Your Practice Sale Starts Years Before You Sell

0:00 You're listening to the PT Pintcast, where smart people in healthcare come to make noise. Here's your host, Jimmy McKay. All right, today's guest has seen more PT practice sales than anyone alive. I'm just making that statement. And somehow, still answers the phone himself, went on a call. He's a physical therapist who grew three clinics into twenty-one, founded Martin Healthcare Advisors, and spends his days helping PT owners turn, I think I'm ready to sell, into, I actually know what this company is worth. And there's a big difference there. He says most owners treat selling their practice... Like selling a house.

0:42 You put it on the market. You wait for buyers. You pick the best offer. Done. Walk away. Throw them the keys. But that's not how this works. Not exactly. Buyers are not buying your past. They're buying your future. They're buying earnings, growth, leadership, systems, reduced risk, and the belief that the business still works after you walk away. So today we're asking, what actually makes a PT practice valuable? What kills a deal? Why should owners start preparing two or three years before they sell? Yeah, two to three years at least. And how do you know if you own a business or just a very expensive job with a logo? So let's bring him in. Welcome to PT Podcast, Paul Martin.

1:22 Paul, welcome to the program, man. Yeah. Thank you, Jimmy. Great to be here. You probably deal with a lot of people in situations where you're going to ask questions that maybe they knew they should be asked. It's like kind of like when you're like, did you do the homework? You're like, I knew I should have, but I didn't. Then they get to you and you're like, I'm not letting you skate past, skate past that. So you said selling your practice is not an event. It's a process. So what happens when a PT owner treats it like an event and not like a process? Yeah, I think when a PT owner treats the sale of their business like an event, not a process, they miss out on gaining the true value of their business.

2:07 They miss out on the opportunity to run a process whereby you put many acquirers buyers on the same starting line at the same time. You drop that checkered flag. They all have the same information. and then they are all vying to buy your particular business versus you get a phone call and wow, this company seems really interested in me. In fact, I think they love me. They've never said more nice things to me. This is my company. This is the one I wanna sell to. And going down that road can be a disaster because you've just given away the steering wheel.

2:53 You want control of the process. You don't want the acquirer to have control of the process. And when you do that and when you treat it as such, you give away that steering wheel. So running a true professional process, we think, is so important. And we even think to the level of the way large investment banking companies run a process It is disciplined. It is accurate. It's providing high level materials for the potential acquirers. We bring that and we believe that should be offered and available to physical therapy businesses of all sizes.

3:37 Well, let's start with the misconception. I always like to start with these because it's probably the most people, right? When a PT owner calls you and says, listen, I think I'm ready to sell. what do they usually misunderstand about the process that you didn't already sort of clear up? Like what do they think buyers really care about versus what they actually are looking at and gonna dive into? Sure. Yeah, and many times they think that it's about the practice and it's about historically what the practice has been able to do and the community ties that you have and all the different types of therapies that are being done in the practice.

4:19 Those are all really important things until we come to the question of, What is your EBITDA, your cash flow? How much money are you putting to your bottom line after you pay yourself a salary, et cetera, et cetera? Because the hard and cold truth is they are buying that cash flow. And without that cash flow, it's really hard to sell any business, let alone a physical therapy business. So I think that's something that many owners don't truly get. And it's a rude awakening when then they send their information and the acquirer comes back and says, well, there's no cash flow.

5:01 So we're not interested or whatever it may be. You said buyers are not paying for what an owner built the past. They're paying for what the company will do or they hope will do in the future. Explain that like I'm a clinic owner who's never sold a business before. Sure. So an acquirer is not going to pay you for what you're going to generate in the future, but they are buying your future. Right. Right? So they are going to pay you based on your historical performance. And typically that's the very most recent trailing, twelve months. But many owners stop there.

5:42 Okay. This is what they're buying. You know, I'm going to maybe stay on a year or two, if that, but I kind of want to get out. What a buyer is looking for is, are you building your business to a transaction? or are you building it through that transaction and that event? So what we try to do is talk about the future and put in a very, very, you know, some detail, but very clear is where is this business going in the future to grow through that transaction it's kind of like you know there's a train and it's going to make a stop but as soon as you get on it's taken off and so you better jump on quick because this train is going and it's going to continue to grow that's how you attract more acquirers is to show your future because the past is something that they expect you're going to be able to show them Sure.

