Navigating the Sale of Your Healthcare Practice: Expert Insights with Joshua Catlett

Katie Bell: 0:02

You’re listening to treat your business with Katie Bell, the podcast for health and wellness business owners that want a need to give their business the treatment plan. It needs a treatment plan that will create more time back in your life, more income and more confidence when it comes to running your business. I’m here to share with you bite sized episodes full of tried and tested tips from my own real experience of growing a successful physiotherapy and wellness clinic and from working with many businesses to do the same. The treat your business podcast is sponsored by hm DG. Marketing is always one of the top three issues for clinic owners that I speak to. It’s too expensive and complicated. They’ve had issues in the past or they just don’t know where to find a trusted expert. It’s always said only recommend products or services you’re confident in using yourself. Well when it comes to marketing, we use HMD G for our own clinic. They’ve proven to be exactly what you’d want from an agency. As a specialist. They understand the industry. They’re responsive and always deliver. We can’t recommend them highly enough. Head to HMD g.co.uk To find out more. Hello, listeners. Welcome to this week’s episode of the treat your business podcast. My name is Katie for those new listeners a huge welcome and I’m really excited to be joined by Joshua this week. Now, Joshua is a former health care professional, a seasoned entrepreneur, and expert dealmaker. He founded one of the UK’s largest private physio groups growing it to an impressive 30 Plus locations in just seven years. This rapid expansion came through a mix of organic openings strategic acquisitions, ultimately leading to an exit to a private equity firm who continued to build on his legacy. Transitioning from his initial venture Joshua, let’s leverage the expertise in mergers and acquisitions to launch a sector specialist brokerage, tailored for selling medical and healthcare businesses. Josh has got an exceptional ability to spot opportunities and a deep understanding of our industry. Joshua’s brokerage boasts an industry industry leading success rate where an impressive 90% of listings either go under offer or are sold within nine months, I am really excited of something very different for this podcast to welcome you, Josh to to it this week. And thank you for being here. And thank you for giving up your time to share all of your amazing expertise and advice in this area to our listeners.

Joshua Catlett: 2:27

No problem. Thank you very much for having me. I’m excited to be on you. Welcome.

Katie Bell: 2:30

So, Josh, I’m really we met didn’t we at that? Why did we meet the therapy Expo last year. And it’s taken us this long to be able to chat to each other. And I thought it was really interesting, because one of the things that we were talking about coming before we came on to this podcast was when when we’ve got a business, what what’s our plan for it? Where’s it going to go? What’s the exit plan for us all? Do we, you know, some of our listeners will just think it’s too far away for me to think about, some of them will be actively thinking about growing their business to sell it. Some of them will want to leave a legacy. Some of them will have never even thought about this as being a potential or an opportunity. And one of the things that you talk about is planning your exit way earlier than than we probably do.

Joshua Catlett: 3:16

Yeah, yeah, no, definitely. I think as you’ve as you alluded to, most people don’t plan their exit. Normally, I get a phone call out of the blue saying, I’m approaching retirement, can you help me sell my practice? The other common one is my my lease is about to end. What you know, I don’t want to sign up for another 10 years, can you help me settle. And of course, if you’re thinking about exiting at that point, it’s probably a bit too late. Because you know, you’re sort of you’ve got to sell what you’ve got. Whereas if you plan it early, then you can actually decide what you need for your retirement or who you want to sell to, and hopefully build your business around.

Katie Bell: 4:06

Yeah, and I think this is a really important thing, because talking to you listening to you, it becomes really apparent that there’s some key things that you need to be thinking about, if the end goal for you is to exit to sell whatever it is, there’s things that you’ve got to do, really early on in your business isn’t there to make sure you’ve got a saleable product, basically. Yeah, there

