Your Medical Billing Business Valuation - Exit Strategy Planning 101

Starting a medical billing business is becoming an increasingly popular choice for people who desire a great business opportunity that enables them to stay at home. This is good news for successful medical billing business owners who are interested in selling their business now or in the future. Although you may have a successful business, there is some planning that you should do. Selling your medical billing business will involve more than simply handing over ownership. To obtain the best results, planning your exit strategy should involve the three following tasks:

  • Get your business in order

  • Determine how much your business is worth

  • Locate potential buyers

Getting Your Business in Order

 

The first order of business is to get organized. Potential buyers will want to see proof of your success. The most important details of your business to share to potential buyers should include personnel, clients, business history, and financial statements. Hopefully, you created a business plan when you started your business. This exercise is not only beneficial for starting and running your business, but it can also help you gather the information you need to organize the details of your business.

Determining the Worth of Your Business

 

How much is your business worth? This is the one question that you will hear many times when you are selling your medical billing business. Placing a monetary value on the operation that you have planned, built, and led to success can be a daunting task. Once you have your business in order, you should then be able to determine its valuation. There are many ways that you can determine this number. One common method is to multiply your profits by three once you have subtracted your earnings, interest, taxes, and depreciation and amortization expenses (EBITDA). This method does not produce a value that is absolute, but it will give you and potential buyers a good idea of the valuation of your business.

Finding Buyers

 

Once you have your paperwork and the details of your business in order and you have a good idea of how much your business is worth, you are then ready to look for potential buyers. People who are interested in starting a business are an obvious first target. However, you must make sure that these individuals are ready to continue the positive path that you have worked so hard to pave. A good exercise when finding buyers is to build a list that is based on research and experience. You will need to do some considerable research. Establishing a partnership with consultant who is familiar with the medical billing industry is an option that may save you time.

Final Thoughts

 

You can perform the steps mentioned above at any stage of your business. If you haven’t done so already, you should consider using enterprise management software. This software can help you accomplish all three steps and ensure that the reward you receive for selling your business meets the work you've put into it.

GENERAL INFORMATION

  • Website and any marketing literature touting your services, accomplishments, acquisition of new business, etc.
  • What is your medical billing business corporate structure (C-Corp, S-Corp, LLC, registered in what state)?
  • What is your shareholder listing and percentage of ownership?
  • What is your medical billing business typical  aggregate Payer Mix?    Medicare %          Medicaid %          Commercial%           BC/BS%     Managed Care%    Other %        
  • Any negative issues/problems that you have had that a potential buyer should be aware of.   For example: lawsuits and judgments/settlements, loss of significant client(s), tax problems, liens against assets, employee complaints or lawsuits (sexual harassment, wrongful termination, etc.)
  • Do you anticipate legal or ethical problems with clients or employees as a result of the sale?   If so, please explain what they might be.
  • Think about your own personal goals after the acquisition so we can incorporate these (in general terms) into the prospectus.   Ex.  Employment Agreement/Salary/Benefits, retention of minority ownership as alternate means of owner financing part of the transaction, Non-Compete limits, etc.
  • Operating locations: Amount of office space?  ___________ square feet.    
  • Is your office space leased or owned?    If owned, what's the length and interest rate of mortgage or terms of lease.   ___________  yr. lease at _________ %

Type of Service Rendered  - Billing, Coding, Transcription, Only EDI, Collections

For every medical billing service client, please supply the following information.  Make sure to identify every client only by code, not by name:
 

  • Client ID,  Specialty,  No. of Physicians or Providers, Client’s Zip Code(s),  Month/Yr of Contract,  % of Aggregate Revenue,   Fee (% of Collections)  
  • Billing performance - Total collections, Total Accounts Receivable, Accounts receivable beyond 120 days

FINANCIALS
 

  • 12 Months Income Statement and Balance Sheet
  • The latest closed period financials
  • Amount of shareholders’ compensation and personal expenses such as owners’ salary, bonus, administrative fees, insurance, auto, T&E, recurring expenses, etc.
  • Booked revenues for the past 3 years and growth rates
  • Operating Costs: Management, Claim Follow up, Quality Assurance, Training, Customer Support, Client Relationship Management, Rent, Medical Billing Software, Practice Management Software, Communications, Insurance, Taxes, incidentals
  • EBITDA

 

CONTRACTS

 

  • Does your medical billing business maintain a written contract with each client?  If so, please indicate the term of each contract and termination notice interval.
  • Please attach a sample service agreement (client contract), or copies of each major version
  • What are the most common ways your medical billing business obtains new clients?


STAFFING

 

For each of the following functions, please list the number of staff in full-time and part-time positions:

 

  • Management 
  • Billing Account managers
  • Claims Follow up Specialists
  • Training
  • Quality Assurance
  • Marketing
  • Sales

 

YOUR BILLING ENTERPRISE MANAGEMENT SOFTWARE

  • What is the total number of medical insurance claims processed per month?
  • Do you submit your medical insurance claims electronically?  What percentage of total claims do you submit electronically?
  • Do you receive Electronic Remittance Advice? What percentage of total payments do you receive electronically?
  • Can your medical billing enterprise management software update payments and process secondary claims automatically?
  • Does your medical billing enterprise management software include standard practice management software features, such as patient scheduling, visit documentation, and patient relationship management, and patient education?
  • Is your medical billing enterprise management software ONC-certified?  Can it handle ICD-10?  Can it handle both CMS-1500 and UB-04 forms?
  • Does your software include claims scrubbing?  Does it support claims processing workflow management?
  • Does your medical billing enterprise management software include inter-office and intra-office teamwork management?
  • What are 3rd party software components integrated with your medical billing enterprise management software?
  • Please note the name of the system, vendor, and describe the terms of use of your medical billing enterprise management software.  Please also state whether you own or lease the hardware, age of the hardware, and who maintains the system and hardware.