Why High Quality Financials Matter For Healthcare Firms

By David E. Coit, Jr., DBA, CMAA

Volume 3 Issue 23, November 9, 2016

unnamed-1This past week, I listened to a compelling presentation on the evolving nature of value in healthcare by Monica Oss of Open Minds. At the conclusion, she noted that value-based payments for healthcare services and products “are at the core of healthcare innovation” and that “providers must be able to demonstrate value internally and externally.”

The financial value of a healthcare company is obviously based on its bottom line. However, great financial results mean little if other people, especially investors or potential purchasers of the business, aren’t confident that they represent reality.

As the book Financial Intelligence points out, the perceived value of a company is tied up in “the art of using limited data to come as close as possible to an accurate description of how well a company is performing.” Without that accuracy, potential investors are likely to have nagging questions and doubts.

Here are four reasons why the quality of your financials is so important:

1. For most businesses financials are the first thing potential buyers look at after a thumbnail outline of the nature of the business and whether or not it is a going concern. If your results are poor that is one matter, but often the bigger issue is whether or not the results make sense from the financials that are presented.

2. Your financials are part of the trust that should evolve between seller and investor. If there is clarity, trust can develop even if there are some challenges. If there are myriad difficult-to-decipher add backs that create remarkably positive results, distrust is usually the result.

3. In our experience, the quality of financials is a projection of the business personality of the owner, which reflects the larger culture of the business enterprise. How attentive is the owner to the daily needs of the business, including employees and customers?

4. The quality of the financials is often correlated with how active management and employees are in the operational accountability of the business. The clarity of the financials is especially important for businesses that are not too dependent on the owner and are relatively transparent.

Buyers, customers, and funders don’t expect perfection. If they are successful themselves, they understand the challenges that impact every healthcare business. They do, however, expect to be able to understand the operational truths of your company, which is why the quality of your financials is very big deal.

If you would like to personally discuss this article, the value of your company, or how to get the best price when you sell it, you can reach David directly at dcoit@vertess.com or 480.256.0978.