6:41 You've said some owners spend more time really preparing their car more for a trade-in, less for a sale. What should they be detailing in their business if we're going on that car analogy? Yeah, that wasn't a nice thing for me to say, Jimmy. But it's true, right? But I also like putting it in those terms because maybe we weren't taught to these things. That's why you have a company. Very good point. No, we were not taught this. And physical therapy school did not prepare us for the business side of our business. And I think even today it does not prepare physical therapists for the business part of their job. Right. And so, no, I think physical therapists, when they look at preparing to sell a business, you know, there's many, many, many steps to that from making sure that their financials are in order.

7:33 making sure that their operations are driving those financial results, making sure they can show how's the retention over the last three to five years. So knowing those things about your business and being able to talk about them, like you talk about what you had for dinner last night and how you put that together and all the ingredients, you really need to know every aspect of your business we try to teach business owners that because inherently they don't know that they're tied up every single day. There's the next problem. There's the next therapist that happened to leave. There's the next one that either is, you know, going on vacation or just got pregnant or whatever it may be.

8:18 And so that there's these constant, so to really truly know the things that an acquirer wants to know about their business sometimes is a process. Yeah. You've said that the best time when I should prepare is two to three years before you want to sell. Why that far out? What does that give you in terms of flexibility or preparation time? What does that arm you with? Sure. Well, first of all, your financials have to be in order. And many times, financials are not ready for a quality of earnings review. Jimmy, have you ever had a living autopsy? I have not, not personally, no. That's how I would describe the quality of earnings review.

9:01 It's an audit that's being done by the acquirer on your books and they're going to shred them. They're going to go into every single line item, every single detail. So it takes some time to get those prepared and not all CPAs and accountants know how to prepare those for an acquirer. Another big piece is, as you're looking at your operations performance, where are your KPIs in comparison to your competitors? Where is your productivity? Where is your retention rate, patient retention, visits per FTE per day, visits per new patient? Where do all those metrics fit? Because remember, acquirers are comparing them to the last really good business that they acquired.

9:46 So they really want to see, so that's another preparation piece. Big, big piece that I think a lot of multi-clinic owners may miss is truly aligning the leadership group. When your leaders, and think of you as the CEO, and then you have, let's call it, twenty clinics, and they all have clinical directors. The leadership are all those people in the middle of that. It's your director of marketing. It's your director of administration. It's your chief operating officer. And they're managing multiple things each and every day. They have to have real standards passed down to them that they have to show they are meeting because remember, many of them are not treating patients.

10:37 And then as you get closer to an event, an acquirer looks and says, wow, those six to eight people, they are important. Okay, are they under non-competes? Do we have a strategy that if we're going to roll equity forward into a new company, me as the owner, is there a way that we can do that with this leadership group as well so that we are aligned in the future? Acquires want to see alignment. And if you can go to the acquirer, we already have a program. that exists that all of our leaders will have a value at the time of a transaction and they can roll that value into equity in the new company owned by the acquirer in you.

11:27 Now you have a team that's going to drive you to that second level of growth, which I described before growing through that leadership alignment proves that out and really proves that theory. Knowing these processes that you're talking about could easily change the value of a sale of a company either way, right? I mean, you could double or triple the value of a company before it goes to market if you know what levers to pull and what things to do. So Paul, million, billion dollar question. What are the levers to pull? What are the things that people should be doing to make sure that they're getting the most out of it? Absolutely. That's the secret sauce.

12:08 So I'm not going to tell you that. All right, good. Yeah, we'll bleep this part out. One of the biggest areas that we find is in charge capture. That is what units are your therapist billing for the procedures that they are doing? And in many cases, therapists will choose to bill a code that is a lower paying code than they will choose to build the right code. And so that is one of the biggest areas. And when you go about it with you're providing the care, we are the most underserved asset in healthcare in terms of what we generate for patients.

12:55 The results that we get in patients, we are severely underpaid for the results that we achieve with patients. So if you're doing therapeutic activity, We want you to bill for therapeutic activity, even though it's more expensive than therapeutic exercise, neuromuscular re-ed. And that's another more higher level code. That's what skilled therapists are doing with patients. Most skilled therapists are not doing three therapeutic exercises. It's putting somebody on a bike. They can do that at the gym. Right. My point is that most therapists are already doing that. They're just not billing for it and they don't think it's right.

