Dr. Allen Nazeri outlines how to increase a clinic's investment value, recommending 18 months as a realistic timeline. Virtual partnerships let clinics share marketing, accounting, and training without merging, boosting EBITDA. One case study shows revenue jump from $2.5M to $8M with profit margins near 31%.
Chapters
Value engineering strategies to 10x the value of your clinic and dominate the market part 11 chapter 10 10x the valuation.
In previous chapters we discussed strategic steps to increase the value of any healthcare business. These tactics not only will improve the current performance of any company, but but it also adds to the investment value of a business. I define the investment value as the highest value an investor is willing to pay for a business knowing the company faces minimal risk in terms of business interruption, continues to attract new customers and grows year after year profitably.
The increasing valuation is a deliberate process and it takes time. What is the shortest time it takes to improve the valuation? I have seen valuation significantly increase within just a few months. However, for the best results I recommend the lead time about 18 months on average. It could take longer if the client has limited resources and tries to do everything independently rather than recruiting professional help from outside and possibly shorter if outsourced. The time must not be the focus but instead the quality of our actions leading to improved performance and higher appraisal at the time we are ready to sell part of our entire business.
In chapter two I discussed firing yourself first. This tactic takes time. For many clinical working founders it is not just about showing an investor you are no longer the key provider, but you must be able to demonstrate the business is operating without you and the revenue is not affected over at least 12 months. In chapter three I wrote about becoming an ultimate sales machine. Training individuals in communication mastery is something achievable in 12 weeks or less. However, implementing it and showing the results lags and it will take some time. Just like any other new skills, teams need to be continuously coached and trained. The best companies make a recording of their teams in action where it is legal, monitor and improve results weekly to accomplish. Being an ultimate sales machine is a team process that takes time and dedication. In chapter four I emphasize the importance of documentation and protection. This area is often where most practices struggle. For one thing, most providers are super busy dealing with the everyday challenges of running a business and and lack enough human resources to document all processes, identify bottlenecks, improve the workflow and correctly record it. Finally, legally protecting those necessary documents and having a creative team to polish these IP assets getting it ready for professional presentation. We're also covered here. In chapter five and six I discussed the importance of personal growth, developing leaders, development and training. Again, this is a process that requires time and obviously cannot microwave leadership skills. The sooner we begin learning and implementing a company wide skill development and empowering others to pursue a path of personal growth, the sooner higher dividends await us.
In Chapter seven I wrote about the need to measure performance and tweaking results. Establishing meaningful KPIs and expecting our people to follow actionable tactics to achieve targeted results cannot precede development and training. Without an effective training program already in place, a prematurely established KPI is a waste of resources. It will demotivate and frustrate teams. Therefore, this process takes time and is not something achievable in a short period. In Chapter eight and nine, I spent a great deal of time discussing strategic partnership's value. I pointed out that identifying a like minded partner who also can benefit from this alliance in negotiating the terms require requires time and can be complicated process. If you have never done it before.
However, increasing its valuation through Let me share with you one of my favorite growth strategies. I like to call it virtual partnerships or VP or ghost mergers. These are strategic partnerships, if done correctly, can lead to massive fortunes for everyone involved and it is truly a win win situation.
In vp, partners have a common objective of increasing their company's value and looking for some exit type. By taking the lead to identify and unite potential partners, each partner can add considerable valuation to the entire group. Therefore, everyone can benefit from it during a pre planned exit. Let me share with you the story of one of my clients. To protect the confidentiality of my client, I have changed the names and location. Dr. Adam is the owner of a dental group in the suburbs of Denver, Colorado. He founded the practice in 2008amid the global recession. His practice is now averaging $2.5 million in collections for the past three years. Through hard work and consistent marketing, he hires a business consultant to improve his operational performance, hoping to achieve a revenue target of $4 million with the hopes he can improve his EBITDA from the current rate of $380,000 to $800,000 and then sell off his business. However, the company keeps struggling to get past the current revenue. He comes across one of my videos on corporate strategy and he decides to have a consultation with me. During the call, I explained to Dr. Adam how he can find other dental clinics willing to cash out part of their equity and build a series of alliances with shared resources. Dr. Adam and I come into a working agreement where I help him bridge the partners together in marketing, accounting, legal supplies, training and funding finding an investor who would be interested in our virtual roll up. Within six months, Dr. Adam and I grew his revenue from $2.5 million to just under $8 million. Through consolidated accounting, I was able to show investors how they can increase the profit margins to nearly 31% after all of the clinics are formally and legally integrated. As of this book's writing, I am negotiating four offers for Dr. Adam and an average of 8.5 times his EBITDA multiple. This high valuation means with no money ever exchanging between strategic partners, an 8 million dollar company is valuing near 13.4 million dollars. Wow.
This is the power of a strategic partnership. If you know how to make a deal happen from the very beginning with an eye on the exit, let me break this down for you showing how these numbers are achievable. The chart illustrates how a company's value can improve when grouped and higher the integration platforms. Among them, the higher the valuation assigned, leading to a higher selling price. It is the higher valuation that makes strategic partnerships or grouping so important. Professional investors know how to group businesses, create synergies, cut costs, make it more profitable, and resell their equity. However, this grouping occurs in a traditional M and A where one company acquires another company's stocks or assets. In exchange, the target company is receiving cash, shares or a combination. There is no exchange of stocks or cash at the onset in the virtual partnership, but it is only transacting when an investor is identified and is willing to buy the grouped companies. The VP mitigates the risk of post merger integration or pmi. It allows the lead consolidator of the practice to create synergy between the groups while identifying an investor without substantial financial commitment. Are these valuations possible in all strategic partnerships? No. The more integrated partners become sharing more resources among them, the more concrete the foundation is, which is what professional investors seek. Another reason for a high valuation is also the investor's familiarity with the systems used to integrate practices. For example, many investors are comfortable with QuickBooks software or Dentrix as the dental management software. More commonly used platform methods make it more investor friendly and thus there is less time and money spent on due diligence and conversions post mergers. In summary, strategic partnerships can achieve significant valuation where it may take generations to create the same value organically. With this awakened insight, the path of a strategic alliance guarantees to help you strengthen your company and provide you with much higher leverage in negotiating terms of transferring ownership, regardless of whether you decide to sell all or part of your business.
Frequently Asked Questions.
How do virtual partnerships differ from traditional M and A.
In vp, partners in a group decide to collaborate in a formal but not strictly legally binding agreement. This alliance allows partners to work together over time to achieve a common objective. It is completing different phases. For example, a group of orthopedic surgeons may decide to begin cooperating their marketing efforts during the first phase, followed by buying equipment and supplies, training and development.
This is the end of Part 11, Chapter 10. Please proceed to Part 12.
