Your Primer to Healthcare Mergers and Acquisitions

Creating Remarkable Value: A Primer For Healthcare Providers (Part 2)

Apr 12, 2016

by David E. Coit, Jr.

By David Coit Jr., DBA, MBA

Volume 3 Issue 8 April 12, 2016

In the last issue of SalientValue, we presented two of the four fundamental ways healthcare business owners can increase value:  increase the growth rate for earnings and explore ways to extend a positive growth cycle.  In this issue, we focus on how to enhance cash flow and how to reduce the cost of capital as strategies for maximizing value.

Enhance Cash Flow

Successful healthcare executives understand that the realities of today’s reimbursement environment can negatively impact cash flow.  In short, an organization can be profitable, but also at death’s doorstep if cash flow is poor.  Here are a few ways to effectively manage cash flow:

  • Reduce any excess inventory/supplies and make future purchases only as necessary
  • Refrain from using debt financing that is not strategically critical
  • Replace/upgrade existing assets with leased assets and use the saved cash flow to support long-term growth initiatives
  • Terminate poorly performing projects and contracts and redeploy those resources to higher ROI projects
  • Reduce tax liabilities by reviewing taxes paid and taking advantage of new strategies.

Reduce the Cost of Capital

Competent healthcare business owners must carefully study the cost of their business investments, including the cost of any debt used to fuel business operations.  You can reduce the cost of capital if you take the following steps:

  • Decrease excess debt
  • Reduce the ratio of fixed operating costs to variable operating costs
  • Adopt a disciplined schedule of equipment maintenance and replacement that matches periods of optimal cash flow
  • Outsource services that can be provided more cost effectively on a contracted, “on time” basis
  • Seek cash reimbursement for services/products whenever possible
  • Create barriers to entry through improvements in quality of care, transparency of pricing, and direct-to-consumer advertising.

Many highly valuable healthcare companies employ one additional strategy:  they create a culture where value creation is the responsibility of every employee.  This philosophy is becoming increasingly popular for many good reasons, including the complexity of our healthcare marketplace.  More than 20 years ago, Jack Stack wrote in The Great Game of Business that “people who invest their time in building a business are just as important as the people who invest their money.”  Healthcare executives and owners who adopt this mindset are best prepared to build remarkable value in their organization because they maximize the use of all available resources, especially their fellow workers.

Note: A slideshow version of both “Primer” articles can be found by clicking here.

David E. Coit, Jr.

David E. Coit, Jr. DBA, CVA, CVGA, CM&AA, CBEC

Director, Finance + Valuation/Partner

David is a seasoned commercial and corporate finance professional with over 30 years’ experience. As part of the VERTESS team, he provides clients with valuation, financial analysis, and consulting support. He has completed over 150 business valuations. Most of the valuation work he does at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.

David holds certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors, and Certified Business Exit Consultant (CBEC), issued by Pinnacle Equity Solutions. Moreover, the topic of his doctoral dissertation was business valuation.

David earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. He is a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.

Before joining Vertess, David spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During his commercial finance career, he analyzed the financial condition of thousands of companies and had successfully sold over $2 billion in corporate debt to institutional buyers.

He is a former adjunct professor with 15 years' experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.

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