13:37 And they feel conflicted and we understand, and maybe their training has been that way. That's one big piece. Another big piece is schedule management. And this has two, two, two, Two levers, okay? The first lever is we have to make sure we are scheduling as such so that we are maximizing productivity. We're big believers in PT, PT assistant teams. We find that that works, especially if the PTs are at a level that they can truly manage the care of their patients. while the PT assistant is carrying out some of that care. We've designed the plan, me as the PT have done the evaluation, et cetera, and we're checking in every so often.

14:24 But making that schedule in a way to maximize productivity and the communication between therapists and front desk has to be what we call completely patient-centered. We will do whatever we can to get the patient in and to do what the patient needs from us to get them better. Many times that's not happening in clinics. I got to be out of here at four o'clock today because that's when my whistle goes off that I have to leave. And so there's way of incentivizing to help therapists and front desk be able to do that better.

15:05 So the one side of it is getting as many patients scheduled as we possibly can in the most productive manner. The second side of that, which this is where the other side of the sword comes in. So you have to do that in a compliant manner. It has to be within compliance standards. And while we can sometimes Shift into the yellow a little bit. We're in green. We just touched that yellow. You don't ever want to go deep into that yellow into into the red because acquirers will pick that up immediately. And most acquirers will flag that and decrease your purchase price. You know, there are some a little bit more aggressive out there that, you know, are not quite as aggressive.

15:48 you know, bothered by that, we don't want our clients, you know, we want our clients to be right in that green. So that is a very difficult process to get full productivity while you're also maintaining full compliance. That's the other area that we really find. I think, you know, the third area is attracting and retaining, you know, not just staff, But we talked about this with Kurt Cignetti. He wants pressure tested players. And so if you don't pressure test them in practice, so they do the loud music and all that. He was the coach of Indiana Hoosiers who won the national championship.

16:31 Anyway, we have to pressure test our therapists and our therapists will appreciate it. They don't want to be babied. They really don't. We think we sometimes have to baby them because, oh, you know, they like their free time and they like their balance and they do like all that. But they also want to know when they're performing well and when they're not performing well. And if we don't pressure test them when we have pressure situations, they're going to wilt and they're going to want to go home. So I think those are three areas that we find are very, very key. You got stronger, more willing physical therapists, they're billing the right codes and schedule management is at a hundred percent communication between front desk and therapists.

17:20 Those are big areas. You alluded to this before, but how damaging is it when the owner is still the ringmaster, the center of everything? They are the star clinician. They're the referral magnet. They're the problem solver. How damaging is that in terms of the situation when you find these people? Yeah, it's more in small practices than it is in large practices. And there's a reason why large practices get higher multiples than small practices. So if I can be a small practice, but I can make my practice appear more like a large practice, I am going to get a higher multiple. And by doing that, you are essentially you would be willing to take the thirty day test.

18:04 which is, hey guys, I hate to tell you this, but I'm leaving tomorrow and tomorrow's a Friday. I'm leaving tomorrow. I'm going to be gone for a month. You guys aren't going to be able to contact me. So you know what to do. Do they? Do they know what to do? And that is passing down, again, those policies and procedures and how we run our practice and making sure that you have those leaders in place that can run your practice when you're gone. acquirers are very, very skeptical when owners wanna leave very quickly after a sale.

18:47 And so that's why I say, think out probably more like seven to, five to seven years before you want to be done. Meaning I want to be out of my clinic, traveling, doing something else to start preparing because you at least a minimum of three years with an acquirer is where you're going to get the best deal. You get the highest multiple, the best deal. And where if you have rollover equity, you can maximize that utilizing the resources of the acquirer and gaining that second bite of the apple as they call it. I like when people change their minds, Paul, because it's always unique how they got there. You used to say and question how many PTs were actually really true entrepreneurs, and you've changed your mind.

19:34 What did it change to and why did it change? Absolutely. Way, way back when... You know, I sold my practice and we grew it to twenty one clinics. And, you know, I was a young entrepreneur and, you know, I was different than all the other physical therapy owned businesses out there because they're just physical therapists. No, no, no. As I started, you know, becoming involved with physical therapists and their businesses, how quickly they were able to embrace systems and processes to run and manage their business. I cannot tell you how many businesses we started with one single site.

