glasses or contact lenses are dispensed only when the patient's account is settled in full. This can help prevent further accumulation of accounts receivable and demonstrate financial discipline to potential buyers.

Identify and clarify your add-backs:

• To maximize the value of your physical therapy practice, it's crucial to identify and clarify your add-backs. The valuation of your practice is based on EBIDTA, which encompasses earnings before interest, depreciation, taxes, and amortization. Understanding add-backs involves recognizing ongoing expenses that won't be applicable post-transaction and adding them back to the pre-EBIDTA tally. This process ensures an accurate reflection of the business's value, often resulting in an increased valuation compared to excluding add-backs.
• Common add-backs include discretionary expenses like compensation for club dues, continuing education, business travel, and meals. Non-recurring expenses, such as legal fees, technology upgrades, and relocation costs, are also considered add-backs. Additionally, market value adjustments may be necessary if your salary or rent exceeds market rates for physical therapists. Inventory adjustments may also be applicable, particularly if there was a significant increase in inventory that won't be repeated in subsequent years. Identifying and clarifying these add-backs can enhance the perceived value of your practice during the sale process. 

Maintain an up-to-date itemized asset list:

• Maintaining an up-to-date itemized asset list is essential for optimizing the value of your physical therapy practice. Your practice assets significantly impact the overall value of your business. By keeping your asset list regularly updated, you streamline the valuation process and avoid the hassle of scrambling to compile a list when it's time for assessment. This proactive approach ensures transparency and accuracy in representing the assets associated with your practice, ultimately enhancing its value in the eyes of potential buyers. 

Make capital investments designed to increase the value:

• Making strategic capital investments aimed at enhancing the value of your physical therapy practice can significantly impact its market appeal. Start by upgrading outdated equipment with modern alternatives and addressing any necessary repairs. Just as real estate agents stage homes to attract buyers, consider "staging" your practice to create an inviting and comfortable atmosphere. Refresh your office space, including the waiting area, to ensure it reflects professionalism and modernity. By investing in the aesthetic and functional aspects of your practice, you not only improve its visual appeal but also convey a sense of quality and excellence to potential buyers, ultimately increasing its overall value. 

Hire a practice broker:

• Engaging the services of a skilled practice broker can streamline the process of selling your physical therapy practice. A seasoned broker possesses invaluable expertise in identifying potential buyers and can offer valuable insights into enhancing your practice's value. From identifying areas for improvement to facilitating the sale while you focus on patient care, a practice broker can provide comprehensive support throughout the selling process. Their knowledge of the market and negotiation skills can help ensure a smooth and successful transition, allowing you to maximize the value of your practice while minimizing stress and disruption to your daily operations.

Negotiate better prices for your inventory:

• Exploring alternative suppliers for your equipment and supplies, such as therapy machines and exercise tools, can potentially lead to better pricing and improved profitability for your physical therapy practice. By comparing prices and evaluating service reliability across different suppliers, you can identify opportunities to negotiate more favorable terms with your current vendors or secure better deals with new ones. Don't hesitate to leverage your purchasing power and negotiate for competitive pricing that aligns with your practice's financial goals. 
  

Cut down overhead expenses:

• Reduce your practice's overhead costs by identifying areas where you can streamline expenses without compromising the quality of care provided to your patients. Consider hiring a financial professional to conduct a thorough review of your accounting books and identify opportunities for cost-saving measures. This could involve renegotiating contracts with suppliers, optimizing staffing levels, or implementing more efficient administrative processes. By proactively managing your overhead expenses, you can improve the financial health of your physical therapy practice and enhance its overall profitability. 
  

Reduce debt:

• Lowering the debt burden of your physical therapy practice can significantly increase its value when preparing for sale. Start by reviewing your outstanding debts, such as credit card balances, and explore opportunities to pay them off or consolidate them into more favorable financing arrangements. Consider negotiating with your bank for a line of credit with better terms to replace high-interest credit card debt. By reducing your practice's debt load, you can enhance its financial stability and attractiveness to potential buyers. 
  

Maintain a strong inventory:

• Ensuring your physical therapy practice maintains a robust inventory is crucial for making a positive first impression on patients. A diverse selection of therapy equipment and tools not only enhances the patient experience but also reflects your commitment to providing quality care. Keep your inventory updated with the latest rehabilitation devices, exercise tools, and treatment modalities that align with current trends and patient needs. By offering a comprehensive and modern inventory, you can attract and retain patients while showcasing your practice's dedication to delivering effective therapy solutions. 
  
