Avoidable mistakes that cost PT practice owners money at closing

The short answer

What avoidable mistakes cost physical therapy business owners money at closing? Most of them show up in the first week of preparation. Josh Meyers of Martin Healthcare Advisors explains the ones MHA sees most and how to fix them before an acquirer finds them.

In this video:

• Pushing units and visits in ways that do not hold up on compliance
• Wanting out in six months: possible, but staying three years or more brings a better price and structure
• Counting on add-backs an acquirer will not accept, such as owner salaries, admin, EMR, and HR costs
• Using an earnout to recover value that would otherwise be left on the table
• Other red flags: unnormalized owner compensation and rent, revenue that does not match cash, undocumented add-backs, and missing provider contracts

Full transcript

Most of what costs owners money at closing is avoidable, and we usually see it in the first week of preparation. One of the most common things we see is an owner pushing hard on more units and more visits, but not doing it in a way that holds up to compliance. We have come to the rescue on that for a lot of owners: the right codes, the right scheduling strategy, and making sure all of it sits inside compliance standards.

The second thing is timing. An owner decides they want to be completely out in 6 months, maybe a year, and that's possible, but your structure and your price will both be significantly better if you're willing to stay 3 years or more, continuing to grow the business and building a leadership group that can run it when you're not there.

The third thing is the one that really costs money at closing. An owner has their heart set on a valuation and then finds out that a lot of what they thought they could add back to EBITDA can't be added back. Owner salaries, administrative and EMR costs, HR: there may be some owner upside in there, but the acquirer still has to pay for those functions at some level after the transaction.

When there is purchase price left on the table like that, what we have been able to do in many cases is put it into an earnout. Simple and easy to understand for our client and for the acquirer. Over the past 5 years, 100% of our clients have made their full earnout.

Transcript lightly edited for readability.