Value Engineering: 10X the Value of Your Clinic| Audio Book Part 3| Dr. Allen Nazeri DDS MBA

Value engineering strategies to 10x the value of your clinic and dominate the market.

Part 3 Chapter 2 Fire yourself first as I'm writing this book, more and more healthcare businesses are considering selling their business due to the COVID pandemic and are contacting my office to find them a buyer. A few are considering selling as they are suffering financially. Others are thinking of getting out due to the pandemic's regulatory restrictions making it challenging to resume the regular pre COVID patient load resulting in less revenue and higher overhead expenses. Sadly, after consultation with most sellers, the valuation most founders have in mind far exceeds what the market is willing to pay for them. This value gap is generally the result of the founders lack of understanding of valuation drivers. However, on many occasions founders are misinformed by enthusiastic business brokers fighting for their listings.

In markets such as Australia, Canada and the United States, States and the United Kingdom, there is an oversupply of practice listings. Even though they are typically being brokered or advertised as a business for sale, they're rarely a real business with well defined systems and processes. In most the doctor owners see X number of patients daily and make a living. Even though those owners typically make good earnings and enjoy a lavish lifestyle, their business value rarely amounts to anything significant. As they are the sole provider of clinical services, it means there is no guarantee for an investor that the revenue will not decline when the key provider departs from the business. This lack of certainty negatively affects the valuation. The higher the risk to an investor, the lower the value.

In Dr. Sam's story from chapter one, we saw how he sold a thriving four million dollar practice for 20% of its revenue even though the dentist who purchased it had similar clinical skills as him, where he could potentially replace Dr. Sam's excellent clinical skills. The more specialized treatments and expertise that are offered, the more challenging it is to find a replacement buyer as the qualified pool of buyers is limited. However, the more generalized the practice, the more available buyers and thus higher in its valuation. For example, a highly specialized dental clinic in restoring edentulous patients with fixed implant prosthesis is appraised far less than a general bread and butter dental practice where any dentist is with more general clinical skills can operate it. The same is true with any type of healthcare practice. Another example is a highly skilled plastic surgeon focused on microvascular surgery. This clinic's long term equity value is far less than a surgical center serving broader and fewer niche services.

The clients I prepare for an exit end up with valuations that are 10 times their appraised value before signing on with my coaching programs.

I humbly make this statement only to emphasize need for proper guidance and following a required template used by professional investors to evaluate acquisition targets. Sometimes, though a client has enjoyed a lavish lifestyle, they're dependent on high compensation levels derived from actually treating patients. They can have high mortgage payments, kids attending private schools, or own expensive toys such as exotic cars, boats and planes. In these situations, it is not always possible for a hands on founder to immediately cut back in providing clinical care due to their high personal expenses and financial commitments. However, with proper planning, the most can transfer their clinical duties to other providers, ridding their business dependency on them within a short time. I am typically able to help accomplish this by merely mapping out a plan where I can help the founders boost revenue exponentially, allowing them to continue being paid the near level compensation as before while reducing their time to less than 10%. As a clinician.

Frequently asked questions.

What if I don't want to cut back on clinical care instead of hiring a professional to manage my business?

As long as you are a leading producer of revenue and your business depends on you, you don't have a sustainable business. You only have a high paying job. If you are okay with not selling your business at a high value and have other contingency plans in place facing any of the five Ds explained in chapter one, it is fine. Also, in the event you can find an investor when ready to exit, expect to continue working at least three to five years. This period is typical timeline before investor transition out of owning your business to realizing the return on their investments or ROI.

I hear what you're saying Dr. Allen, but I have not been able to find anyone suitable to replace me. How can I transition out of clinical care? This concern often arises from founders who are insecure about giving their powers away to others who work for them. In other words, they do not empower others. This behavior generally stems from this insecurity of the leaders. To overcome this issue, I typically focus on developing the founder's leadership skills early on in our coaching programs. Leadership is about maximizing the potential of others through influence and empowerment. The foundation begins with the trust and proper coaching of others who will be replacing you. The biggest challenge I see is not finding someone suitable, but making the owner or founder grow up and mature as a leader.

I take home after taxes, $280,000 per year in annual income. How can I replace my income by giving up the clinical practice?

The high compensation has been one of the significant barriers for doctors to reduce their clinical time. Most doctors have an expensive lifestyle with mortgages, car payments, children's school payments, and massive education debt. In situations like this, I help the clients first to multiply their gross revenue. I accomplish this by improving their income organically and incorporating other means of growth such as strategic partnerships or material, which I will discuss later in this book. The combination of both will allow the founders to reduce clinical care time with minimal impact on their current compensation.

Question I have tried to replace myself with another doctor, but patients keep asking for me to treat them and they don't want to see a new person. How can I deal with this situation in transitioning my clinical power to others?

We have to first understand why this happens. It is generally because 1. The services you offer are too niche or complex. 2. The marketing focus is primarily on you rather than the clinic or the business itself. It could be you are using your name as part of the branding. By revising the marketing plan and focusing on offering more general services and training your team on scripting, they will be able to introduce new provider and gradually transition you out of practicing full time.

3. Acquiring another practice that is the same size as yours or larger with other qualified practitioners can help you dilute your time in being a clinician and focus more on managing your practice's growth.

My wife and I are both providers in a thriving dermatology practice. My wife is 10 years younger than I am and she wants to continue to work after we sell our business. We currently have an offer from a large MSO that is backed by a private equity firm. Do you recommend it?

Absolutely. Because your wife is willing to stay after the sale, I can typically negotiate a higher sale price for my clients in similar situations. Remember, the valuation is directly proportional to the risk level of investors. If we show how your wife's presence in the practice will be advantageous to business continuity, the investors should be willing to pay you more for your business. However, we must be cautious not to build such a strong case for your wife's presence. The investors become fearful that the practice is solely dependent on hera. In these situations, having an experienced investment banker is highly recommended as they will know how to do proper financial modeling to defend a premium price.

Question what is the fastest way to stop working as an ophthalmologist and grow my laser eye center without consuming my time treating patients?

This question is loaded and a specific strategy depends on many factors requiring a full assessment. However, one way to consider is strategic partnerships are acquiring another practice with an equal or more significant revenue than yours. This growth opportunity will allow you to find synergy among the expenses while having sufficient cash flow to support you financially without treating patients.

This is the end of part three, Chapter two. Please proceed to part four, chapter three.