5 Common Items For 'recasting' To Help Maximize Profitability Of Your Surgery Center

By Author: Daniel Rush
Total Articles: 2
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Even in the most advantageous market, many owners of ambulatory surgery centers leave substantial money on the table when they sell their ASC — often because they do not truly understand what they can do to maximize the multiplier basis (the metric buyers use to multiply and get a final price). The first mistake they often make is believing multiples of past earnings is a primary method of valuation. Investors are only interested in past performance as an indicator of future earnings. Buyers buy future profits, not trailing earnings.

Physicians-owners are accustomed to thinking about revenue as minimizing taxable income, while investors focus on revenue in terms of maximizing profits. While minimizing taxes is good strategy for tax time, it does not accurately represent your ASC's financial performance. Your goal when you prepare to sell is to adjust the ASC's operations in order to maximize earnings.

If you are doing it after the fact, you will make adjustments for one-time expenses and various unnecessary expenditures. This process is called "recasting" or normalizing earnings. These adjustments allow buyers ...
... to appreciate the maximum profitability of the center and the true value of the assets and liabilities.

Here are five common examples of items which could be recasted.

1. Compensation for owners and employees. Not all of the physician-owner's compensation is recasted, but the amount of salary or bonus a physician-owner pays to himself and others is largely discretionary, so it can be adjusted. Compensation above and beyond typical market value can be added back to your pre-tax earnings.

2. Owner "perks" or fringe benefits. Most ASC owners receive numerous "perks" or benefits not required for the daily operation of the surgery center. For example, while a vehicle may be required, a luxury automobile or SUV is not normally necessary. There may also be discretionary expenses reimbursed to the physician-owner which may not be applicable to a new owner and don't affect the profit performance of the ASC. Examples include:
• personal travel and entertainment expenses
• unearned family compensation, including wages, vehicles, trips, or insurance
• a large life insurance contract or pension plan
• personal use assets, such as a plane or condo
• expenses paid to another company owned by the same seller

3. Employee-related items. Certain employee-related items may be changed post-sale, so they can be added back to pre-tax earnings.

4. One-time items. Adding back one-time, extraordinary, or non-operating income or expenses is meant to remove items which appear in the financial statements, but which are either unlikely to be repeated in the future or are unrelated to the ASC's operations, so they won't be incurred by a new owner. Common examples include:
• donations
• bad debt expenses
• uninsured losses
• marketing and trial advertisements

5. Discretionary business practices. Other business expenses which won't typically be incurred by a new owner into the future, and which may therefore be recasted, include:
• business insurance beyond what is absolutely necessary
• excess rent
• overpaid expenses done to reduce taxes
• lump sum bonuses paid to employees

Daniel K Rush has written various articles related to Ambulatory Surgery Center. You can get information on Buy or Sell ASC, even as large as emergency crash carts, from the articles of the author.

for more detail please visit http://www.ambulatoryalliances.com