Ben Lynch: G'day, good people. Welcome to the Grow Your Clinic podcast by Clinic Mastery. Here's what's coming up inside of this episode. Most clinic owners, they've never had their business formally valued.

Andy Wang: A buyer doesn't actually care about what the owner has put through the business. They want to know, what does this business look like as an investment?

Hannah Dunn: People are selling because of uncertainty around the forbidden word NDIS.

Jack O'Brien: But valuation is in the eyes of the beholder. We had four different parties interested in acquiring my clinic.

Hannah Dunn: At CM, we are getting your business ready for sale, even if that is not your plan.

Jack O'Brien: The worst time to think about selling a clinic is when you have to.

Andy Wang: I'll be honest, it is actually a way more subjective assessment rather than objective. This is more of an art than it is a science.

Ben Lynch: This episode will be right up your Allie if you're wondering what your clinic is actually worth. We're diving into clinic valuations. And trust me, you want to hear Andy's take on the four key valuation perspectives. Plus stick around for when we discuss the key levers to increase the value of your business. Before we dive in, today's episode is brought to you by AllieClinics.com. If you're the kind of clinic owner who loves to feel organized and stay ahead of the chaos, you'll love Allie. Think of it as your digital clone. It's the single source of truth for all your clinic's policies, systems, and training. Test it for free at AllieClinics.com. And in other news, applications are now open to work with us one-on-one at Clinic Mastery. If you want support to grow your clinic and bring your vision to life, just email helloatclinicmastery.com with the subject line podcast, and we'll line up a time to chat. All right, let's get into the episode. It is episode 349. And today we have a very special guest, a long-term friend, previous guest on the pod, a partner of ours at CM, a recent coffee enthusiast, but an accounting wizard, Mr. Andy Wang. Andy, welcome. Good to see you.

Andy Wang: Thank you. Good to be here.

Ben Lynch: I'm again joined by Hannah Dunn, Director of DOTS, an OT service in Melbourne. The size of the team now, Hannah, 30 in the 30s?

Hannah Dunn: Yeah.

Ben Lynch: Bang on 30.

Hannah Dunn: Yeah, I think it's 31.

Ben Lynch: Fantastic. That's good. And continuing to expand the reach of the DOTS.

Hannah Dunn: We're opening in the Eastern suburbs in two weeks. We have a therapist starting in Melbourne, so super exciting.

Ben Lynch: Wow. Kudos. And as always, the man with the head for the podcast, is that me or is that you, Jack? Jack O'Brien, former physiotherapist and owner of Terrace Physio Plus, JOB. What are you sipping? What are you drinking?

Jack O'Brien: Oh, I actually opened a new bag of a Kenyan red honey process from Unison Roasters, tasting notes of candied plum and strawberry and caramel. It is just a flavour bomb.

Ben Lynch: You got me salivating. Are you drinking it as an espresso or filter?

Jack O'Brien: I'm doing it as a filter, but actually what I am drinking right now is just plain old water and electrolytes. A bit boring.

Ben Lynch: Well, today we're going to be talking about what is your clinic actually worth? It's a very interesting topic that I'm keen to unpack with all of you, but just to tee us up, I think most clinic owners, they've never had their business formally valued. Hopefully, you're across some of the numbers in your business. You got some of the key performance indicators like in Allie. Hopefully, you're across some of the financials each month like in your profit and loss. But very few clinic owners actually know what their business is worth. And here's an interesting thing. You don't actually need to be selling your clinic to care about getting a valuation. And we're going to unpack that today. A valuation really can tell you what's the likely amount someone would pay to own your business. We can get into the subtleties of once you get it, how you then use it in the conversations that follow. What are the most valuable parts of the business? I think that is so revealing when you get a lens on, ah, this is how you've come to that valuation and therefore perhaps these are the things that I need to work on. You can also find out how you compare against other similar businesses of your size and you can also track over time, has my asset, this business, increased in value over time? Not just did we grow revenue but perhaps What else would someone pay for this? Because you're building a lot of value over time. Now, what we're talking about is not anything to do with flipping clinics. It's about actually understanding what drives real value, when to get a valuation, and how to think of your business like an asset. Because even if you never sell, you should know the value of what you're building. Andy, to kick us off, what are some of the key reasons that you hear and see clinic owners reaching out to you to get a valuation?

Andy Wang: There's really one major thing that jumps out and I think this is the most common. It's when someone starts expressing interest, a team member or a buyer on wanting to buy into their business or the clinic owner is looking to basically transition themselves out. So whenever there's some sort of merger, acquisitions, sale activity, that is normally the cue. That's the most common cue. And like you alluded to earlier, there is definitely benefit of getting valuations done preceding that. But regardless, that seems to be the most common trigger point.

