More Than A Number

With audits, budget cuts and the economy taking its toll, some O&P businesses are struggling to stay afloat. Although others are able to weather the storm, administrative factors may threaten to force change.

One option is to sell. But according to sources, selling is about more than a price; it is also about continuing a legacy built with time. In this Cover Story, leaders weigh in on when, why and how to sell a business, and offer advice for when the time comes to pass the torch.

A strategic option

Many factors weigh into the decision to sell a business, according to Don Dixon, CPO, founder and chief executive officer of the Center for Orthotic & Prosthetic Care. One of them is age.

There is a large percentage of ownership heading toward retirement, he said, and owners are looking for an exit strategy. Dixon, who has more than 42 years of experience in the profession, retired for 6 years before starting his current business in 1997.

Image: Shutterstock

Image: ©Shutterstock

Owner preference, competition, business conditions and other circumstances could lead to selling, Dixon said, or it “might just be the right opportunity.”

Although some believe selling a practice is throwing in the towel, Grant Rutledge, president of the Bulow Clinic Partners (BCP) Group, said it could be a strategic option.

“For an owner with growth opportunities, bringing on the right partner could provide access to capital and the supporting resources needed to accelerate organic growth or make an acquisition,” he said.

“You buy a company that is operating today, an established business [and] you are able to identify things you could do better based on things they are doing.”

A seller could take a portion of money off the table and still maintain some level of ownership, he added. The BCP Group has completed five partnerships or acquisitions in the past 2 years.

But the glory days of selling may nearly be gone, Barry Smith, JD, owner of Lloyds Capital Inc., told O&P News. “The way [the market looks] today is different from the way [it looked] 2 or 3 years ago,” he said. “As the seller [if] you want to make a deal, you [are] approach[ing] a different set of expectations.”

Barry Smith, JD
Barry Smith

Part of that difference is a weaker economy. Smith, who has acted as a broker for the past 20 years and negotiated the sale of more than 150 businesses, said increasing costs in health care and budget cuts due to the Recovery Audit Contractor (RAC) program have caused major issues with cash flow.

“Even as technology gets better, [the] business is defined by lower reimbursements and higher costs,” he said, adding that buyers are less willing to take chances due to economic constraints.

Lay the groundwork

However, there are steps a business can take to allow for a successful sale. Planning and organization are key. Smith suggests preparing as early as possible, as this could improve patient records, business structure and customer base, making the business more profitable and attractive.

“If the company is a mess, do not try to sell it,” he said. “If you have files that do not have physician notes or documents that are suspect, there is no point. You have to do some housecleaning.”

Brian Gustin, CP, chief executive officer of Forensic Prosthetic & Orthotic Consulting, said files always should be organized. He has experience performing pre-buy diligence for private equity and venture capital firms.

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“Have a clear, written process for how information is stored [and] be sure all staff are following the same method,” he said. “Do not underestimate the value of written policies for all aspects of your operations, [including] administrative, clinical and technical.”

Written processes demonstrate high competency and could lead to high valuations, he said, whereas improper documentation could lead to liability issues or failing sales.

Gustin suggested investigating profit and loss statements, tax returns, labor costs and cost of goods to ensure documentation is accurate and compliant.

Businesses also should be aesthetically presentable prior to sale, including the repair of any broken equipment. Sellers should create an information packet, including a list of items being sold, employees staying on board, relevant business contacts and paperwork, such as the current lease.

“Put your company together electronically, so that every piece of data [is] readily available,” Smith said. “You can give [the buyer] a disk or send them an email, rather than a shoebox full of stuff, making [the process] more difficult.”


In addition, sellers should be aware of relevant laws and regulations, Eddie White, CP, clinical director and managing partner of Beacon Prosthetics and Orthotics, told O&P News. White recently sold his business to the BCP Group.

“You have to be aware of [the Health Insurance Portability and Accountability Act] HIPAA,” he said. “You have to be aware of the current policies to make sure your organization is protected.”

Worth its weight

Determining the value of a business plays a critical role in selling it.

While the valuation process has changed with the economy, some sellers may be emotionally attached or hold unrealistic expectations about what their business is worth, according to Dixon.

“It is human nature. They work hard for something and want to get as much [money] as possible for it. [People tend to overvalue] and that is normal,” he said. “It is something that goes along with the territory.”

He suggested leveling expectations when going into a sale, adding that deals can fail if the seller’s expectations are higher than the purchase offer.

Several aspects factor into value, such as business location, number of contracts and referral sources, number of interested buyers, past and projected sales trends, product mix and reputation.

