Hatching Creativity: Conversations on Success, Innovation, and Growth
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Hatching Creativity: Conversations on Success, Innovation, and Growth
Greg Keilin and Importance of Compliance for Investors
We go beyond just discussing compliance; we also delve into corporate finance, discussing the delicate balance between growth and risk. Understanding how a lower risk profile can boost your business valuation is crucial, and we provide easy-to-follow explanations to help you grasp this. Finally, we focus on data organization, a seemingly mundane but vastly significant aspect of your business. We share practical advice on how you can organize your data to make it searchable, sortable and aggregatable, thus increasing your chances of a successful sale. So tune in and join us in unraveling the nuances of preparing your treatment business for acquisition.
Welcome to Hatching Creativity. This isn't just another behavioral health podcast. This is the place where thought leaders converge to talk about real-life challenges, breakthroughs and pivotal aha moments.
Speaker 2:More people are paying more attention to compliance. More people are caring more about compliance. One group that is definitely caring more about compliance is investors, buyers, people who are looking to acquire treatment businesses. How have you seen that manifest? What are investors or buyers looking for? What do they want to see or not want to see? Have you seen that impact people's ability to sell their treatment businesses when they want it to?
Speaker 1:You want to see the easiest way to make an acquisition crash and burn. Compliance documentation.
Speaker 2:So just pause on that for a second. Tell me why that is.
Speaker 1:There's a couple of very big issues that can come up around compliance and we get called by law firms and merger and acquisition firms all the time to deal with compliance and billing compliance for due diligence purposes. Mostly we get called for the buyer side because if you're spending X amount of millions of dollars on a treatment center, you want to make sure one they're not going to lose their ability to do business. They're not at risk of losing their state license. That's really important. You also need to make sure that they're not at risk of losing an accreditation. If you come in and documentation is abysmal, these people may be at risk of losing that and it would really be hard to spend that kind of money and not have it. But those are kind of big picture things. What you also run into is situations we see this from all the time where you have a provider that serves all levels of care, but they're serving a PHP or an IOP level of care and housing them in their residential unit. You see that what ends up happening is you're just trying to help people, but if you're at a PHP or any kind of outpatient level of care, you're required that you're able to take care of yourself and that you're independent, but if you're living in a residential, you're not, and what ends up happening is people end up getting contracts pulled, people end up getting clawbacks significant amount of money. So I just kind of wanted to draw that as an example of something that could very likely cause you to lose your sale.
Speaker 1:I have never seen a situation where somebody with a good business and a good compliance program gets pushed back, other than maybe evaluation from the owner or terms or something like that.
Speaker 1:But at the end of the day, it will never hurt you to have a good compliance program and, especially for an acquisition, you need to have your stuff in line. And another thing just to mention regarding acquisition and one of the things that people love about our software is a lot of these big organizations that are gobbling up smaller treatment centers right now are using our software, and if you're a smaller company, you want to also be thinking about what software, what solutions are you using that are easily transferable, so that if your goal is to be acquired by a larger treatment center and you and your team are already trained on how to use their software systems and what they have in place, it just will make things that much easier for you. So getting an understanding of what EMRs to use, what billing companies to use, what software or compliance or whatever it is, it's just going to make things easier. If that's your goal to get acquired, get what the targets are using.
Speaker 2:Yeah, just to circle back to the comment about the risk of having a contract hold or an accreditation hold because of poor compliance processes, I can't resist dropping in a little corporate finance lesson here. The valuation metric that most folks in our industry are familiar with is the multiple. In corporate finance world, there are two major things that impact the multiple. One is growth and the other one is risk. To oversimplify the higher your growth, the higher your multiple, and the lower your risk, the higher your multiple. The factor that you were just talking about a minute ago, mike, is all about risk. To the extent that you can demonstrate to an acquirer that you are a lower risk proposition than somebody else that they might be investing in, that's going to be positive pressure on your multiple.
Speaker 2:That's the easiest way for a buyer to respond to that risk. They make you an offer. They get into the due diligence. They see something they don't like from the compliance standpoint. They're worried about some risk that they didn't previously anticipate. What are they going to do? They're going to push the price down. That's going to be how they respond. It's really a question of holding your multiple or maintaining the price.
Speaker 1:I cannot stress the D word enough Data, data, data. If your data is not organized, if it's not searchable, sortable, aggregatable, you are putting yourself in a position for a lot of extra work or for taking your time to complete documentation and data and whatever that can't be used, and you're wasting your time. Think of these things ahead of time. Plan out ahead of time. It will make things a lot easier for you and much less tedious and a pain.
Speaker 2:Yeah, that is definitely advice that we give to lots of folks is start preparing years in advance, because it's way easier to start earlier than it is to catch up later.
Speaker 1:Yes, absolutely. Thanks for tuning in to Hatchin' Creativity. We appreciate your support. Please don't forget to like and subscribe until all your friends about the show and remember it's never just about one thing.