Ben Lynch: And why do they come to someone like you and the Clarico team over maybe just saying, we'll figure out the value ourself?

Andy Wang: Number one is the familiarity with allied health. Because when you think about valuations, well, in the valuation world, there's a lot of different ways to value a business, right? Everyone here may be and a lot of your listeners may be familiar with the multiple of EBIT, right? Multiple of Adjusted Net Profit for lack of a better term. That's the most common when it comes to allied health clinics but in the big wide world of business, there is dozens of different ways of valuing a business, a multiple of cash flow, discounted cash flow but when you think about a tech start-up, they're not even profitable so you can't use a multiple of EBIT but you hear about stories of them being valued at 200 million or something like that. So realistically, The biggest reason to work with an accountant who specializes in the industry is that they're familiar with the way those types of businesses are valued. I get asked from even other accountants, hey, do you guys do valuations for, say, a construction business? And I'm like, hey, I just wouldn't feel comfortable doing that because that's a very special niche.

Ben Lynch: Hannah, what's your journey been in valuations, having your business valued, helping other clinic owners go through that journey as well?

Hannah Dunn: Yes. So, um, we've had our business valued a couple of times throughout the last 14 years of running. Um, most recently we had it valued, uh, because we were looking at having someone buy in and super excitingly, uh, we've now announced to our team that Steph is a shareholder in DOTS. So I have my first shareholder, which is super exciting. She's one of our team, as Andy mentioned, one of the key reasons for getting a valuation. But what I'm hearing from members and from people in the community and what I think I'm seeing is more changeover of businesses than we've ever maybe seen before. That people are selling because of uncertainty around the forbidden word NDIS. And that there's people who are also had their practices for a very long time and are ready to exit, being the other reason that Andy mentioned. And so we're seeing businesses get valuation in preparation for the potential of wanting to sell and also understanding what their positioning is in the market because they're hearing other people have sold their businesses for X amount.

Ben Lynch: Well, Jack, you sold your business entirely. What was your journey towards understanding the valuation of your business?

Jack O'Brien: I think an interesting little note or complexity is valuation is – look, there's a few clichés to throw around, right? But valuation is in the eyes of the beholder in a sense. And what I mean by that is we had four different parties interested in acquiring my clinic and of four very different styles of acquirers. One was a publicly listed company, one was a private franchise, one was a private equity firm, and one was a local clinic owner. And those four acquirer personas saw value in different ways. There's different things that are appealing. And perhaps a good way to think about, Andy, I'd be curious what you think of this, is that clinic valuations is somewhat similar to property valuations. And a few different families can look at a house and go, I love the kitchen. That's exactly what I want. And others see the backyard and go, oh, the space for the kids. Someone else sees the backyard and go, oh, there's space for a granny flat. And so people perceive value very differently on what they want to acquire. For us, we had multiple valuations or acquirers value our clinic, vastly different numbers based on the value that they perceived.

Ben Lynch: Joby, was part of your experience that they used different methods as well or that they used the same method but arrived at different valuations?

Jack O'Brien: Both. Yes, some applied different methods of how to get to that adjusted profit number. Some looked at the future maintainable earnings in their perspective, which is really what a business is. When we are buying something, we are buying the future profits. And how confident are we that this enterprise will have future maintainable And then I think there's a lot of other terms that go into a business deal, right? How involved will the seller, the vendor be or not be? What does the acquirer want to do or have to offer if they're a team member? So there's a myriad of factors.

Ben Lynch: It sounds like these are points, Andy, you probably have to explain to the clinic owner when they come to you about the process. Do you want to just sort of tee that up? Like what are some of the common things you find yourself having to explain, give context about so that you're on the same page when a clinic owner says, Hey, we'd like to get evaluation. Here's our reason. Now what's the process? How do you sort of tee it up and get them on board before you go through the process?

Andy Wang: first share with you the process. I normally run through the process at a high level with clinic owners. The most important thing is making sure we have access to up-to-date numbers and your books because reality is we'll be relying on those numbers. When we're doing evaluation is different, accountant hat comes off Well, we've got, you know, team members who will do the valuation but then valuation hat comes on. Meaning, if your books are messy normally for your accountant, your accountant or bookkeeper may fix them. your value is going to take what the numbers are from your books and take that as gospel truth, assuming you've said, yes, you can rely on these numbers. So that's really important for any clinic owners. If there wasn't a good reason to have clean numbers and books before, this is another one of those reasons, right?

Ben Lynch: It's like pretty much you're saying, don't go ahead with evaluation unless your books are up to date because it might end up in a pretty average result for you.

