What Buyers Look for in a Wellness and Recovery Center

What a buyer is paying for

Revenue in this field comes from a mix of insurance payments, self-pay clients, and sometimes employer or court-referred programs, and a buyer will want to see the mix by month. A center that is mostly self-pay has quick cash and often higher rates, with a smaller pool of people who can afford it. A center that bills insurance has a larger pool and a slower, more paperwork-heavy path to getting paid. Neither is better. A buyer wants to know which one they are buying and whether the numbers hold steady.

Census, meaning how many clients are in the program at a given time, is the number that matters most in a residential or intensive outpatient program. For a lighter wellness practice the equivalent is sessions per week and how many clients return. Buyers ask how long clients stay, how many finish, and how many come back for follow-up care. They also ask how the schedule changes over the year, since some programs fill in January and thin out in summer.

Then they look at what each client is worth after the cost of the clinical team. A center that earns well on paper but needs a full roster of licensed staff to do it has a different profit picture than one with a lean team. We work through that with each owner using their own payroll.

The clinical team and the owner

If you are the clinical director, the lead therapist or the face of the program, a buyer will see that as a risk. Referral sources know you by name. Clients trust you. Staff follow your lead. A buyer who is not a clinician will want to know who runs the program after you leave, and a buyer who is one will want to know whether your team will stay. Our post on owner dependency covers how to reduce that exposure before you list.

Credentials matter in a way they do not in most businesses. Buyers ask for a list of licensed staff, their license types and renewal dates, any supervision arrangements, and the medical director agreement if there is one. A center with a stable second in command and a bench of licensed clinicians who have been there several years is easier to sell, and usually sells for more.

Referral sources

Where do clients come from? A buyer will ask for the answer in detail. Physicians, hospitals, employers, courts, schools, other treatment programs, online search and word of mouth all behave differently. A center that depends on two referral relationships has a concentration problem, much like a company with a single large customer. Our post on customer concentration describes how buyers adjust for it.

Referral arrangements in healthcare draw close attention, and buyers and their attorneys read them carefully. Have your attorney review how you pay for marketing and how you work with outside referrers before you go to market. Rules vary by state and your attorney confirms what applies.

Licenses, accreditation and payer contracts

Most of what a center needs to operate is tied to the owner and the location, and a good share of it does not transfer automatically. Facility licenses, program approvals, accreditation and insurance network contracts often need the new owner to apply, notify, or be credentialed again. The timeline varies, and a gap in billing while a contract is reissued can be expensive.

Plan the order of events with your advisor and attorney. Some deals close only after the key approvals arrive. Others are structured so the seller keeps operating during a transition period. Whichever approach is used, a buyer's lender wants to see that the center can keep treating and billing from the first day.

Buyers will ask for the inspection and survey history, any corrective plans, and the status of every license and accreditation. A clean record helps. A past problem that was fixed and documented is usually fine. A problem that is still open is the sort of thing that ends conversations.

The records a buyer will ask for

Expect requests for business tax returns, monthly profit and loss statements, a balance sheet, and billing reports showing charges, collections, denial rates and how long it takes to get paid. Buyers read the accounts receivable aging closely, since old balances from insurers may never be collected. They will also want payroll, staff credentials, the lease, equipment and vehicle lists, vendor contracts for labs and software, and your insurance history.

Client records are confidential, and a buyer will not see names or charts before the deal is far along. Prepare summary reports instead, such as census by month, length of stay and program completion, that show how the center performs without identifying anyone. Our guide to getting financials ready describes what buyers expect from the books.

What has to transfer

The lease needs the landlord's agreement, and in this field the question of whether the use is permitted at the address deserves attention. Neighbors, zoning and fire rules for sleeping or group spaces can all come up, so confirm yours before a buyer does. See our post on the lease as part of the deal.

Then there are the software accounts, the vehicle titles if you run transport, the phone numbers and the website. Equipment is usually modest compared with other industries, though a center with specialized rooms such as a sauna, a float tank or a medical suite should list each item with its age.

What tends to sink a sale

Sales in this field stall when a license cannot move on schedule, when the lead clinician decides to leave, when billing turns out to be messier than the owner believed, or when a referral relationship looks improper once the buyer's attorney reads it. Reputation matters too. Online reviews, community standing and how the center handled past incidents all get checked.

How to get ready

Give yourself a year. Clean the billing and chase old receivables. Put a second leader in front of referrers so they know more than one name. Put every license and contract renewal date on one page. Write down your intake, treatment and discharge procedures. Have your attorney read your referral and marketing arrangements.

At Business Advisors of America we start with a valuation built from your own numbers, then prepare the package a buyer and lender will ask for and screen buyers before they see the center. If you are weighing a sale, our page on selling a wellness or recovery center is a good place to begin, and a short call with us can follow.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.