20:19 We have one in New York, two partners, one single site. I can remember I went to visit them. Their eyes were this wide open when I told them about how we grew our business. And they today have fifty four clinics. in the New York metropolitan area are backed by private equity. So yeah, physical therapists have great acumen. And when you think about it, when I go to do an evaluation of a human, a patient, I'm looking at all the things that are keeping that human, that patient from being able to do the things that they want to be able to do.

21:02 I can look at a business the very same way. And I find that physical therapists are very strategic when they look at their businesses. Sometimes they just don't know what are the systems and processes that I now can use to build this to three, ten, fifteen, twenty. And when they can see that, When they can see that in a map, literally how that is done, we're going to do two startups and one acquisition per year over the next five years. Here's the criteria. When they can see that in a plan, the lights go on. You're a young guy. You're a lot younger than I am. You probably don't even remember UHF TV. Oh, yeah. Ultra high free.

21:43 Yeah. I remember, you know, Weird Al had that movie, VHF. Yeah. Remember, you can barely see it, but there was people back behind there. And then now we have high def. I always describe no plan to a clear plan is going from UHF to high def, driving to California to visit my son and daughter-in-law. And I'm in New Jersey. how do I get there? I need the plan. So plans are very, very important. And that's what I think spikes physical therapists to now become entrepreneurs and business owners. Well, you just mentioned it a second ago, your story, you grew from three clinics to twenty one, which is not a small feat.

22:24 But let me ask you this. What did the twenty one clinic version of Paul understand that maybe the three clinic version of Paul maybe didn't? Or, you know, what'd you learn between three and twenty one? Yeah, no, how to execute on a plan and how to take three owners. And we had a consultant by the name of Alan Cox, Cox and Associates. He spent with us for three years from, from to , he came onsite from Florida a week a month for three years. And I lived in his pocket. Just learning exactly how and we developed a plan.

23:07 We executed on that plan. And that was where I really, really learned and where the lights went off, which we had three clinics, three owners. And we were just stuck. And I said, my goal is to have twenty clinics someday. And my partners would look at me and say, well, who's going to run the clinic that you're running? Well, I don't know. I don't know exactly how that works. And I'll never forget in our house with the three partners and Alan got up, he had the whiteboard. I love whiteboard. I love whiteboards. He's got the whiteboard going and he puts up my clinic and he said, Paul is going to be replaced by Nancy on Monday.

23:51 She is the new director of the Moorestown clinic. Monday, he's going to vacate that clinic and she's going to become the new director. And I could see my partners like they were shaking. What about us? Wait, what about us? Jeff? All right, well, we all hopefully have an Alan sort of in our life, somebody who sees something and puts also a process to it. What do you think helped you think bigger with that time with Alan, right?

24:34 He walked in one day and said, hey, listen, Paul's out. Somebody else is assuming his role on Monday morning. After that, you know, full body sweat wore off, you know, what were the things that helped you think bigger after that from three to eventually twenty one? Sure. Yeah. You know, if you can see it, you can do it. You know, I think, again, it went right back to the plan and a plan that included how much money are we going to have to borrow? What's each one of these new startups going to look like? What does an acquisition look like? And you know, we're actually bringing a full criteria into each acquisition.

25:16 So we'll be able to very quickly say, no, this one doesn't fit our criteria. So we don't need to spend any more time on it. So there was a real process, you know, that was set in front of us. And I always knew that in order to grow, we could not keep treating patients and running clinics. And so it was just music to my ears when he said I was going to be out of my clinic in a month. Jeff was going to be the director of work hardening. And because we had a big work hardening workers compensation program, he was going to be out of his clinic in a month.

26:01 And then within three months, Jamie was going to be our director of marketing and she was going to be marketing. And we never had the trust in our staff to be able to run the clinics. We thought we were the only ones that would run clinics until we saw that there was a job description for a clinic director. There was training that we were going to do for the clinic director. We weren't just going to put them in and close our eyes. And when all those processes happened, took place with the three clinics that we had, it was just copy paste, copy paste, copy paste, copy paste. Once we went to four or five, six and late in two thousand ninety six, we did a seven clinic acquisition in Lancaster.

26:49 And that that really took us from fourteen to twenty one. And that was when we knew we were ready to start looking for a partner. I'm going to force you. You have to pick one of these firsts. So I'll set the stage. A PT owner has decided this month they want to sell in three to five years. So you got them on that good, that timeline, right? They're doing things ahead of time. Give me their first phone call. What's their first spreadsheet they need to create and what's the first uncomfortable truth they need to face? Yeah. So the first spreadsheet they need to create, um, really is a spreadsheet that would show them a couple of things.