  

Frequently Asked Questions 

Q: How can I increase the value of my physical therapy practice before selling it? 
A: There are several strategies you can employ to boost the value of your physical therapy practice. These include growing your revenue, reducing accounts receivable, identifying and clarifying add-backs, maintaining an up-to-date asset list, making capital investments to enhance the practice, hiring a practice broker, negotiating better prices for inventory, cutting down overhead, reducing debt, and maintaining a strong inventory. 

Q: Why is growing revenue important for increasing the value of my practice? 
A: Growing revenue demonstrates the potential for profitability and sustainability, making your practice more attractive to potential buyers. By investing time and effort into rebuilding your patient base and spending more time in the practice, you can increase revenue and subsequently enhance the overall value of your practice. 

Q: How can I reduce accounts receivable to make my practice more appealing to buyers? 
A: A high number of accounts receivable can be a red flag to buyers, so it's essential to have a consistent billing and collection system in place. Follow up with patients for payment and consider outsourcing billing to improve collections. Additionally, implementing a policy where services are only dispensed when accounts are paid in full can help reduce accounts receivable. 

Q: What are add-backs, and why are they important for valuing my physical therapy practice? 
A: Add-backs are expenses that won't be included in your cash flow after the transaction but can affect the value of your practice. They include discretionary expenses, non-recurring expenses, market value adjustments, and inventory adjustments. Identifying and clarifying add-backs helps to show the true value of your practice, potentially increasing its value. 

Q: Why is maintaining an up-to-date asset list important for selling my practice? 
A: An up-to-date asset list ensures transparency and accuracy in valuing your practice's assets, which is essential for determining its overall value. By keeping your asset list current, you can streamline the valuation process and provide potential buyers with comprehensive information about your practice's assets. 

Q: How can making capital investments enhance the value of my physical therapy practice? 
A: Making capital investments, such as replacing outdated equipment and upgrading facilities, can improve the overall appeal and functionality of your practice. By investing in modern equipment and amenities, you can attract more patients, increase revenue, and ultimately enhance the value of your practice. 

Q: What role does a practice broker play in selling my physical therapy practice? 
A: A practice broker can assist you in various aspects of selling your practice, including determining necessary changes to increase its value and connecting you with potential buyers. They provide valuable expertise and guidance throughout the sales process, helping you achieve a successful sale while continuing to serve your patients. 

Q: How can negotiating better prices for inventory benefit my practice? 
A: Negotiating better prices for inventory can help reduce expenses and improve profitability, ultimately increasing the value of your practice. By reviewing prices from different vendors and negotiating with current suppliers, you can lower costs and enhance the overall financial health of your practice. 

Q: Why is cutting down overhead important for selling my physical therapy practice? 
A: Cutting down overhead expenses helps improve the financial efficiency of your practice, making it more attractive to potential buyers. By reducing unnecessary costs and optimizing operational efficiency, you can maximize profitability and enhance the overall value of your practice. 

Q: What steps can I take to maintain a strong inventory and attract patients? 
A: Maintaining a strong inventory involves offering a diverse selection of therapy equipment and tools that appeal to your patient base and reflect current trends. By updating your inventory with modern rehabilitation devices and exercise tools, you can create a positive first impression on patients and demonstrate your commitment to providing quality care. 

About the Author

At Dental & Medical Counsel, we've been instrumental in realizing the practice goals of countless physical therapists. Whether you're looking to purchase, launch, or sell a physical therapy practice, our expertise is your guide. Beyond the initial stages, we're committed to ensuring your physical therapy practice remains legally compliant.

We provide comprehensive support, including employment law protections, physical therapy contract reviews, and assistance with physical therapy employment agreements. Additionally, we specialize in incorporating physical therapy practices and securing trademarks. And for long-term planning, our services extend to helping physical therapists with succession and estate planning. Trust us to be your partner in every step of your physical therapy practice journey.

About Ali Oromchian, Esq.

Your Veterinary Lawyer

Ali Oromchian, JD, LL.M. is the founding attorney of the Dental & Medical Counsel, PC law firm and is renowned for his expertise in legal matters

Ali Oromchian, JD, LL.M., is a leading legal authority in veterinary law and the founding attorney of Dental & Medical Counsel, PC, with over two decades of experience. His deep connection to dentistry comes from his wife's nearly two-decade-long career as a pediatric dentist. 

This personal insight fuels his dedication to empowering dentists to navigate their legal challenges and achieve their practice goals. In doing so, Ali has helped thousands of doctors open their practices while maintaining legal compliance. 

Ali is frequently quoted and contributes articles to dental publications, including the California Dental Society, Progressive Dentist, Progressive Orthodontists, Dentistry Today, Dentaltown, and The New Dentist magazines, further showcasing his commitment to the dental community.