Joshua Catlett: 4:31

is. I think it’s, it’s always quite disheartening for me because I have conversations with clinicians who have worked really, really hard over the years. And, you know, they come to me and they say, look, Josh, I want to sell my business. You know, do I have something that saleable? And there’s no doubt that they’ve worked hard, there’s no doubt they’ve got a fantastic business, but it’s a business for them, as opposed to something that’s going to be saleable somebody else. So if your plan is to say all you need to do certain things in order to make it saleable. So the kinds of businesses that I’m talking about that aren’t necessarily that saleable are the typical owner operator businesses where you’ve got a physio, a chiropractor, osteopath founder, who we’re still seeing at 90% of the patients, maybe even 100% of the patients. And while it’s produced a fantastic, fantastic lifestyle, or revenue for them, may appeal to another. osteopath, chiropractor, Vizio, it’s not going to appeal to the broader pool of buyers that are out there. So yes, it says I have some mamzer quite heartbreaking conversations with people who they get to that point they want to sell, but you know, they’ve not put the steps in place to sell. So if those people do did want to sell, they probably need to think about it, you know, 345 years ago, or, or even further than that. And ideally, bring in associates or employees start to build out their team spread their caseload around, ideally, as many people as they can, because it’s less risk for a buyer grow their revenue. That’s always a key thing, the pool of pool of buyers that are out there, broadly speaking, they’re looking for businesses that are 250 300,000 Plus turnover. And that’s a starting point. So yes, it really you need to build build your revenue, build your team out, in order to have a sustainable business.

Katie Bell: 6:38

Yeah, and I guess in from my role as a, as a coach is what we’re constantly working on is being a process driven company, being, as you’ve said, not an owner operator, making sure that your income really doesn’t impact the clinic whatsoever. So whether you if you choose to work in the clinic, it can make the the clinics have more money, but it doesn’t really matter whether you work in it or you don’t. And that can take a lot longer than we think, doesn’t it, you know, I come from, from a place of experience working six clinical days a week, and having to get myself out of it. So it’s planning that early. And you don’t have to do it all at once. But it’s just seeing that over a journey and over that over a period of time, I guess, isn’t it?

Joshua Catlett: 7:17

Yeah, I always try to encourage people to try and get their the income that they generate down to around 20% of the practices overall revenue or less ideally, I mean, it’s as I’m sort of talking rule of thumb here, but if you’ve got a lower revenue, but you’re in a good location, and you don’t do any of the clinical work, then your chance of sale goes up. But equally, if you’re in a decent location, you’ve got a good revenue, and you’re doing 10 20%, you’ve still got a very good chance. As I said, it’s only when you’re doing 50 6070, perhaps 80%, where it becomes very challenging.

Katie Bell: 7:56

So what then if we think about reducing your your clinical fees into the clinic to less than 20%. Ideally, thinking about knowing your numbers, putting systems in place, what and having and growing your revenue, what are the things do you see the impact saleability of a clinic or a practice?

Joshua Catlett: 8:19

So have a think about how the transferability of goodwill, I think is probably a good way of putting it. So think about when you’re actually selling your business? What are you selling, so if if it is just you with, you know, relationships with patients, and no contracts in place, no staff, you know, perhaps a sublet clinic on a handshake, there’s very little, you’re actually transferring, and therefore there’s very little value in what you’re what you’re selling. Whereas if you can put contracts in place, if you’ve got websites, if you’ve got brand assets, anything that you can sort of document then you are, you’ve got something to sell.

Katie Bell: 9:06

Yeah, and these are all things that take time. And from a, from an owners point of view, the thing that they don’t give any time to because they’re often so busy seeing clients, but these are the kinds of foundations that underpin not only if you want to sell and want to exit but just to make your business run efficiently and smoothly.

Joshua Catlett: 9:24

You know, you definitely definitely need to do that. I think probably the most common one that gets overlooked is around the premises. So security of tenure. And I mentioned earlier on around people coming to me and saying that they want to exit because they don’t want to renew their lease, I’d actually argued is do the opposite. So renew your lease ideally for 1015 years, and then you’ve got something to sell. And as you said, Put put those systems and processes in place. Make sure you’ve got good Google My Business page. Social Media pages you don’t use post 20 times a day. But having those assets that you can actually transfer is obviously very useful.

