2 Sure Fire Solutions to Increase Value
Review your general expenses:
Having a handle on your general expenses is critical to the overall success of your business. For the majority of agencies operating in home healthcare, general expenses are one of the biggest factors to declining profit margins and overall value.
Just think about it for a moment. Unless you are a private pay agency, the majority of your payers (Medicare, Medicaid, third party insurers, VA) all set their own reimbursement models and as a provider there is little you can do to raise your pricing. You either grow your census and survive on volume or implement cost cutting strategies to reduce overhead and retain margins in years when rates are cut or stagnant.
Since the majority of your vendors (Landlord, payroll, insurance, etc) can and will increase their prices you have to develop relationships with multiple vendors to create market demand for your business which will provide a platform to lower your cost.
Solution: Find out your 10 largest vendors and establish a price list for the products and services they provide. Then go to their competitors and request a proposal for the same services and products…and yes it is OK to let the competitors know your current pricing models. In most cases the competitors will come up with lower pricing…this gives you the opportunity to go to your current vendor to match or beat the price. If your current vendor cannot match or beat the price, explore the possibilities with the lower priced vendor.
Review cost of labor:
For most agencies labor is the single highest cost. When there is a small percentage increase it can make a big difference. Tenure can be both a positive and a negative for you and your agency. The longer a caregiver or administrative support person stay on board, the more they typically are paid…and this is to be expected…but in a time of declining or stagnating reimbursement rates this can end up putting an agency out of business.
Solution: For the administrative staff, you need to review your payroll reports and identify the highest paid group and determine if any cuts can be made. Review job responsibilities to determine if they can be divided up and taken over by two or three other members. Then take a portion (maybe 10% to 25%) of the pay from the eliminated position and distribute it among the group taking over the responsibilities. If you cut one $40K salary that would be $30,000 to $36,000 added to the bottom line. Tough decisions but the business has to survive and preserve its value.
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“Exit strategies may allow you to get out before the bottom falls out of your industry. Well-planned exits allow you to get a better price for your business.”
From: Selling Your Business by Russ Robb, published by Adams Media Corporation
Whether you plan to sell out in one year, five years, or never, you need an exit strategy. As the term suggests, an exit strategy is a plan for leaving your business, and every business should have one, if not two. The first is useful as a guide to a smooth exit from your business. The second is for emergencies that could come about due to poor health or partnership problems. You may never plan to sell, but you never know!
The first step in creating an exit plan is to develop what is basically an exit policy and procedure manual. It may end up being only on a few sheets of paper, but it should outline your thoughts on how to exit the business when the time comes. There are some important questions to wrestle with in creating a basic plan and procedures.
The plan should start with outlining the circumstances under which a sale or merger might occur, other than the obvious financial difficulties or other economic pressures. The reason for selling or merging might then be the obvious one – retirement – or another non-emergency situation. Competition issues might be a reason – or perhaps there is a merger under consideration to grow the company. No matter what the circumstance, an exit plan or procedure is something that should be developed even if a reason is not immediately on the horizon.
Next, any existing agreements with other partners or shareholders that could influence any exit plans should be reviewed. If there are partners or shareholders, there should be buy-sell agreements in place. If not, these should be prepared. Any subsequent acquisition of the company will most likely be for the entire business. Everyone involved in the decision to sell, legally or otherwise, should be involved in the exit procedures. This group can then determine under what circumstances the company might be offered for sale.
The next step to consider is which, if any, of the partners, shareholders or key managers will play an actual part in any exit strategy and who will handle what. A legal advisor can be called upon to answer any of the legal issues, and the company’s financial officer or outside accounting firm can develop and resolve any financial issues. Obviously, no one can predict the future, but basic legal and accounting “what-ifs” can be anticipated and answered in advance.
A similar issue to consider is who will be responsible for representing the company in negotiations. It is generally best if one key manager or owner represents the company in the sale process and is accountable for the execution of the procedures in place in the exit plan. This might also be a good time to talk to an M&A intermediary firm for advice about the process itself. Your M&A advisor can provide samples of the documents that will most likely be executed as part of the sale process; e.g., confidentiality agreements, term sheets, letters of intent, and typical closing documents. The M&A advisor can also answer questions relating to fees and charges.
One of the most important tasks is determining how to value the company. Certainly, an appraisal done today will not reflect the value of the company in the future. However, a plan of how the company will be valued for sale purposes should be outlined. For example, tax implications can be considered: Who should do the valuation? Are any synergistic benefits outlined that might impact the value? How would a potential buyer look at the value of the company?
An integral part of the plan is to address the due diligence issues that will be a critical part of any sale. The time to address the due diligence process and possible contentious issues is before a sale plan is formalized. The best way to address the potential “skeletons in the closet” is to shake them at this point and resolve the problems. What are the key problems or issues that could cause concern to a potential acquirer? Are agreements with large customers and suppliers in writing? Are there contracts with key employees? Are the leases, if any, on equipment and real estate current and long enough to meet an acquirer’s requirements?
The time to address selling the company is now. Creating the basic procedures that will be followed makes good business sense and, although they may not be put into action for a long time, they should be in place and updated periodically.
At United we care about our clients and can provide guidance to help you develop an exit plan. We even offer an ongoing service to help get you started. It is by far the best value in the industry and offers ongoing annual updates at no charge…it really is an incredible value.
To learn more about this valuable service click here and provide the requested information.
|HIGH||5 or more buyer groups|
|MEDIUM||3 to 4 buyer groups|
|LOW||1 to 2 buyer groups|
|Price||# For Sale||Percentage|
|Under 1 Million||187||61%|
|1 Million to 2.5 Million||24||8%|
|2.5 Million to 5 Million||5||2%|
|5 Million to 7.5 Million||1||.33%|
|7.5 Million to 10 Million||1||.33%|
|10 Million to 15 Million||1||.33%|
|15 million and up||0||0%|
|Region||# for Sale||Percentage|
12600 Deerfield Pkwy
Atlanta, Georgia 30004