Brian Gustin, CP
Brian Gustin

However, the value of a business typically is not based on size, but rather a three- to five-times multiple of earnings before interest, taxes, depreciation and amortization (EBITDA).

“The multiple of EBITDA reflects a weighted value usually of the last 5 years,” Gustin explained. “It points directly to operational efficiencies [and a] definable, repeatable process.

“If you do not like your EBITDA, start looking at specific areas of operations and fix them fast [as] this is a key factor in determining an asking price.”

Cost of selling

There are multiple ways a deal can be settled, but each with associated fees. According to Smith, the cost of selling depends on size and ranges from $2,000 to $4,000, with commissions of 3% to 5%.

It also costs time. The SCORE Association, a nonprofit partner of the Small Business Administration, estimates the sale of a small business could take between 6 months and 2 years from first phone call to final contract.

With retirement looming or sales based on specific market conditions, owners should take into account the amount of time it may take to complete the transaction.

Regarding payment from the buyer, contracts are mostly done in cash, promissory notes or earnouts, Smith said. An earnout is a payment made to the seller during a period of time, with compensation amounts dependent on prearranged sales goals.

Promissory notes obligate payment on a specified date, in monthly or quarterly lump sums. They offer a way for the seller to assist the buyer in financing the transaction.

Stock sales allow for tax-free payments, but come attached with potential drawbacks, such as delayed RAC audit recoupments.

There are indemnification issues as well, Smith said, adding that any financial issues that occur prior to sale remain the responsibility of the seller upon closing. He stressed choosing the appropriate payment method and schedule to offset some of the setbacks.

Find a fit

Once owners determine value and purchase method, they can begin looking for potential buyers. Options include national or regional buyers, physician groups, hospitals and businesses looking to expand.

Some experts suggest researching online, speaking to colleagues with sales experience or talking to “the folks down the street,” Gustin said. Many times that includes competitors or current employees.


Merging with a competitor could be a potential fit, but Gustin warned not to divulge too much information in the process. An owner-to-employee sale may also seem ideal, but often lacks the required financial weight.

Don Dixon
Don Dixon

“Whoever it is, make sure you like them,” Dixon said. “The biggest trap is selling for money instead of selling for environment. If you are planning to leave, your employees are still there. If you are planning to stay, are you going to be happy?”

Sources recommend seeking the help of advisers with experience in financial acquisitions.

“Selling your company can be a complicated process,” according to Rutledge. “Having someone with experience in [mergers and acquisitions], particularly given the complex regulatory environment in health care, can be a real asset in the process.”

Sellers might consider a broker who can navigate tax policy or a lawyer who can navigate legal aspects. Knowing what to expect in a sale can make the process run more smoothly. Many deals are unsuccessful simply because the buyer and seller cannot agree on terms due to different perceptions, Dixon said.

“People do not work out, relationships do not carry forward [or] employees do not like the new structure. There is a litany of things that could pull the rug from underneath you.”

That is why it is important for owners to be upfront about their reason for selling, their goals for a transaction and the role they want to play after the sale, Rutledge added.

“Sellers should also work to understand what the buyer’s goals are for the transaction, what resources the buyer brings to the table and how those line up with the seller’s goals,” he said. “Put everything on the table because it all factors into the equation.”

Make the move

The best time to sell is when the business is performing well, sources said. According to White, when there is consistent year-over-year growth, it may be time to make the move.

Eddie White, CP
Eddie White

“It is to the seller’s advantage to sell when they are most profitable,” he said, “when the business is running smoothly and when it has the right personnel in place to continue that way.”

Some owners fear they may sell too soon, but White said it is better to sell too soon than too late. Many sellers hold out or wait for profits to increase, he said, but when an audit occurs or something goes wrong, they have to begin again from square one.

Following a sale, owners should take time to invest their money, outline financial goals and learn the new system if they have chosen to stay on board.

They also may encounter a bill of sale, which transfers the business assets to the buyer, or a noncompete agreement, in which they agree not to encroach or compete for the buyer’s territory.

Selling a business can be an emotional venture and although it may seem difficult in current economic conditions, owners can look to the market as a roadmap for where to start.

Buyers are looking for return on investment. They are looking for accurate documentation, growth capacity, strategic placement and value.

But they also are looking for resilience.

“How well can you demonstrate that you have mitigated these audits? Have you strengthened your position in the face of adversity?” Gustin said. “Businesses grow through increasing revenues, [but] the O&P buyer is looking to combine synergies.”

“Synergies and culture are important,” Dixon added. “It is simple; business is people [and] if you have the right people with the right values, that is where you start.” – by Shawn M. Carter

Disclosures: Dixon, Gustin, Rutledge, Smith and White report no relevant financial disclosures.

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