Katie Bell: 10:07

Yeah, it’s a real, it’s a real eye opener to think about how your business runs as a whole. And I think it’s, this is probably going to be something that listeners, maybe you’re starting to think about for the first time, or they think, Oh, I didn’t know that sale, a sale would be possible in my sort of business. So how do you value a private practice?

Joshua Catlett: 10:28

Again, it very much depends on what type of business it is, what sector it’s in. But broadly speaking, there’s a couple of rules of thumb. So we tend to use what’s called the EBIT, da model. EBIT. Dar is basically net profit before tax as a few fancy things around there, which I won’t go into. But ultimately, you need to determine what the profit of your businesses, and then we apply multiple. Before we apply that multiple, you do need to make some adjustments, though. So if you are working in the business, and you’re let’s say you’re doing 40 hours a week in the business, but you’re only paying yourself a minimal salary, or perhaps you’re only paying yourself dividends, you need to think what it’s going to cost to replace you. Unless, of course, as a business owner, you plan to work for free for the new owner, which I’m sure he wants to do. So say you’ve got to make some sensible adjustments to make sure that net profit number is is correct. Once you’ve got that adjusted profit, then we apply multiple. Broadly speaking, if your business is turning over less than 250,000, the multiples probably going to be somewhere between two and three. If you’re between 250,000 turnover and half a million, it’s probably going to be between three and four. And if you’re above 400,000, and you’re in a good location, and you’ve got a well run practice, you may be going up into the four to fives, I don’t see loads of offers at that level, that that tends to be the higher end but be at that’s sort of a general, general range.

Katie Bell: 12:10

So then I guess that’s really important for any listeners that don’t know their numbers. These are the sorts of things that they need to be knowing, now, isn’t it in their business to set it up so that if they are starting to think about what this business might might be valued at, and how they can grow their revenue, those key figures that you’ve just talked about are really relevant?

Joshua Catlett: 12:30

Yeah, absolutely. You need to know your numbers. I mean, I think you need to know your numbers to make decisions on a day to day basis. But if your plan is to sell, then you should, you should be looking at those numbers on an annual basis, you know, trying to decide at what point you need to sell, and therefore how much you need to grow each year, what steps you need to take in order to get that so knowing those numbers is key. And also making sure that you’re you’re looking at those numbers to maintain your profit margins. So there, there are a lot of businesses that I analyse who are on the smaller side that have, you know, they might have 120 125,000 profit, something like that, sorry, 120 225,000 turnover, but as soon as you replace them, actually, with a sort of sensible salary for another physio or another osteo, there’s not actually any profit left in the business, and therefore it’s very hard to put to put a valuation on it.

Katie Bell: 13:32

Yeah, and that’s something that I see a lot when when working with clients is that their salaries are often way under where they need to be because as business owners, they pay themselves last, they don’t pay themselves as much as the pain. They’re, they’re feared as in their clinic when we do all the math. So I kind of guess this is a few layers of of issues that we see in clinics that needs to be sorted before you even consider exiting or have or being able to have a value against your your practice.

Joshua Catlett: 14:02

Yeah, and I think I mean, as a, again, a general rule of thumb, you probably want to be looking at 50% cost of sale, that’s that’s fairly normal. If you can get it get it less than fantastic. But you know, 50% cost of sale is probably industry norm. Then with your overheads. You know, things like rent, typically around 10%. But but ultimately where you want your profits appears around the 2020 22% is where I see sort of good. Well run practices. I do see some that are that are more than that. I do see some that are less. But if you’re targeting 20% net profit and you’re doing that consistently, then again, it’s a sign that you’ve got a sort of good salable practice, as long as you meet all the other metrics

Katie Bell: 14:51

and who’s in the market to buy by all practices, you would be somebody that will be looking to take on another business.

