Strategies for Building a Practice You Can Sell: Key Financial Tips for Practice Owners

Have you ever considered the possibility of selling your practice?

Building a practice you can one day sell requires a comprehensive understanding of your practice's finances. In a recent podcast episode on The Creative Psychotherapist, I talked with Reina Lombardi about how to prepare your practice to sell. 

From understanding gross margins to evaluating fee schedules and compensation structures, each facet plays a pivotal role in shaping your practice's potential for a successful sale. 

Let's dive into the key strategies for building a practice you can sell:

Take Control of Your Finances

Ensuring control over your practice's finances is pivotal when preparing to sell your practice. Regularly closing your books is vital, ensuring accurate reports for informed decision-making and potential tax deductions. Reviewing financial statements each month offers insight into the business's health, even if the numbers seem daunting at first. 

This level of understanding empowers you as a practice owner, enabling you to make strategic decisions that can positively impact the value of your business when preparing for a future sale. That’s why I often encourage small business owners to outsource their bookkeeping as soon as possible. Because nobody got into business to manage the finances or the accounting side of the business, let alone do bookkeeping.

Understand Gross Margin

Gross margin is a critical metric that impacts the health of your business. Many practices struggle with a low gross margin, which can lead to cash flow issues and an inability to sustain high wages for staff. 

Measuring gross margin tells you how much cash you have left after covering your service costs, giving a clear picture of your business's financial well-being. Often, practices struggle to maintain high gross margins due to mismatched clinical hours, mismanaged capacity, or pay structures that don’t quite align. These issues can chip away at your profit margins and hurt the business in the long run.

Evaluate Total Expenses

Analyzing your total expenses, including subscriptions, rent, utilities, and administrative staff costs, can provide insights into the financial health of your practice. Ensure that you have some profit left and create action steps to improve profitability. Proactive planning is key to addressing any profitability issues and maintaining a healthy cash flow.

By keeping an eye on your total expenses, like day-to-day operational costs and even your own expenses for running the show, you start to see the bigger financial patterns shaping your practice's stability. It's all about making a plan to fix financial hiccups, ramping up profits, and making sure you've got enough money in the bank to keep things rolling smoothly. 

Manage Cash Flow 

Having a cash runway of 2-3 months of expenses is crucial for any practice. It provides a buffer in case of delayed insurance payments or rejected claims. Without a cash runway or a line of credit, you may struggle to make payroll or choose between paying personal bills and staff salaries.

And, of course, staying on top of your receivables—whether from insurance or private pay—is a big deal, making sure the money keeps flowing in regularly. When you've got these financial pieces clicking together—revenue, service costs, expenses, and profit—it not only spells success for your practice but also makes your practice a more attractive buy for potential future owners.

Evaluate Fee Schedule 

As a practice owner eyeing a potential sale, reevaluating your fee schedule every 6 to 12 months is a savvy move. It's about making sure you're not leaving money on the table. 

Surprisingly, sometimes insurance companies adjust their reimbursement rates, and you might not even be aware of it. We've seen cases where a simple tweak in the fee schedule led to higher reimbursements for the same services, boosting the practice's overall revenue. Monitoring and analyzing these financial intricacies—insurance rates, therapist payouts, and more—ensures your practice remains healthy and profitable, laying the groundwork for a future sale.

Evaluating Compensation Structures

As a practice owner considering a future sale, evaluating staff compensation structures is a strategic move that impacts your business's long-term health. 

Consider manageable shifts that benefit both your staff and your practice margins— for example, moving from commission-based structures to fixed rates or implementing bonus structures and offering additional vacation days in exchange. This approach allows for creative negotiation, focusing on what holds value for both the team and the practice. 

By testing these changes incrementally, you gauge their effectiveness while maintaining a healthy margin. It's about finding a middle ground that aligns with your financial objectives, reinforcing the interconnected nature of reassessing fee schedules, reimbursement rates, and staff compensation.

Track and Analyze Data

Tracking and analyzing data is a critical practice for any owner envisioning a future sale of their business. As I’ve noted above, key financial metrics like gross margin and profitability are essential areas to focus on, but assessing metrics beyond financials, like client conversion rates and tracking the origin of patients, holds equal importance. 

Understanding where clients come from—be it social media, referrals, or other sources—empowers you to invest resources wisely and maximize returns. Ultimately, it's about leveraging data to identify successful strategies, investing more in what works, and driving continuous improvement to increase your practice's value over time.

Find a Financial Partner or Advisor

Having a partner or advisor with financial expertise can be invaluable in making sound financial decisions and ensuring your practice operates in a healthy financial way. 

Accountability is crucial in financial management. Having someone to hold you accountable can be extremely beneficial, especially if you've been avoiding certain financial tasks. As a fractional CFO, my role is to support you in going through your financial numbers, answering questions, and identifying tasks that need attention.

As I’ve alluded to in this article, it's essential to comprehend the financial intricacies of your practice beyond mere bookkeeping. A fractional CFO plays a critical role in this journey by providing expert guidance and financial leadership, working hand-in-hand to envision the future, project financial trajectories, and craft strategic plans to achieve your business goals, and potentially build a practice you can sell.

Is it time to get your bookkeeping cleaned up? Learn more about our bookkeeping services here! 

If you want help creating and crafting your financial strategy, set up a consultation with a CFO to review your current financial situation and provide some options on how we can best support you. 

If you’re ready to outsource your finances, learn more about how we can help! Then, set up a consultation with Carla to review your current financial situation and provide some options on how we can best support you.