A Growth Plan That Starts With The End In Mind
With 2025 approaching quickly, Paul offers a framework you can use now to build your plan for success next year.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of the Martin Rehab M&A advisory. Today we are going to continue in our series and this series is all about preparing you to make some major critical decisions for 2025. And last week very quickly we talked about some of the big decisions you'll have to be making. Are you going to continue to grow in 2025 independently or are you going to potentially look to take your business into the market and test this incredible market we have right now? And also what are you going to do in terms of innovation?
And so those are the three areas that we're going to be attacking week to week here with episodes very focused on helping you and helping you to guide you in making those critical decisions. All right. So today what we're going to talk about is how do you grow a middle market? Again we define middle market as really businesses in this industry between 7 to 10 and up to 100 clinics. How do you grow a middle market physical therapy business? Now, this will also apply to a smaller company for sure, but we're really trying to take this to at least at minimum a 200 level growth course on how to significantly grow your business and how do we do this in this current market?
Well, you know, it has to start with a vision, right? And so if you can in your mind vision what you want, what your business will look like three to five years from today and then begin to set some targets in your head. How many clinics is it going to be? What will the revenue be? From that revenue, what will the EPID do be? And from that revenue and EBITDA, what will the value be? And really try to picture where it's going to be and what you want it to be.
And try to be s very specific. You know, back when I did this, I remember a consultant coming to us and he asked us to do that and we had already had I think we had five, six clinics. None of us really had in our mind a very specific picture of what we wanted to achieve. And so I urge you to do that and to get that picture in your head. And I really believe that the best place to then start is begin with a current valuation of your business of value.
Once you know that value, you have a really good idea of then, okay, we're starting here. I'll make it up. We have a valuation of $5 million. In five years, I want a valuation of $25 million. And then all the other things attached to that, numbers of clinics, etc. And you really want to assess your growth potential in that valuation. Kind of an assessment of your business, which is okay, historically, how have we done with clinic startups, acquisitions, how have we done with growth, what's the body of our leadership team look like?
Is our leadership team prepped and ready to grow this business? And where do you want to be from a geographical standpoint? And if we're assessing that for your potential, where have you stretched so far? What has been the strategy for geography and outreach so far? What this does is it really provides a very clear starting point and then walks you through many opportunities for where can we improve not only externally but internally and what do we need now in our menu of things that we already have in order to achieve significant growth.
You know, I like the saying it's begin with the end in mind. And I know it was a book and but you know, really you need to work backwards from that fiveyear vision. What do you see in your head your business looks like in five years? I can remember back when we had those five, six clinics. And I had that vision in my head. I wanted 20 or more clinics. I really did. I felt like we had the capacity and the ability to do that with three partners.
I believed we could do that. With that vision, we got started and, you know, the rest is history. What we also did is when we had that five-year vision beginning with the end in vine, we're creating a road map from the end goals to today's actions. So, we have these goals, but what are the actions we have to take today in order to achieve those? And really consider making this planning process a very formal process. I strongly encourage you to consider a couple day retreat with all of your core leaders.
Who are the folks in your company that are going to be part of that growth? And what we then need to do is start a little broad which are identify some key growth. We called them initiatives. What are the initiatives of this plan? And there should be somewhere five to seven initiatives. So for example, we're going to grow this business from five clinics to 20 clinics. We're going to do it in a ge geography of, you know, Michigan and Ohio or New Jersey and Pennsylvania or California and Oregon, wherever that may be.
And then look at some internal growth initiatives in as well. Internal growth initiatives and a lot of that will come from that assessment. I would imagine that there are many things that you can do within your business today. In fact, I'm going to guarantee you we are finding these hidden gems every time we do an assessment on things that you can do internally that can sometimes double, triple or quadruple the growth with the clinics you already have. And then for each initiative there has to be steps.
So you know again for example if we're going to go five to 20 well we got to open at least two clinics. And if we have five and we're going to 20 we got to open at least two clinics and do a couple acquisitions over the next four to five years. So we're starting to put some steps to each initiative. And we're going to do and have and take a deeper dive into each of these strategies in some future episodes. But I firmly believe that in a long-term growth strategy, again, a five-year growth strategy, it will be a combination of both startup denovos and acquisitions.
So, you know, if we look at a specific criteria for both your startup plan and your acquisition plan, now we're starting to create a real strategic plan. Again, when I mean criteria, it's there's a certain criteria of an acquisition we will do and there's a certain criteria under which we will not do. Same with a startup. This begins to take you down the road of having a go and a no-go criteria before you start being swayed by just the shiny object in the next town over that they came to you and you think this is no, we really have to work through and have that criteria on the front end so you don't get caught in those situations.
One bad acquisition and one bad startup can bring a company literally to the ground. And again, we're going to dive deeper into each of those strategies, both startups and acquisitions, in some future episodes from, you know, again, we have our initiatives, we have our detailed, we have our we have then our steps. From each one of those steps, there's going to be action steps. What are the actions that you are going to have to take? And most importantly you and your team are going to make because then we begin to assign responsibilities and timelines.