Joshua Catlett: 14:59

So Most people I speak to think the perfect buyer or people that are buying the practices is another associate, which I can see all the appeal to that, in fact, I wrote an article about the sort of attractiveness of that and, and I suppose the the pros and cons of an associate buyout. The trouble with an associate by out is that there’s just not many associates out the ones by practice. If you think about trying to employ a physio or an austere or hire at the moment, that’s challenging enough, then trying to imagine one that’s in your local area. And of the calibre that you’d be happy to run a private practice, and then have the desire to run a private practice and then have the funds to buy out as well. It’s, it’s like finding a unicorn, it really is. It really is challenging. And that’s the reason why I tend not to take on the smaller private practice practices where they’re sort of my main chance of sales to an associate, because it is it’s based on luck rather than skill. So you know, and I don’t believe in charging people for for being lucky. And I want to challenge people because I’m skilled at finding them, right. So the main people that I introduced to sellers are market consolidators, trade buyers. So that could be local, regional, or national. So that’s your other clinics, they don’t have to be the same profession, it could be a different profession that wants to buy up another clinic and have, you know, adding different service lines. If you’ve got a larger private practice, then private equity, family offices, things like that. So they are looking at the moment. And the one that most people forget about or don’t really consider as being a buyer is investor investors and groups of investors that are looking to get into the market. So I probably say around 40% of my network are individuals who maybe aren’t directly involved in the profession, but want to be some have been successful in other businesses making they’ve got transferable skills, like recruitment, or, you know, fitting out different types of venues, and they want to get into healthcare. So yeah, a real mix. And there isn’t one. One type of buyer that’s buying everything up, it really is a range.

Katie Bell: 17:32

And what happens when you do sell when you do exit? What, what’s the like the process afterwards? How does that how does that happen?

Joshua Catlett: 17:41

Most people tend to focus on that rather than the sale process itself. But I do always try and remind my clients, you know, wait until the business is so before you focus on that. But yeah, I mean, it’s the best way to describe it’s quite stressful, because you’ve been running the business for many years. Suddenly, you’re handing over the reins to somebody else. But, yeah, I mean, the things to expect is, obviously, once you’ve completed for the first three months, you’re probably going to do a handover. That handover is usually unpaid, and as part of part of the sale price. But it’s not to be confused with an operational role. So handover is basically being available, providing information, whether it be passwords or helping people set up bank accounts. And typically, that might be fairly intense for the first couple of weeks. But you know, but by the time you get to month, three, you’re barely going to be needed needed. So unless so if you’ve got a well run practice with standard operating procedures and everything in place, I’m finding in the current climate, because recruitment is quite challenging. If you’re heavily involved in the practice, particularly from a clinical point of view, then there’s often a requirement to remain involved part time for usually 12 months. But buyers don’t normally make it a condition to stay longer than that. But I have seen some deals where they’re on a partner and out for two, three years, usually by choice or by mutual agreement, but certainly I would, I would allow 12 months of remaining involved if you’re doing more than 40% of the revenue,

Katie Bell: 19:33

and does that does that come as part of the sale or is that they then pay you to once they bought the business so then pay you as a clinician as or whatever you want to be for those 12 months.

Joshua Catlett: 19:49

Question. So the handover, as I said, is part of the sale price. But if you’re expected to do a role in the practice afterwards, then that would be that paid set. relates. So either as an employee or as a consultant, I normally see that just being on a 5050 basis presuming you’re working part time,

Katie Bell: 20:10

so if you’re somebody in the company like me, who is very much out from a clinical perspective, and you’d got all your SOPs in place, and then you had the sale, and you did the three months, handover, and I wasn’t somebody that was involved in any fee earning now, what would my role be? On the other side?

Joshua Catlett: 20:32

It depends. So you might get offered a consultancy position to stay on and support the new owner, particularly if it’s a larger group, and you’ve got a particular skill set. So let’s say that your focus has been bringing in lots of consultants and you’ve got really good relationships with referrers, they might want to involve you in sort of maintaining and building on those relationships. So you tend to go from an owner with a slightly broader remit to having a slightly tighter remit in a larger organisation. So I’ve seen, I’ve had a few few of my clients who have ended up taking a non exec board position or an advisor position with the larger group. And again, particularly if you’re selling your business to an outside trade buyer, who doesn’t have the experience in the sector, they very much value, the skill set that you bring, even if it’s not directly revenue generating.

