Accidental Entrepreneurs: The Hidden Challenge of Healthcare Ownership

There are many ways to make a living, but healthcare tends to attract those with a certain desire to help others most tangibly. It took years of education and grueling training, but now you offer something tangible to your community.

If this sounds like you, you’re probably a healthcare professional.  Maybe you’re a doctor, dentist, orthodontist, optometrist, physical therapist, or another of the innumerable healthcare professions.

You decided to open your own independent office to serve your patients better, but you’ve been hit with the hard reality over the years of working in healthcare in the United States of America.

Rather than serving patients, you spend much of your energy serving the needs of insurance companies. You and your team jump through hoops so that hopefully they will allow you to help your patients.

Sometimes it feels like you’re working for the third-party payers (commercial insurance companies and the government-funded health programs).

This situation can grind you down as a healthcare professional and “accidental” business owner. 

If you’re like most of our clients, you didn’t take classes in entrepreneurship or regulatory affairs. You just want to use your specialty to serve patients. I totally understand how you feel. You’re frustrated with how it all worked out.

But in spite of your frustrations, you’re in a great business sector. Healthcare is a large and growing part of the US economy. It is predictably taking a larger and larger share of spending year in and year out.

Maybe it’s time to think about your retirement and exit plan. Perhaps you want to spend more time with your family. Or maybe your body is getting tired, and your work isn’t as easy as it once was. 

No matter what, the topic of succession comes to mind.

Recommended Read: Why You Need A Succession Plan Long Before You Plan to Exit

If you’re in a healthcare-related service practice, this means it’s time to start planning your own transition to allow yourself to embark on your next adventure with the confidence that you’ve set yourself, your team, and your patients up for success. 

Photo by RDNE Stock project: https://www.pexels.com/photo/medical-practitioners-having-a-discussion-6129649/

The #1 Issue - Replacing Yourself

As a true practitioner, you probably still work with patients.

In fact, you may very well be the top revenue producer in your practice. In an extreme scenario, you may be the only revenue producer as a sole practitioner with a support staff backing you up.

The value and transferability of your practice directly correlate to your level of involvement. If you’re the whole show, expect a low value from a potential sale. The less you’re part of the show, the higher value you can expect.

This means bringing on another practitioner.

Yes, finding someone with your patient care philosophy and work ethic from a different generation may not be easy.

But it’s a necessary step if you want to transition your practice from a sole proprietorship generating a nice income for you and your family to an enterprise with transferable value worth multiples of your annual cash flow.

If you’re oriented toward exiting well, these are the best pieces of advice I can offer you:

• Find practice partners or great practitioners to work for you.

• Find them early.

• Train them well.

• Pay them well.

• Make sure they’re happy.

This decision will require significant upfront investment. It will surely reduce your near-term cash flow, but it will also surely pay off in terms of the value you will create in crossing over from a cash-flowing entity to an enterprise with enduring value.

The Two Main Options - Internal or External

This leads nicely to my next point … In the case of healthcare, the service provider tends to make a substantial annual income. This is somewhat unique in the world of business, which means that an internal sale (the sale to an employee or business partner) is far more feasible. However, to have this option, you cannot be the whole show. You need to have someone or a group of people with the ability to buy your practice.

An internal sale is a common way for healthcare practitioners to pass on ownership, and it is often structured as a buyout over a period of years. This allows the buyer the time to generate the income to pay a salary and pay you off without jeopardizing practice operations. While this can be a great option, it is not always feasible.

Your junior employees did not necessarily enter healthcare to become business owners. They are happy with their salary and bonus, and then go home with nothing to worry about. So they may not want to buy.

If that’s the case, your other primary option for retirement is an external sale. The good news is that there are copious buyers across many areas of healthcare services. Most areas of healthcare benefit from strong trends combined with a predictability that investors love. On the other hand, while an internal sale may maintain the culture you’ve created, an external sale does not guarantee this outcome. An external buyer may be able to make you happy as the seller, but they may or may not do the same for those left behind. New compensation plans, new corporate policies, and aggressive targets are possible changes that may upset the team you’ve spent your adult life building.

For this reason, our view is always to think hard about defining your own goals AND work hard to create a great business. If you know what you want and you have a great company, this will maximize your exit options and give you your own way to evaluate the pros and cons of each potential path.

If you’re a healthcare professional who owns your practice and you’re thinking about the future, don’t wait. Let’s map your options today. We would love to talk to you!