Most practice valuations report growth without reporting attrition. I recently supported a purchaser in a private acquisition whereby the appraiser reported only what the seller stated about new patient growth. No review of practice management software was undertaken by the valuator, which is rare. Growth was reported at 10 new patients per month. The financials show consistent year over year revenue. No mention of attrition was provided.
Plateaus are rare. Every practice is either growing or shrinking. Reporting 10 new patients per month usually means there is a net loss. Inevitably patients move, patients die, and patients decide to leave. Understanding how your practice compares year over year in terms of NET new patients, top line revenue, practice profit, and annual revenue per patient is a simple and effective way to understand the trajectory your business is on.
Practices get sold in the climate in which they exist. Staff shortages have caused some practices to see a reduction in capacity. And even though this problem may be solved in the future if team shortages are addressed, the practice gets evaluated based on the marketplace and economic conditions that exist at the time of valuation. Potential is only as reliable as real possibility.
Many practices do well despite little attention paid to performance metrics…until something breaks. For many, practice profit is “enough” for the owner to keep doing things the way they’ve always been done. But waiting to understand what these numbers look like in a trend analysis that is revealed only at the time of a practice valuation is mismanagement. Associates need not worry about practice numbers. But owners have a responsibility to ensure the health of the practice.
I was recently at a software conference. My wife and I own a technology company in healthcare that serves the medical profession. One of the speakers shared some wise words that has relevance to practice owners.
“If you don’t know why you’re winning, it will be temporary. If you don’t know why you’re losing, it will be permanent.”
If your practice is moving in the right direction and you don’t know what’s behind the growth, where the new patients are coming from, how the ARP is changing, and why profit is demonstrating a positive increase, the likelihood is that something will change eventually and you won’t know what lever to pull to get it back on track. If your practice is gradually losing performance altitude and you’re hoping it’ll turn around on its own, you’re holding your breath while the water level rises.
Investing a couple of hours every quarter so you can know your numbers and the “why” behind the numbers protects the legacy you have built so you can maximize your value, ensure the people who depend on your practice to pay their mortgages will continue to have a place to work, and your patients will receive continuity of care when you decide to hang up the handpiece.