Katie Bell: 21:30

Yeah, that’s really interesting, actually. So what what would be if you could summarise fine because I always like to give our listeners some really like actionable things that they can take away, or really kind of juicy, juicy nuggets of your brain? What are the five things you can think about five that you would advise people, if they might be thinking about their exit plan, or they might be listening to this going, Oh, my goodness, this is something that I’ve not even considered, what are the five kind of top tips when it comes to thinking about and preparing your business ready for sale?

Joshua Catlett: 22:06

Well, first one’s got to be planning early. No one ever plans their business exit. So most people don’t plan their business exit early enough. So think about it as soon as soon as you can. Know your numbers. And that that’s not just in terms of building your business. But when you come when it comes to selling your business, if you’ve got those numbers in front of you, it makes for a much smoother sale process and transition process. I think it’s important to remember that selling a business is hard. It takes time. And there are a lot of pitfalls. So I’d certainly encourage everyone that’s thinking about it to take advice early on, even if that’s speaking to colleagues who have done it before. And try and get advice from multiple sources. The other key thing is, as tempting as it might be, it’s usually not going to give you the best outcome if you accept a off market off the cuff offer. So I always try and encourage people, particularly when they’ve got slightly larger businesses. So you know, three, four, or 500,000 turnover plus, make sure it’s a considered full market process. And remember, time is your friend. So make sure you take your time to find the right buyer. And then the final one is when you’re in the process, make sure that you remember that deal isn’t done until it’s actually done. There’s this, there’s still quite a few pitfalls during the process. And there’s every opportunity that the deal might fall apart. So don’t start dreaming of that yacht and holiday or whatever it might be too early, focus on running the business as if you’re going to own it, you know, sort of for the next 10 years. Because actually what what I tend to see is that those people that are almost less than emotionally tied into the sale, they tend to find that the sale process goes smoother. Whereas if you’re desperate to get out desperate to get over the line, usually that means that you’re taking your eye off the ball. And that’s when they’ll start to fall apart.

Katie Bell: 24:24

They are so helpful. And I think my sixth tip would just be to talk to somebody like you and just talk to you because you are the industry expert. So what would What’s your involvement, how do you how would our listeners kind of get get in touch with you, Josh and what what would be your process that you would take them through?

Joshua Catlett: 24:43

Sure. So first of all, I’m happy to have a conversation with anyone in the industry and partly because it’s obviously a great way for me to sort of promote myself and get business but also I want to make sure that people make the right decisions. So I never encourage people to use me unless they’re, you know, genuinely going to get value from it. But I can certainly give them an indication about whether their business is going to be saleable, roughly how much it might sell for, and therefore, whether they should be using a broker, they should be looking at a DIY process or whether actually they need to come and see someone like yourself and spend a bit more time sort of gearing the business up to sale first to get the best out of it. So yeah, first of all, and anyone that wants to have a chat, just go to my website, which is Barillo, spelt, v e, r i, l o.co.uk. There’s lots of forms, you can click or buttons, you can go to book a meeting with me. So yeah, so anyone’s welcome to do that, in terms of the process that I take people through. So if we decide that selling via a broker is the right decision, and usually if your business is on sort of medium, as I said, if it’s over 250 300,000 pounds, and well located, then I normally say using a broker is going to add value, as long as it’s the right one. The process that I take people through is, first of all, we do a fact find on the business. So I need to understand the ins and outs of your business model. Luckily, being an ex physio, and having run a physio business myself that, you know, I can kind of get to the nuts and bolts quite quickly. I then produce a teaser and sales such sales particulars. So that’s basically your sort of anonymous adverts and your brochure, the anonymous advert goes out to my network, which is very niche, lots of people looking for healthcare businesses, it also gets advertised on all of the key broker aggregate sites, so you don’t miss out anything. By going through someone like me who’s a specialist broker, you still will get access to the same large network of general buyers as a generous broker would offer. Once we’ve launched the business, we are looking to effectively find find as many suitable prospective buyers as possible, they will either come from launch campaigns or from the adverts. And it’s typically around three months of searching. If we get a very good response, we can speed that process up and we can ask for it the sooner but usually I say allow three to four months of searching and letting people respond to the advert. The position I like all of my clients to be in is after that sort of three, four months search period, there’s around well, the average at the moment is around 25 expressions of interest, I have got some businesses a little bit larger, a bit more attractive than 45 to 50 expressions of interest. So there’s a lot of activity in the market. But once you’ve got those expressions of interest, you may have had a few meetings with them, we then start to whittle them down. And once we’re confident that there’s going to be four or five of those that are very serious, going to make decent offers, then we can set an offer deadline, invite the offers, and hopefully you end up with 345 or more offers. And then once those offers are in place, again, it’s negotiating those terms, which is where can I step in and help we get the terms that hopefully that you’re after you sign heads of terms, and then we start the due diligence, legal process and all being well, at three months later you complete. But of course going through that process, if something does go wrong with the buyer, or the chosen buyer, then you know that you’ve got at least hopefully at least three or four other offers to fall back on. And the market changes. So it might be that you know, there’s more people available, it might be that one of the people that have expressed an interest, but perhaps they couldn’t afford your business now can so going through that process, you’re benchmarking, you know what your practice is worth and who is interested in buying it the whole time. And yeah, and we can sort of revisit if things don’t quite go to plan. But that is a rarity.

