How to determine a company's worth
Experts offer sound valuation advice
A private duty owner who has invested much energy and many resources into a financially sound company that provides excellent care may find the valuation process somewhat arbitrary, especially if he or she discovers the business is worth less than expected. In fact, valuation experts review a long laundry list of indicators to determine a company's worth, sources advise.
Financial, business infrastructure, management, and market assessments all factor into valuation. Earnings, revenue, and recent growth all gauge a company's financial health. Valuators also consider the cost status of Medicare-certified agencies and the amount and type of any outstanding debt, says Loren Garruto, CFA, MBA, a senior associate at Valumetrics, a national financial planning firm based in Atlanta.
Consider multiple operational factors
Day-to-day operating systems and management capabilities also play a role. Employee turnover, staff development and training programs, management information system sophistication, and the depth and experience of both management and clinical staff influence firm value, says Garruto.
Finally, valuators assess your firm's relative competitive strength and market potential. Companies "with good market share, a good earnings history, good prospects going forward that haven't reached their peak, in a good acquisition market are more highly valued," says Fred Roa, president and chief executive officer of Telesis, a home care business brokerage firm based in Franklin Lakes, NJ.
Private duty providers testing the home care acquisition market today may find tepid, if not cold waters, sources advise. The Medicare interim payment system-driven crisis and general negativity about home care have spilled into private duty.
"The market's reaction is extreme, and there is almost a screeching halt to home care acquisitions," says Mike Hartman, managing director of Atlanta-based Valumetrics, a national financial planning firm.
But the downturn is temporary, and private duty companies, normally more highly valued than agencies with large Medicare caseloads, are gaining appeal, sources report.
"In today's market, it is difficult for a small agency that's not heavily private pay to find a buyer. The typical buyers are sitting back and waiting. If a company is [already] or [has a] growing private pay [component] in a market where a buyer may be interested in consolidating or expanding business, then it should be able to reasonably sell," says Gene McClure, a health care attorney based in Atlanta.
While the temporarily depressed market may dampen some private duty sales, owner-sellers may not be completely out of luck.
"There is a fabulous opportunity for those with courage and willingness to invest for the long term," says Hartman.
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