Increasing practice value before a sale
OT poses a monthly scenario from a practitioner. This month, we look at ways to increase the value of a practice before selling it
29 October 2019
Hassnain, AOP member
“I am an independent practice owner who opened up a small village practice in England nine years ago. The High Street that we are on consists of six shops that have all changed since we opened our doors. I have decided that I would like to sell the business at some point, but it has been struggling and I am looking for ways to increase its possible value. Can you advise?”
Mark Ridout, director of R A Valuation Services Limited
With growth in the popularity of online suppliers and ongoing domination by the sector’s multiples and supermarkets, a diminishing number of independent practices remain in village locations.
General macro-economic considerations, including uncertainties over Brexit and the economy at large, may influence the spending behaviour of your practice’s prospective client base. It may well even be something as mundane as the availability of adequate car parking that determines whether potential clients frequent a practice or not and – in terms of prospective buyers of the business itself – its location may ultimately limit the number of realistic suitors.
However, with just a few straightforward strategic steps, you should be able to improve your trading performance and increase the value of your business during pre-sale preparations.
First impressions count and can be the difference between a successful sale and lost opportunity
1. Kerb appeal
As with selling a house, so called ‘kerb appeal’ is vitally important when selling a practice too. When a homeowner wants to sell their house, they may paint it, fix up a couple of things that have needed to be done for the last few years and polish the taps. Simple, and obvious, but unarguably effective. Likewise, the business owner can improve the attraction of their business by making a few changes. First impressions count and can be the difference between a successful sale and a lost opportunity.
Healthy profits are the most important factor. Clearly, financial performance – and growing trading profit in particular – will validate that the business is performing well. As an example of the dramatic effect of profit growth on business value, in a recent one-year update valuation of a practice undertaken by R A Valuation Services, sales had increased over the latest year by an insignificant 5%, but purchases were maintained at the same level and overheads had been cut by 5%. The business was valued at over 40% higher than the previous year, solely as a result of these changes.
In the day-to-day running of a typical business, this equates in simple terms to a combination of:
- Increasing sales: the business should regularly review its pricing. It can promote services that both attract new patients to the practice and bond existing clients with the business. An increase in spend per visit should also be pursued. The captive in-store audience can be targeted with offers advertised in key locations within the premises (ie point of sale, entry and exit points)
- Managing purchases: do not be afraid to negotiate beneficial terms when buying lenses, frames and other products. Owners should review and frequently compare supplier prices and reliability of service, while avoiding a build-up of lower value or obsolete stock
- Cutting overheads: by keeping a close eye on all overheads, using and reviewing management information on a frequent and regular basis, and highlighting any expenses that are becoming disproportionately high in relation to the level of business income, an owner can maintain the practice’s overhead costs even during sales growth.
Ultimately, a proven track record of rising profits will attract the most interest – and most importantly the highest offers – from prudent prospective buyers
3. Be realistic about the value of the practice
The value of a business should not be underestimated but should also be realistic. Beware valuation figures that are artificially inflated by a transfer or sales agent eager to sign up a practice to a sole agency agreement; potential buyers will recognise an over-priced business for what it is.
4. Be a professional manager
Concentrate on the points listed above. Enlist professional help to organise and plan. Listen to the experts.
Most importantly, be prepared with clear, up-to-date accounts showing an attractive and well documented track record of profitable growth. Like the homeowner, polish and a fresh coat of paint will help with the kerb appeal, but remember that the bank will want to see that any potential purchaser is buying something that is well placed to pay back a loan.
Ultimately, a proven track record of rising profits will attract the most interest – and most importantly the highest offers – from prudent prospective buyers. Get the above right and the financial figures will speak for themselves.
Image credit: Getty/Brian A Jackson