27:29 One is what are their metrics compared to the industry standards? Where are their metrics? Visits per FTE per day, visits per new patient, units per visit. Where do they stand in the current market? Who do they need to call? I mean, Jimmy, give them my number. What you really need to have though, you know, seriously is what you need to have is an evaluation. just like a physical therapist evaluation. And in this valuation, we would call it an assessment where you're assessing the business's readiness for a transaction.

28:15 And that's everything from financial, to operations, to clinical, to leadership, to growth plan, et cetera, et cetera. Are you really truly ready for? And I think that is the first call that they would make. What was the last one? the first uncomfortable truth they need to come to and face. Yeah. First uncomfortable truth that they will have to face is in many cases where their perceived value was and their actual value. Many owners make a small mistake of when somebody tells them at a cocktail party how you find your EBITDA.

28:56 It's not really that. It's taking all of their salaries. You know, you got two owners, you put all that to the bottom line and they're each taking two hundred fifty thousand a year. And they forget that you have to replace that with a replacement salary. So that tends to be the biggest truth that is what that true value of the business is and how far or how close they may be to where they are willing to, that's enough for me. If we can get exit closing, why down the road in a couple of years? um that's enough and we're content and we can move that or we're not even close i mean we have so much work to do to get to a point where we're even willing to consider so they've talked about selling the business for three months but once you have the valuation done and the assessment done you're years away from getting the value of what you really need to get in order to make that decision All right, let's go out of this and go big picture.

29:59 I want you to help me read the tea leaves. Are you bullish, bearish on the profession, the profession as a whole? Like you talk to owners, you see under the hood of a lot of people. I'm not going to ask for any information I shouldn't have. But overall, when this comes to your brain, are you optimistic on the profession? Where do you sit? Yeah, I am extremely optimistic on the profession for probably two main reasons. Number one is there is so much need and we don't have, you know, there is so much need for physical therapy. There are way more patients that need care that are not getting care and that are on waiting lists across the country to get care.

30:40 So we have an enormous need for our services. I think the other reason why I'm very bullish on this is that at some point in time, as we continue to show the value that we are providing to patients and we are continuing to march to Washington to show the value that we are providing to patients, we are the absolute greatest value in healthcare without a doubt. And I think the more of that that we can push and press, the more our reimbursement will start to get to a point where being a physical therapist is a good career versus currently it's, it has its challenges.

31:28 You know, therapists coming out of school in ten years, in ten years, they may be only making ten or twenty percent more than they made when they were out of school unless they start their own practice. And there's many, you know, get rich quick opportunities out there with AI and other things in business. So many, you know, college students are choosing not to go into physical therapy. So that's going to be a challenge. PaulMartinHealthCareAdvisors.com is the website. That's where you'd send people. You've got your own YouTube channel there, LinkedIn. I see you sharing insights like we talked about today and others on LinkedIn as well. But Paul, we have a tradition on the show.

32:09 It is called the parting shot. This is the parting shot. One last mic drop moment. No pressure. Just your legacy on the line. All right, no pressure. I'll set this up for you. A PT owner is listening right now. They're five years, three years, even one year away from selling. What do they need to hear from Paul? Is it a pep talk? Is it a get your stuff together? What's the pep talk you give to someone if they're a few years out? What do you say to them? If you are a few years out, you need to start today at getting a true understanding of what your value is, not by a third party appraisal company.

32:50 And what's your value in this current market? And if that value after I pay taxes and after I get the second bite and all that, where is that compared to what you will need in order to move into the next part of your life? and start building today the plan to get from point A to point Z. Once you can see it, you will believe it. And once you can execute on the first part of it, just get to the next step of the plan.

33:31 That's what I would say for all to embrace that because you will get to a finish line if you start that process today. Don't wait. Paul Martin, appreciate the time. Thanks for coming on the show and setting everybody straight. Thank you, Jimmy. That's it for this one, but we're just getting warmed up. Smash follow, send it to a friend, or crank up the next episode. Want to go deeper? Hit us at pgpinecast.com or find us on YouTube and socials at pgpinecast. And legally, none of this was advice. It's for entertainment purposes only.

34:12 See, Keith? We read the script. Happy now?