Preparing to Sell Your Medical Practice: Revenue Generators
Updated: Jun 30
Part 3 of Catherine Maley’s interview of Lamar Rutherford for the podcast, “Beauty and the Biz”: Preparing to Sell Your Medical Practice: Diversify Revenue, Retain Valuable Practitioners
Let me ask you about the other revenue generators in your practice. Hopefully you have other people in your practice making money. If you are 96% of the revenue generation in your practice, and you want to walk away, you don't have anything to sell. Nobody wants to buy your (patient) list. They want to buy predictable income. I hope at that point you have a non-surgical revenue stream.
I used to run a surgeon's coaching club and my mentor said to the other surgeons, “If you are more than 27% of your practice revenues, you're not running your practice.” That was such a shocker. But he had his practice running so well with plenty of other people in there making money.
You raise a good point. One of the things we watch for is customer concentration. Most doctors have multiple patients, so customer concentration isn't a huge issue. Customer concentration is when one customer accounts for a large percentage of the revenues.
But surgeons have the opposite problem where the concentration of revenues are all dependent on them. So, the more you can come up with revenue streams that are not dependent totally on the owner, and that is often other nurse practitioners or others doing services, the better.
Also, services where people come back on a regular basis are more valuable than one-time services. So, building recurring revenue streams, delivered by aestheticians or nurse practitioners, is valuable.
In some businesses, recurring revenue is difficult. But if you look at Amazon, they turned delivery into recurring revenue. So sometimes, you just have to be creative about how you look at it.
If you look at your practice that way, how can you build recurring revenue? If you can say, “you're coming in for services once a month, what if we just charge you monthly and it's this rate instead of per service.” Sometimes that works. Whatever you can do to get people signed into contracts or recurring treatment plans, the more valuable it is to your practice.
It's so much easier to keep that repetitive nonsurgical patient than it is to keep that one-and-done surgical patient. There's so much more uncertainty with the surgical than the nonsurgical. And a cosmetic patient will be a cosmetic patient today and tomorrow and next year and five years from now, if you take good care of them and add the stickiness of a really special program, where they don't want to go anywhere else.
The revenue generators such as the RNs, laser techs, NPs or Pas -- would they have to be packaged in with the deal? Although everybody's important, it's easier to lose the front desk person than it is to lose that RN who brings in a million a year.
It's very important that the more you can get the revenue generators to stay, the better. The ones that are really valuable are the ones you want to stay.
In today's world, I don't think it's easy to find really good revenue generators, If you can find some, I would hang onto them, because things have changed a lot and there are so many options now for where they can go. And some may say, “I’m making a million for this practice, I'll just go out on my own and do it myself. And they don't realize what goes into that.”
If I'm a surgeon and buying someone's practice, the practice has a terrific list of happy patients, great revenues, great reviews, great referrals -- but does that constitute money for me? If you look at the practice’s other revenue generators, he has two nurse injectors who are just crushing it. But how do you buy that practice if you can't know if they're going to stay?
Sometimes they’ll change the purchase price and say, “we'll pay you more if they stay longer.” There are sometimes terms if it’s a real sticking point. Generally, I try and avoid that when I do deals. You can also consider a bonus, where if they stay, they get that bonus, that can be part of the deal and that can help alleviate that challenge.
In the quest to sell your medical practice, learn how to diversify revenue, retain valuable practitioners for long-term success. Watch the insightful interview with Lamar Rutherford for expert Exit Strategy tips at: https://www.catherinemaley.com/videocast/interview-with-lamar-rutherford-mba/