Jack O'Brien: I'll push back a little bit on that statement, Ben. It's not that you shouldn't go ahead with the valuation, it's go ahead with the valuation knowing that you're going to need to do some gardening. You always have to renovate the front yard before you put the sign up for sale.

Ben Lynch: Yeah. Okay, so keep going, Andy. You want the books tidy. What else?

Andy Wang: Yep. Just a side note, Jack, I like your analogy. I always say you need a little bit of surgery rather than gardening. I like the term gardening more than surgery. I'll leave that moving forward. But number two is we want, so assume we have the clean books, we then want to know, okay, We want to actually know what the actual business profit is, not what the business profit with all the extra owner expenses and everything else the owner puts through the business is. Because remember, a buyer doesn't actually care about what the owner has put through the business. They want to know What does this business look like as an investment, right? Because unless they're buying the existing owner with them, a lot of those owner numbers aren't going to be in there. So the second one is to make sure that either the clinic owner or the books reflect this, that the commercial reality of the owner's time, this is why we want to separate director's wages, clinician wages, admin wages, any owner expenses, cars in there, maybe a tax deductible trip they took somewhere, all of those are separated out. So once we get that confirmation from the business owner, we would then work with them and look at the last three years of the business because you might have outliers. Maybe your last year wasn't that good because there was a bit of structural change but your Let's just say 2025 looks like that, but your future vision for the business will look like 2024 and 2023. So we look at the last three years and we actually give each year a weighting. Okay, so essentially what we're looking at is getting the net profit and when we say adjusted net profit, we're adding back or taking off any of those extra owner expenses or if the owner doesn't pay themselves correctly and they're a full-time clinician, that should really be reflected in the business.

Hannah Dunn: So interesting to hear that, Andy, because the other thing that I have been doing over the last six months or so is having a look at some businesses to purchase and the difference in the valuations that I've received. And you know, this comes from me just wanting to be ready that if there was an opportunity that presented itself that was right for me, that I would have a lot of knowledge in this area. So I've sort of been doing it as an education process more so than maybe it's not exactly the right clinic. But the difference between what I've been provided for some of those clinics is chalk and cheese. And for one of them in particular, they were like, we've done our super marketing, we've done everything through the business. And so it was almost like we have to take on face value that they needed to do that. that they were saying it was all super marketing, we've done everything. And so I wonder where, I guess my question is like, how much do you know what is them saying? Oh, that's all our super marketing because the profits were 3% on one and 9% on the other. Like that's a big difference when they take out their super marketing and their wages and those sorts of things. So I guess, yeah, how do you get evidence around that?

Andy Wang: So reality is when, I think it's important to know which shoes are you sitting in right now. Are you sitting in the buyer's shoes or the seller's shoes, right? Assuming we're stepping into the buyer's shoes, unless you do a full audit, you're paying for insurance services, right? It's really going to be difficult to know. You are taking some extent, taking it on face value to some extent, taking their word for it slash working with them from a relationship point of view to really check out, hey, what's the trust levels here? I guess you could always. ask for assurance services and potentially what would happen is someone would then do a mini audit on their accounts. We don't see that as often unless the transaction is going to be really big. And normally when there is a large sale, what we found is it has happened between known parties. So a lot of that trust has been there. And On the flip side, one thing which could give you peace of mind is people sometimes ask for tax returns, right? And because super marketing traditionally would be not tax-deductible. Yes.

Jack O'Brien: What about the bickies in the kitchen?

Andy Wang: Of course, all the things for the staff amenities, right? But what you might find is their profit and loss might show one thing but the tax return actually shows a lot of that being added back. Now, that's assuming the I's are dotted, T's crossed, all that good stuff.

Ben Lynch: Yeah, good to know though. Perhaps there's a number of variables here, Andy, is what I'm hearing. And at each variable, there's some degree of like judgment added, which can be debated multiple different ways. How do you actually go about, I don't know, getting to a valuation that you feel is concrete or you're confident in? To what degree should we sort of hold onto that number once it comes to us at the end of the valuation? Yeah, just give us some thoughts on where we end up as a reflection of all of these tiny little judgment calls in the whole process that make it a seemingly objective assessment pretty subjective underneath.