Katie Bell: 29:26

Luckily, and I think that’s that’s I’ve I’ve had a few clients that we’ve coached in the past who have come on board after they have bought a another practice and it has been a not using a broker not using somebody you know a specialist as you that can help every step of that and make sure that the due diligence has been done correctly. And you know, these particular clients that I’m thinking of they’ve had real struggles on the other side because they bought they bought a business that’s really not been valued at in the right way. And they’ve put themselves in a huge or under huge financial strain. So I think it’s really, really important to reach out to somebody like you, Josh, and really get that clarity and the expertise to support you in that process, if that is something that you are considering,

Joshua Catlett: 30:12

yeah, I agree. And even though, you know, 95% of the time I’m representing the seller rather than the buyer. It is really important to me bought into me to maintain good relationships with my buyer network. So I’m not just trying to sell any business to any person, I’m trying to find the right buyer for the business that’s being sold. Because that way, it will protect the outgoing owners legacy, it provides continuity of care for their patients and for their staff. And hopefully, the buyer that’s made that acquisition will be very successful, they will continue to grow it and hopefully, they’ll go on and buy another 10 businesses. So I, you know, I’m a big fan of a, you know, win win win win deals, as opposed to just, you know, selling to anybody.

Katie Bell: 31:04

Josh, this has been so helpful. I’ve taken loads from it. And I’m sure the listeners will have done too, we are going to make sure that the links that they can click on, they can connect with you on LinkedIn, they can go to your website, and they can book a call with you, they will be on the show notes. So listeners head there, if you do want to reach out to Josh and Josh, you are really I feel like you’re somebody that really gives up your a lot of your time for our industry. So I want to thank you for that because I’m sure you spend a lot of the time on the phone talking to a lot of people who don’t necessarily go any further with their decisions around selling and I get that as well. But it’s it’s important that we’ve got experts out there that people can reach out to they just don’t you know, perhaps didn’t know about you until this podcast. So thank you very much for giving up your time to come on, be on the treat your business podcast,

Joshua Catlett: 31:52

my problem. Enjoyed it. Thank

Katie Bell: 31:54

you. Thanks, listeners for tuning in. And we will see you again next week for a very exciting episode. Thank you for listening to treat your business with Katie Bell, the podcast that tells you what you really need to hear. And now when it comes to running a successful business in the health and wellness industry that gives you the time, money and freedom you are wanting for access to our free workshops on how to get more clients in your business, how to make more income in the next 30 days. And to get more time back in your business and life. Head to our free Facebook group today. Treat your business or head over to thrive dash business coaching.com All of the links are available in the show notes