Do you run a company or a business? I am not talking about legal definitions here. I am really interested in the meat and potatoes of the patient care entity that you operate. I was talking with a friend the other day about his business. Call me crazy, but we got into some interesting discussion about what distinguishes different O&P operations. As we worked around to contextualizing two different camps, we decided one is a “company” and the other is a “business.” Let me explain.
There is a lot of similarity between the two and if you are looking from the outside, you will see a very similar operation. Patients enter in one condition and they go out in another, hopefully better, condition. There is a staff, there is an exchange of payment and hopefully, the payment exceeds the total cost of the transaction. All good, right? But I want to dig a little deeper. I want to know the details about how that patient’s condition improved. And this is where we start to create a distinction between what we called a “company” and a “business.”
When it comes down to it, we are really talking about value creation. The question is, how does the O&P entity create value for itself? When I talk about value here, I really mean what would someone be willing to pay for your business today? And will it be worth more tomorrow? It does not matter if your business is for sale…it’s just a tool for measuring. We all assign value to our own things, but we often include an emotional component that a true purchaser would not consider, so their perspective gives us a more biased value.
A key consideration, and the biggest differentiator we came up with, was how well the entity has incorporated people and processes into its operations. Essentially, is the organization centered around the practitioner-owner, or is it something that has a defined structure with processes and standards that are scalable, repeatable, and understood through the organization? We decided that the former is a “company,” and the latter is a “business.” In the valuation, a key question for the buyer is “what am I buying?” If you can answer that with “my system,” and your “system” is actually identifiable and distinct from you, then you have a “business” (in my little world) and something that can be sustained and continuously developed even with you out of the picture. There is intrinsic value in that as an ongoing enterprise. The buyer should pay a premium if there is a sustainable system that will transfer with the sale. A change in ownership should not impact operations.
But if you answer “me,” well, no offense, but that really means the buyer is in for a lot of work. So they will discount your company significantly to offset the additional costs they will incur. In this case, a change is ownership will require a new process and new systems. While not quite starting from scratch, there will be a visible change in the way the business runs with new ownership. In reality, there are other measures that go into the business valuation, location, contracts, patient volume, patient mix, etc. but the point is that a business, on this scenario, is running because the people, processes and tools are all in sync. Changing the ownership should not require a change in anything else.
Are you allowing your company to become a business?