Andy Wang: I'll be honest, it is actually a way more subjective assessment rather than objective. Okay, I'm going to put that out there. This is more of an art than it is a science. There are scientific parts to this, But ultimately the valuation, there's a lot of art form in that and the final sales price is also very much an art. Do you mind if I sort of go off script for a minute? Go man. Okay. So when people come for a valuation, they think, Hey, I want to come to get a valuation and that's going to give me peace of mind and that's what I'm going to sell it for. But in reality, that one valuation that a valuer we would produce is one of three or four different numbers. Okay. I'll give an example. One of the numbers is the valuation we would produce. And that is probably the most objective part out of those three, four numbers, because we would take accounting numbers for multiple years and we try and base it off of historical facts. Yeah? So that's from people's accounting files, their Xero files. When we start adjusting those numbers is when we work with the business owners because we're not going to know, hey, what have you put through without doing a full-blown review of your figure. We're not going to know what have you put through the business. So we start working with business owners to understand, well, what was a one-time purchase that really won't happen again? It won't impact the future. Maybe you did an investment of to a hundred grand, 200 grand for these anti-grab treadmills or whatever it is, you're not going to do those investments every year, right? Yeah. And we do take the business owners input on face value there because ultimately, you know, if you're going to find the numbers that kind of just hurt yourself in reality. So the value of figures are mostly objective but the art form comes in relying on what the business owner said and here's the big one, the multiple. The multiple is the thing which is most of the art form. Us personally, we rely on two parts to this. One is through industry experience, having clients bought and sold businesses, there's been other mergers and acquisitions and valuations in the past. The second one is we've been working on almost like an algorithm where business owners answer a bunch of different questions based on their views on the business and each one has different weightings and what we actually do is we compare our assumption on what we think the multiple will be to the outcome of the algorithm and so far they've been pretty close and that gives us that extra bit of confidence to make it less of an art form and more of a science but still very much an art form. So number one is the I'm going to push up my invisible glasses, the accounting numbers valuation. The second number that people are after is the buyer's valuation. Like Jack talked about before, different buyers will value different parts of the business and if you said to them how much you want to buy my business for, they're going to be like, if I can buy it for zero, I'll buy it for zero. It doesn't mean your business is worth zero. So that's the second number. The third number is you as the owner. What do you value your business? Because we actually had a case where I got approached by a clinic owner. They wanted us to value their business. They had an offer and we valued their business and we said, Hey, your business, the offer looks within KUI of what your business does, but that's your business up to end of last financial year. You've grown since then. Now we want to try and do the valuation on as much objective truth as possible. So we try not to forecast out because you really plug any figures in there. Yes. But this business owner knew, well, okay, it's worth this now. And the value of the offering seems pretty good, but I know I'm going to grow and I know I really still enjoy this. And if I sell the business, I'm going to be needing to be a wage. earner for the new owners for a specific period of time, I kind of also don't want to do that. So there's all these invisible variables that you cannot put a dollar figure to. but it then stacks up the business owner's walk-away price. So I could say, I could value a business and say, hey, your business is worth a million dollars, objective fact based on mostly science, a little bit of art, yeah? And the buyer might say, yes, I'm happy to buy your business for a million dollars, 1.1, 1.2, okay? But just because you've got agreements in two of those factors, the business owner may still be like, still back my ability to grow this business by another 50% in the next two years, at which point 1.2 is super cheap and I'm not doing that and I am not ready to walk yet. So their walkway price could be 2 mil.

Ben Lynch: Okay. Right. So we've got three numbers. One, the valuation, the accounting side of things. Number two, the buyer's valuation. And number three, the owner's valuation. Did I hear you say there were four or there were three numbers? Well, the multiple was kind of weird.

Andy Wang: Three or four. Yeah. There's three.

Ben Lynch: There's one other one, which look at me holding the accountant to task.

Andy Wang: You don't like it.

Ben Lynch: You don't want specifics.

Hannah Dunn: I'm like, I'll take your variable fence fitting.

Andy Wang: The fourth number is more of a floating. It's what have businesses been sold for around that specific area that you can potentially compare with. The only reason I don't like to bring that up as much is, It's so hard to compare, right? A business, it would have to be targeting your exact same demographic with a similar, there's just too many variables there. That's why it's like an invisible fourth where it's like you could use it as a loose guide, but I don't know how helpful that'll be.

Jack O'Brien: That's helpful, Andy, because that's the distinction between property and business, right? Like property is often based on comparable sales. It's less proximal in a business valuation context.

Hannah Dunn: And the question that came to mind for me when you were talking, Andy, and one that Steph and I've been talking about as well, like you can see the sale of properties on realestate.com. Is there some way you can see the sale of businesses to sort of educate yourself or not really?

Andy Wang: I'm not sure off the top of my head but one thing I don't advise is business brokers. Sometimes I know people do is they get in touch with business brokers and say hey I'm looking to potentially sell my business for X dollars based on the valuation that they're aware of. Would you have potential buyers at this price point and it gives them an indication on would a business broker pick that up or not. It's a little bit cheeky but business owners do that.