Now you have initiatives, you have steps, you have action steps for each and we have who is responsible for. So easy then to go back to whether it's a week should be a weekly, monthly, quarterly basis to see if we are on track with our plan. Now, once we've put together that plan, it's still in a very much of a draft form because now this is where I think this is this gets exciting. We need to start determining what are the capital needs we're going to have and the financing needs we're going to have to accomplish this.
And the only way we can do that is if we look at each individual prototype on its own. So, how much is it going to take for a startup? How many months will it take in order for that startup to turn positive for you to have to invest X amount of money? Same thing with each one of your acquisitions. So, you create an individual prototype for what you believe it should be and then that will determine what capital needs you're going to have going forward over the next five years.
You really want to consider financing utilizing some form of a line of credit, potentially a small investor or someone who is willing to loan maybe a slightly higher interest rate than normal. You really don't need capital investors at many for many of you at the size that you are. Again, we went from five to six clinics to 21 clinics over a three-year period doing that all with a line of credit. Yes, we had debt, but believe me, the value of our company wiped that debt out very quickly.
Don't think you have to go immediately into the market and find a private equity group to get your business. We've worked with businesses 50 clinics or more who have still remained private and are still growing. So there are ways to from your own cash flow as well as getting a small line of credit or as I said and I say small line of credit I meant a line of credit or a small investor. Now this is where it really starts getting excited. We have to start calculating the return on investment as well as how this changes your value.
So you want to estimate a return on investment for each of those growth strategies, both your acquisitions and your startups. Trust me, they are very different. When you take the numbers and lay them out and ride that forward, there's a very different return on investment for an acquisition for a startup. There should be a bottomline return on investment that you are willing to accept for any deal or new clinic that you're going to do. So this gives you the reason to say no. You really want to have those reasons to say no.
It's the discipline that is applied to this that will get that sustained growth over many years. And it it's the ability and the reason to say no. So we're projecting also from that return on investment from each of those strategies. We're projecting future value. We're also factoring in the debt. This gets so exciting when you map these out over three, five years. And you have all the details in a written plan. And again, we went to the we went to the end and we worked backwards with the end in mind, right?
But as you work through those details, I can remember when we then applied the financial model to the number of startups we were going to do once we really determined what the startups would look like, what the acquisitions could look like with the available capital that we had, does it get you to your goal? And when you see that, it's like that moment of okay, it's all put together. The financial model is all put together. I'm going to tell you nine times out of 10 when we have the end in mind and then we work backwards and put that all together for clients, it comes very close to what they believe they should be able to achieve in terms of a value.
And when it's really exciting is when it's way over when it's re way over. So you want to make sure it gets you to your goal and then you go back and you may make some changes here and there and you know kind of you got to go back and edit. But it's, you know, does that really get you to your final goal? From there, I really believe through that, let's call it a five-year growth strategy. Okay? And this is if you have looked today at this market and you said, "We want to do this independently.
We want to grow on our own." But what you want to do is visualize potential exits right from the start. And so look at some of those different opportunities for an exit. And then every year and certainly at the end of the five-year cycle, you want to look at is this the year that is best for my partners, for my team, for my family, for me to plan some form of a partnership with the larger company, some form of a sale of the company. And I think it should be discussed every year at that leadership retreat.
Now it depends. You may have some breakouts at that leadership retreat. There may be an owner breakout and then you may have others and you may want to talk about the exits with just the owners. But again, what this does is it starts having you create the ability to map out longterm value creation. That's what you want. When you can re when you can create long-term value creation, then you have options. Then you have choices. Until you've done that, your choices are slightly limited. So, hey, stay tuned, okay, to this these episodes because what we're going to continue to talk about, we're going to do CEO interviews.
We're going to do interviews with some very key, what we believe is some very key innovation folks out there who are doing some really interesting things for our industry right now. We're also going to continue in talking about startups versus acquisitions, the pros, the cons, and some of the market challenges that we have out there, and what would guide us on each one of those strategies. As well as going through some of the steps on absolute a actually executing a perfect startup or that perfect acquisition.
You know, as always, this market continues to put in front of us very unique challenges. And what I believe is with this kind of a planning process that you would put in place with your team, it enables you to prepare to adapt. And I believe that is absolutely integral to your ability to be successful in your current company and when at a certain point you may join a larger company for your company to have success there. Prepare to adapt. Hey, I really appreciate all of you joining us today and I would welcome you to click below and strike up a conversation with me.
Would love to have a conversation about the content we covered today and would certainly be more than happy to talk to you about anything that you're struggling with right now and or wondering about this current market. I appreciate your time today and I look forward to talking to you in the very near future. Thanks. Have a great day and a great weekend.
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