Merger and Acquisition Strategies for Medical Billing Teams
2 minute read
Whether you’re considering selling any business - be it a physician practice, medical or dental billing company, or otherwise - there are important steps to consider to prepare for such a transaction. And these steps often apply to businesses looking to grow through acquisition as well.
You’re the expert in the service you provide, but it is prudent to also engage experts who have proven experience in managing a business sale, merger, or acquisition. And taking some thoughtful steps in advance of any potential transaction will increase your odds of a successful outcome.
First, you must define your goal. Why are you seeking to sell your business? Are you planning to retire or make a change in your career? Are market trends making it more difficult to manage your business? If you’re seeking to acquire a business, is your goal to grow revenue, fill a service or geographical gap, or add expertise to your team? Regardless of your reasons, being able to clearly articulate your goal is an important start.
Next, you must understand the type of transaction that will serve your business best. Asset transactions and stock transactions are the two primary approaches, and each option has benefits and consequences depending on the structure of your business. For example, an asset purchase might limit exposure to potential liability from a buyer’s perspective. A stock purchase might be warranted if there is language in existing contracts that prevents those agreements from being assignable. In both situations, there are tax implications affecting both buyer and seller that should be explored with a Certified Public Accountant (CPA), a financial advisor, attorney, or a combination thereof.
In order to properly market your business for sale or evaluate a potential acquisition target, you must understand the business’ value and the state of its financial health. There are various ways to investigate the financial structure of an organization. You may consider the Seller’s Discretionary Earnings (SDE), which assesses the cash flow of the business, factoring in profits along with costs associated with compensation and benefits. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, is another financial evaluation tool that is more detailed and often required for larger businesses. The company’s balance sheet illustrates assets, liability, and equity and can provide an indication of whether the business can meet its debt obligations. The profit and loss statement, or P&L, reveals the costs associated with generating revenue and those costs can be broken down as a percentage of revenue for closer monitoring. The largest cost categories should be analyzed first, with the goal of finding consistency year over year to demonstrate stability. Evaluating the P&L can also reveal which cost categories can be adjusted to create the greatest financial impact.
Now that you have the financial evaluation roadmap for a sale, merger or acquisition, it’s best to find trusted resources to assist you in your assessment of the business. Consulting with financial and legal professionals is a good first step, and numerous credible online resources, such as Investopedia, can also provide you with valuable guidance. Though preparing for a transaction can be an arduous process, it’s a worthy investment of your time and energy because your potential return will benefit from a thorough investigation.
About Christian Hoffmann, Associate Director of Mergers and Acquisitions, Nobility RCM
Christian Hoffmann joined Nobility RCM in 2018 to manage the company’s acquisition initiatives. Christian previously worked for Dinan & Company, an investment banking firm where he was responsible for identifying and originating acquisition targets for the firm’s lower-middle market private equity clients. In that capacity, he closed transactions with total enterprise value in excess of $115 million. Before his tenure with Dinan & Company, Christian was a securities analyst and managing member of two early-stage microcap hedge and investment funds. Christian completed his Bachelor of Science in Business Administration from Georgetown University, where he majored in New and Small Business Management.