Ben Lynch: And it's such a good point.

Hannah Dunn: There's no realestate.com though.

Ben Lynch: Yeah, it is a bit tricky. Like sometimes you can find this information around the traps with a bit of Googling or chat GBTing, but you get mixed results. And I think the point that you made, Andy, was really great around there's so many other variables here that are not seen. beyond just the paid price or the valuation price, the sale price of the business. For instance, how many clinic owners have we seen and supported where part of that sale is maybe you get half of the amount in cash on settlement, the other half comes in 12 months' time after performance benchmarks are hit, like the team are retained, the business hits this. It might say it was two million bucks, but maybe after all is said and done, it's less than that. And to your point around the owner staying on, there's so many of these other little variables that are often packaged in the deal that just taking the number is maybe a little too simplistic to anchor to.

Andy Wang: What it sometimes feels like is imagine if you went looking for a a relationship and just say if you're a single person you went looking for a relationship based on a checklist, right? And someone you could find people that fit every one of those checklist items but as we all know when it comes to interpersonal relationships there's so many other things that come into play outside of just a checklist, right? So a checklist maybe acceptable for you to know where to start, but ultimately the transaction itself or getting into a relationship with someone will come to, hey, what are all those qualitative factors that you can't really put a dollar figure to? So realistically, What I recommend with business owners, tying back to the point, that original question, Ben, is our valuation gives you a starting point, but then we will normally nudge business owners on, hey, why do you want to sell? How close are you to having enough? Do you still have another few years in you? Do you enjoy this? What are you going to use the money for? Because going back to your point earlier, Ben, it is an investment. And I always say to people, don't look at your business as this earned me income now. It is an investment. If we think about the golden net profit figure for clinics, let's just say 25%, right? That means every dollar that a clinic earns, there's 25% you keep. Now think about when you invest money. How much would you love a 25% return on your investment? People feel for those sort of returns. Yeah. So, looking at it as an investment and every dollar you improve your business by isn't just $1 of profit you as a clinic owner get today. That's 3, 2, 5, 6, 7, 8x on sale. Hmm. That's a really important thing.

Ben Lynch: So tell us then, let's go into the multiple side of things. Let's double click on that, Andy. Every business is different. People don't want to latch on to, well, I think mine's going to be X or Y, but. Give us some parameters because for some folks, they have never done this valuation process. Is it like a 20 times multiple? Is it like two? Just help set a bit of a range and articulate maybe some of the delineations, distinctions between one number and the next number. How do you kind of arrive at that?

Andy Wang: clinics would fall between 3x to 5x. Now within there, there's like a range we normally give a lower, mid, upper but within that range. Now the larger your clinic becomes and when I say not just one clinic but you've got multiple sites, we're not talking satellite sites but full proper clinics, the higher your revenue becomes as in total sales You can start bumping above the 5x and that you can go all the way up to 8, 9, 10. But when we're talking that high of a multiple, we're normally talking you're being bought out by a large corporate. you know, a fund of some sort. You know, Jack, you mentioned there was potentially private equity movement there. I just want to rewind a little bit. The reason why the multiple is important for those who are new to this is you can earn profit. And if your business has a profit of $100,000, if you just sold your business for $100,000, it just means you got one year of profit that you backed. The multiple is important because that is a multiple on your profit. So if your business has a net profit of $100,000, let's ignore adjustments for the simplicity of this, and you have a multiple of three, that means your value is three times $100,000, $300,000, which means you've got three years of your business paying you out a hundred grand a year, And you, you've just kind of walked away from it. Yeah. Now. Let's take most clinics, three to five X. What would determine whether you're in the lower end of that spectrum and the higher end of the spectrum? Now, like I said, our algorithm takes into account a lot of different things, but the main things which I look at when it comes to the art form is how, number one, how reliant is the business on the clinic owner themselves? The more reliant they are, that lower the multiple that is. The reason is, The new buyer needs to be able to buy the clinic, buy your business and you not be there and the business doesn't suffer. We almost always find one, two, three people clinics where the owner is full-time clinician, almost full-time clinician. The valuation is normally on that lower side, unless there is some crazy circumstance, which is the rule basically. But as the owner exits themselves out of the business, the higher that multiple becomes, that's one of the factors. The other factors I would say, actually, let me illustrate it in this point. The things which make your clinic successful would also make it have a high valuation and multiple. So if we think about it, high gross profit margins, high utilization rate, you're tracking your patient average spend, patient lifetime value, when you're maxing those figures, Your gross profit's naturally going to be higher. Your net profit's naturally going to be higher. And as those are high, normally it also means that your patient happiness ENPS score is high, your team ENPS score is high, which means you'd have lower turnover, which means the business is less reliant on you as a business owner. So you're probably not that clinical. So all those things trickle down to improve the multiple. Okay. So rather than giving you all the little things with the algorithm that looks at essentially the good habits of business.

