Why Delaying Your Exit Could Cost You More Than You Think

Delaying the sale of your healthcare business might seem like a strategic decision, especially if you believe your business will grow in value over time. However, this strategy comes with significant risks that could diminish your eventual exit value—or worse, jeopardize your ability to sell altogether. Here’s why timing your exit is critical and why procrastination could cost you more than you realize.

1. Market Conditions Can Change Overnight

The healthcare industry is subject to fluctuations in regulation, reimbursement rates, and consumer behavior. A stable or growing market today could face headwinds tomorrow due to:

• Regulatory Changes: Shifts in healthcare laws can impact profitability.
• Economic Downturns: A recession or tightening of credit markets could reduce buyer interest or depress valuations.
• Private Equity Trends: PE firms may shift their focus away from healthcare sectors depending on performance trends.

Example: If you’re in behavioral health, sudden reimbursement cuts from insurers could slash your business valuation overnight.

2. Buyer Interest May Decline

Healthcare M&A is often driven by trends and consolidation waves. Delaying your sale may mean missing the peak of buyer demand for your specific sector. For example:

• DSOs (Dental Support Organizations) are aggressively acquiring dental practices now, but this trend may slow as markets consolidate.
• Emerging healthcare technologies may face declining interest if competitors surpass them.

Lesson: Striking while buyer interest is high ensures better deal terms.

3. Capital Gains Tax Uncertainty

Tax policies are subject to political shifts, and proposed changes to capital gains taxes could significantly affect your net proceeds. Selling under today’s lower tax rates could save you millions compared to waiting and facing:

• Higher long-term capital gains rates.
• New surtaxes targeting high-income earners.

Tip: Consult with a tax advisor to evaluate the impact of potential changes on your net earnings.

4. Operational Risks Multiply Over Time

The longer you hold onto your business, the greater the risk of operational challenges that could erode its value:

• Key employees may leave, reducing institutional knowledge and operational efficiency.
• Competitors may encroach on your market share.
• Unexpected events like litigation or health issues can derail plans.

Proactive Approach: Prepare for a sale while the business is stable and performing well.

5. The 5 D’s of Forced Exits

Life happens, and many business owners are forced to sell due to the "5 D’s":

1. Death: The untimely passing of an owner.
2. Disability: Health issues limiting involvement in the business.
3. Divorce: Personal events affecting ownership structures.
4. Disagreement: Partnership disputes forcing a sale.
5. Distress: Financial challenges eroding business value.

Planning your exit now mitigates the impact of these unforeseen events.

6. Buyers Value Predictability, Not Potential

It’s tempting to wait for "just one more year" of growth, but buyers often base valuations on historical performance rather than future potential. Overextending your timeline could:

• Lead to a disappointing valuation if your financial performance fluctuates.
• Highlight risks, such as owner dependence or market saturation.

Focus: Optimize your operations and demonstrate consistent profitability today.

7. Delayed Sales Can Miss Strategic Buyers

Strategic buyers, such as larger healthcare groups or PE-backed roll-ups, may not wait for you. They operate on tight acquisition timelines, and if you delay, you risk losing a premium buyer to a competitor.

What You Can Do Instead

1. Work with an M&A Advisor: An experienced advisor can help you assess market timing, prepare your business for sale, and negotiate favorable terms.
2. Conduct a Pre-Sale Valuation: Understand your business’s current value and potential growth to make an informed decision.
3. Optimize Your Financials: Focus on improving EBITDA, reducing expenses, and demonstrating scalability.
4. Develop a Succession Plan: Ensure your business can operate independently of you to attract higher-quality buyers.

Final Thoughts

While it’s natural to want the highest possible valuation for your healthcare business, delaying your exit may ultimately cost you more than you gain. Market conditions, buyer interest, and operational risks can all work against you. Instead of waiting for the "perfect" time, focus on maximizing your business’s value today and engaging with an experienced M&A advisor who can guide you through the process.

Dr. Allen Nazeri, aka "Dr. Allen," boasts over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.

He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. He is a Certified M&A Professional from keenesaw State University. Dr. Allen is the author of the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.

To have a confidential discussion about your company and receive a free valuation, please email [email protected] or [email protected]

You can also now communicate with Dr. Allen's clone https://www.delphi.ai/drallen

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