Dr. Allen Nazeri explains how documenting and legally protecting your clinic's intellectual property, like branded documents, manuals, and custom software, can significantly increase its valuation. Three approaches value IP: what it costs to create, what buyers will pay for it, and the income it generates. Introduce IP early in sale negotiations and show buyers how it protects continuity.
Chapters
Value Engineering strategies to 10x the value of your clinic and dominate the market Part 5 Chapter 4 Documented protected in the last decade, with more complex mergers and acquisitions in healthcare and the rise of intellectual property violations, businesses with documented and well protected IP have realized a significant increase in valuation. Proper documentation, storage and Protection of these IPs is essential for today's healthcare practices and consequently make up a substantial portion of value. The IP assets can be valued based 1 How much did it cost to produce the IP asset? 2. Market demand how much is the market willing to pay to acquire the IP? 3. Income what is the potential revenue from the IP asset? Because IP is often not identified and categorized as an asset on most health care service providers, balance sheet practice brokers generally ignore these assets in their valuations because they are not counting the IP as equity. It leaves owners with a lot less cash at the closing. Traditionally, the broker's focus is generally on non tangible assets such as the goodwill or blue sky of the business, location, age and tangible assets such as equipment, instruments and signage. However, an experienced investment banker representing a seller understands the IP assets key, can amount to sometimes millions of dollars and knows how to negotiate for its highest value. IP is more than just patents or trademarks registered by practice. It is the entire process of operating a business. Indeed, understanding the IP's value and adequately documenting it is not just planned for planning an exit to gain additional monetary value. In short term, it serves the company by mapping out every process, identifying inefficiencies and the source of revenue loss. It also could serve as training or playbook that every company needs to scale. So let us look at some examples of IP assets in healthcare practice.
All copyrights used in authoring and creating documents for the practice all visuals such as color, fonts, names, taglines or ad copies used in branding and promotion all know how manuals, slides or presentations used in training and implementing business systems patents and trademarks branded social media accounts all customized web or software based programs including the company's website.
In all negotiations. First, I like to introduce the discussion of IP assets early on by identifying the IP for the buyers. Second, I show them why the IP is so valuable to the business continuity and third, the level of legal protection placed on IP for non permitted use.
Frequently Asked Questions.
What are the advantages of documenting every process in my practice?
In summary, businesses with documented processes significantly increase their valuation. The reason for this is twofold. Practices that detail every aspect of their operation can quickly identify the bottlenecks which are typically the source of operational redundancy and inefficiency resulting in much higher operating costs. By knowing these bottlenecks, the owners can cut costs through a well informed process rather than relying on emotions and instincts. The reduced operational expenses translate to higher net profit, realizing higher EBITDA multiples paid by an investor.
Question what if buyer who is interested in my practice already has well documented IP and decides not to pay for my ip? How do I convince them to pay for something they don't need?
You are right. A professional investor who has been investing in other healthcare practices may have certain IP assets, but they don't have everything. First, having a proper set of crafted and legally protected documents sets you apart from other sellers in professional investors eyes. Second, many professional investors such as a private equity firm are willing to pay for certain assets even if they don't end up using it to protect their right of ownership legally. In these negotiations, it is critical to have a knowledgeable representative.
Would I be able to sell my business but maintain my rights to my developed ip?
Yes. If you have a specific IP such as know how or a well known brand, consider licensing its usage rights for designated period to a new owner. Sometimes it is possible to negotiate a lump sum fee known as a licensing fee, followed by regular monthly payments for a specific IP or collection of all IPs that you make accessible to a licensee.
I assume protecting my IP rights will involve a considerable legal expense. Is there a way to protect my rights without high cost?
Most IP protections such as copyrights, trademark and patents can be done directly with the respective government agencies without hiring a lawyer. However, using IP lawyers will save time and is highly recommended for more complex IP registration. If you have many documents, you can always negotiate a fixed fee with a qualified attorney. If you consider international expansion, a local firm's use can substantially save you legal expenses compared to global firms.
This is the end of Part five, Chapter four. Please proceed to Part six.