Hannah Dunn: Yeah. And this is such valuable information, but it is what we do as coaches at CM. We are getting your business ready for sale, even if that is not your plan. Our goal is to really, really think with you about what is your end goal and how are we going to get there? So you touched on Andy about if you've got multiple sites, which is, you know, my situation that I've got multiple sites. And thinking about when we work with clinic owners, there's some that I work with who have created those businesses as individual ABNs because they've done it with one different person or something like that. And so that is something that devalues the valuation of those businesses potentially because they're not linked or they're individual businesses rather than having the whole business together unless you can bring it together in certain ways. But bringing in shareholders into one site versus others, there are so many things that affect the end game. But even if you're not in the position that you're thinking about selling, we don't want you to be in the position where you're like, I want to sell now and then we're doing those things. We want to make sure it's ready for sale from today and forward. rather than being reactive when we're burnt out and scared of the NDIS or scared of what we're doing.

Jack O'Brien: Yeah, you're right, Hannah. I was thinking about the modules inside the learning portal for our members on business value drivers that Daniel Gibbs put together. To Andy's point, there's a number. I think there's eight different drivers in that module in the learning portal. It was like, if you dial in these eight things, your valuation and the multiple used goes up. If you're lagging in any of these things, they are mitigating factors also. A good business is a valuable business whether you need to sell it or not.

Ben Lynch: Isn't that the interesting part is by doing this, you create an asset that's less reliant on you and is profitable. You don't want to sell it.

Jack O'Brien: You need to sell it. Yes.

Ben Lynch: Do you know what I mean? You go, this is actually really good to your point, Andy. It's like, well, if I get the money, obviously I have to go somewhere else and allocate that, but if you've got time, runway,

Hannah Dunn: Yeah. And it's those small things that you mentioned, like having NPS scores, where when you say to your client, Andy, like, how does that look? And they say, oh, we don't have any data on that versus someone who says, yeah, here's the last three years. This is where we see it.

Ben Lynch: And Hannah, just to quickly elaborate, can you just explain NPS? Not everyone's tracking that.

Hannah Dunn: Yeah, a net promoter score in regards to how happy or satisfied someone is with your service. And you would have all seen them before. It's when you get an email or a text message saying, can you rate our service from one to 10? How happy were you? And getting those scores back and working out what your average net promoter score is.

Ben Lynch: Essentially, having that is great evidence for an incoming buyer that the client experience is high. It's really good. Clients are sticky. They come and stay and that gives confidence to a potential buyer. Yeah, that makes sense.

Jack O'Brien: Yeah, at the risk of hammering on the property comparison or property analogy too much. I love it. Hannah alluded to a point here around not having to sell when there's panic around the NDIS. A key distinction between a business valuation and a property valuation is the time of preparation required. If you want to sell your house, give yourself six weeks, a lick of paint, tidy up the front yard, and it's good to go to market. It's not like that. Not if our renovation is delayed. Depends on the renovation. I am not renovating. I don't know the difference between a hammer and a screwdriver and so I'll keep these little fingertips on the keyboard. Thank you very much. In a business context, it doesn't take six weeks to do a renovation. It takes arguably, Andy, I'm curious what you'd think, but really 18 to 24 months of solid sound financial management to maximize the value. And so the worst time to think about selling a clinic is when you have to because you're at a, you know, inverted commas, distressed seller. And unfortunately, you'll need to settle for a lower multiple evaluation. Whereas if you've prepared your business façade when you don't need to, if an opportunity presents itself, you can really maximize the valuation. Andy, what do you think to that like 18 to 24 months of ideal preparation before valuation?

Andy Wang: Say it depends on where your business starting point is but minimum, minimum, right? Because if you think about If you're super stressed as a business owner, you're fed up with it, it normally means the business is in a certain shape. Yeah. Which means you probably have more work to do to get the business to the point where it'll fetch a higher price. But then by the time you've got there, you've grown as a person because I'm a believer of business can't outgrow, as in it's always going to be capped at the level of the owner. By the time you've gotten the business to that, oh yeah, it's sellable and for a decent price. You've probably grown as a person, gained skill sets, you're less stressed, now it's an investment paying you 25, 20 to 25%. Then the question is, do you still want to sell?

Ben Lynch: Jack, you're referring to the timeline for an exit and presumably a full exit where you're out of the business. just making that distinction, the process of getting a valuation done is much quicker than that. Just give us some parameters there, Andy, if you were to get a valuation. What's the sort of turnaround time on something like that? And also, what sort of cost bracket would someone be looking at to get a valuation done?

Andy Wang: So for us, assuming the business owners provide all the information in a timely manner that doesn't blow out, we have a two-week turnaround. And what that looks like is that includes things where we can understand your business because it helps us with the art form part of things and also knowing how to adjust adjust the profit. We provide two reports off the back of that. One is a more in-depth report for the business zone and one is like a one-page summary for potentially team members who like to buy in. Now, I normally wouldn't recommend giving that to the seller. sorry, to the buyer if it wasn't an internal buyer. If you have an external buyer, obviously you want to keep those cards close to your chest because you've got the value, you know the value it gave you, you've got the figure you're willing to walk away at and obviously you don't just want to accept that, you want to go as high as you possibly can through the negotiation process. So it's roughly about a two-week turnaround, give or take. The cost is $3,500 plus GST. We're looking around that. Sometimes a bit lower, sometimes a bit higher depending on the situation and the size of the business group. And one thing we recommend for people is to do ongoing valuations. I wouldn't leave it longer than 12 months or 12 to 18 months because Look, if you're getting a valuation to sell in the next three to six months, great, no worries. But if you're getting a valuation to know what is the value worth now and you're committed to growing your business and building it and improving all those different metrics we've talked about, you kind of want to know, well, what the outcome of your actions are.

Hannah Dunn: I was just going to say, you make a really good point that the valuation can highlight for you what the holes are in the business that you need to close.

Andy Wang: Absolutely. One thing just to go back to what you were saying before, Hannah, about potentially if you have multiple entities, ABNs, companies, I find the… Sorry for the audience out there. I think what Hannah was referring to was if you have multiple companies, sometimes the value comes down from a buyer's perspective because it's a messier purchase, right? What it comes down to is the buyer. That becomes a very buyer thing. So think about going back to Jack's analogy of houses, you might have a very polarizing house, okay? And you've got sometimes on the block you see people do these renovations and people are like, oh, that's really dark. Who would buy that? And someone comes in and buys it for the highest price. it's very polarizing. So I have found situations where multiple entities haven't caused any problems at all for the purchase price, but then also situations where if you've got separate shareholders, some people have a problem with the sale and then that causes a messy situation. So what it does is it just reduces your potential pool of people willing to buy at a certain price. It doesn't knock it out completely but it just reduces that pool. But there's other benefits like the tax stuff, risk stuff along the way.

Ben Lynch: Fantastic. And it's really good. We have started a partnership recently, Andy, with you to offer those valuations, clink valuations, to members out there. That's members and non-members, folks listening into the podcast. to really help with some of this algorithm business that you talk about, all this wizardry, and supporting some of the insights that we have of working with hundreds of clinic owners all at once and thousands over the last decade to give some of those insights and comparables. as well. For members listening in, JRB, you mentioned the business value drivers in the learning portal as well as the traffic light review, which we did at the last GYC summit. Incredible ways for you to do a subjective assessment of areas of your business that need more attention or are dominating and could form part of your next 90-day plan to work on with your coach.

Jack O'Brien: There's also a couple of other modules in the learning portal around how to buy a business, how to think about exiting and selling a clinic. So often, clinic owners come to us and they're like, oh, over time, I need to think about a succession plan. Maybe I'm middle-aged, heading towards retirement. Yes, we do work with a whole bunch of start-ups, but we also work with those who are looking to transition in their business ownership as well.

Ben Lynch: Andy, you touched on a point there around regular valuations. Is that something that you'd advise just like the dentist? It's like do an annual check-up, do an annual valuation. You've got a historical sort of reference point for any conversations with team members, whether it's influencing your thoughts around a full exit. Is that what I'm understanding here is an annual rhythm is a good one to have in terms of valuing your business?

Andy Wang: Yeah, absolutely. Now, I'm going to be, I like calling out my own biases, so yes to customers. Of course, we like revenue. We're going to be like, hey, get a valuation every year. But as Hannah alluded to earlier, she, you know, Hannah, you mentioned you've gotten a few valuations through your time and a lot of other larger clinics. It seems to be the larger the clinic gets, the more important this ongoing frequent valuation becomes because The cost as proportion of the value you're getting starts stacking in the favour of the value, right? And one thing I would say is the cost for the valuation, the first one's always going to be the biggest investment and the ongoing valuations are always going to be at a lower cost point because the more familiar a valuer is with your business, you're not going to have to redo historical figures. So you can imagine if we're using a 3-year rolling profit and loss, we waited each year, we're just constantly adding on a new year after that. So that really helps the value proposition. The other thing I would say to that is how does valuation fit into your overall business strategy? I see it as something just to bolster or re-emphasize the actions you should be taking. So if you think about what CM does, right? It's really helping clinic owners achieve whatever outcome they're wanting to achieve and build amazing clinics. going back to what I said earlier, if you built that clinic, your chance of your value is going to be going up. So if anyone needed that sort of fire up their backside to be like, Hey, fine, I'll do all those things and you know, increase utilization rate and all that sort of stuff. That value sometimes is a really great starting point for them to be, to think to themselves, Oh, okay. This is what it's worth now. I think I need to take some action.

Hannah Dunn: Yeah, and sometimes getting that fire to say, okay, I do need to get off the tools so that I can have the time to invest in this area of my business.

Ben Lynch: Hannah, you raised a really good point earlier on around so many clinic owners come to us and they're concerned about losing good team members. It's challenging to attract senior team members so often. And that's one of the core drivers that we see as for reasons why a clinic owner will look to sell a portion of their business to someone else. I think the thinking is rather than you go and open up your own clinic somewhere, why don't we do it together? And so it could form part of a really useful retention anchor for key talent on your team. You were in particular excited to talk about this today and I can see why with some of your context around different happenings at DOTS. Is there anything else just like fully selfishly here that you wanted to ask Andy before we put a wrap because we've covered some really great ground about how to think about valuations, the process, the different types of buyers and how they'll view it differently. Yeah, I wanted to throw to you to see if you had any further questions before we put a wrap.

Hannah Dunn: I think the other things that we see are around just wanting to get your views, Andy, on how important the structure is of your team, like having subcontractors versus employees versus just different structures in the way that you employ and also around like if you've got leases in place or not, whether that adds to valuations.

Andy Wang: Yeah. So what I find is a lot of those things. Leases may be a little bit different to say the structure of the team and the longevity of the team, right? But a lot of those qualitative factors, and when I say qualitative, I mean like non-numbers stuff, that comes down to the due diligence of the seller. Okay, so we may not necessarily take into account how much time you have left on the lease into the value, But if you were to sell the business, that doesn't really matter to you, but it would really matter a lot to the buyer because they don't want to buy a business with three months left on the lease and no renewal.

Jack O'Brien: Maybe they do, Andy, because they can amalgamate it so it swings both ways.

Andy Wang: That's a really good, yes, yes. Thank you for that. Yeah, absolutely correct. So a lot of those come down to the due diligence and going to what you were talking about earlier around, well, do we just take things on face value? You mentioned about how tracking NPS scores and having that to show the potential buyer. If you put yourself into the shoes of a buyer, think about if you were approaching one business, the the numbers looked all over the place and they were kind of saying, hey, you can't really rely on the zero. The calendar does this and that and that number there isn't that number. Let me tell you what the number is. And the team is pretty good. That's pretty good. Versus going to another clinic and they're saying, okay, here's our profit margins. This is what our gross profit is. This is what our patient NPS, our team NPS is. We got a great culture. They're not contractors. They're team members. Retention rate is ABC. You just feel so much more confident and comfortable as a buyer. So the more of that which clinic owners should be tracking anyway, the more of that they have, the more peace of mind that gives a potential buyer as well, which might not change the, the value might still be the value. So you think about the negotiation part of this, right? You have a value, which you start the negotiations with. Someone with more peace of mind may be willing to give more ground in that negotiation, which means more dollars in the seller's pocket.

Ben Lynch: It's a whole other can of worms that we will get to because you make a very good point, Andy. We're just talking about getting to the point of your reference point, which is the valuation. Then there's the whole negotiation that happens beyond that, how you talk about this with the team member or the different buyers, as you mentioned, Jack. Very different conversations, very different lenses from those folks. We will get to that in future episodes. I think it's really important for clinic owners to think about, what is my business really worth? And what are the contributing factors to that value, kind of the detractors and the accelerants, if you would, like the positive things and the things I need to work on, because there the focus is moving forward for you in your business. And we can certainly help a lot with that. Andy, for folks listening on that would like to get a valuation, what's the best way for them to connect with you and follow up?

Andy Wang: Reach out to us at hello.clarico.com.au and We'll take it from there.

Ben Lynch: Yeah. Okay. Easy done. Sounds fantastic. Well, Andy, I'm sure this is the first of many conversations that will continue here around business valuation, looking at the asset that you are building. Jack, Hannah, thank you for your personal insights and questions. You can head along to clinkmastery.com forward slash podcast for the show notes for this episode and all previous episodes. And we'll catch you on another show very soon. Thanks guys.

Hannah Dunn: Thanks Andy, so valuable. See you.