As the owner of a seasoned healthcare business, you’ve established a strong market position, built a recognizable brand, and enjoyed the benefits of steady cash flow and patient loyalty. But with increasing competition, slowing growth rates, and a need to optimize operations for your expanding footprint, you may be contemplating your next strategic move — including preparing the groundwork for a sale or acquisition.
One key to maintaining control of your business’s current performance and optimizing it to capture future growth is through the use of a Quality of Earnings (QoE) analysis paired with internal financial optimization. Buyers today need more than standard financial documents from your internal accounting software — they seek transparency, sustainability, and operational efficiency as reflected in the financials of a business to justify a premium valuation. Mature businesses that proactively conduct a QoE are positioned not only to identify ways to further their unique growth strategy in the short term, but to also command a higher exit price when the time comes to entertain offers.
In this article, we’ll explore why opting to conduct a QoE is essential for mature healthcare businesses, and how to integrate this into your broader M&A readiness strategy.
Why a Quality of Earnings Analysis Matters in the Maturity Stage of a Business
While growth-stage businesses emphasize scaling revenue, mature businesses must shift focus to protecting profitability, ensuring scalability, and demonstrating operational excellence. Your organization’s ability to produce predictable, recurring earnings — free from one-off gains and financial inconsistencies — will be a key factor in how buyers assess risk and opportunity in a potential transaction.
In the maturity stage, competition can often intensify, and markets subsequently become saturated. This can make standing out to potential buyers more challenging. A detailed QoE analysis can help to highlight your competitive edge, offering third-party assurance that your company’s presented earnings are reliable, stable, diversified, and scalable.
The Difference Between Revenue and Earnings in M&A
Without proper context, unverified revenue figures can skew expectations and perceptions of potential value in the market. Mature healthcare organizations might generate recurring revenue through accrual that is based on billing, but if that revenue is not adjusted for collections, the net revenue will be inaccurate. Once revenue is adjusted for revenue that is received, it may be tied to inefficient operations, over-dependence on specific contracts (concentration), and reimbursement claw backs. If buyers later realize that revenue was not adjusted, possibly through their own QoE, it will lead to skepticism regarding the unqualified financials presented to them at the initiation of the M&A process.
A Quality of Earnings (QoE) analysis digs deeper than the standard top line items by validating:
- Sustainability of revenue streams
- Operational efficiency and cost structure
- Diversity and reliability of payers or contracts; reduced concentration risk.
- Consistency of financial reporting
- Aging and AR collections velocity
- Billing vs. what is actually deposited in the bank
- Estimating potential penalties leading to claw backs of reimbursement.
Why Buyers Look Beyond EBITDA
In today’s market, one of the most common metrics to determine a business valuation is the EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) margin on a business, including one-time, non-recurring, and personal expenses. But displaying an unreliable Adjusted EBITDA with interested buyers can present significant challenges in a transaction, as seasoned buyers dig further to determine the sustainability and accuracy of the presented margin. Buyers often ask questions such as:
- Are current margins sustainable in a saturated market?
- Can operations remain efficient in the face of competitive pressure?
- Will the company maintain profitability without cutting corners or sacrificing quality of care?
- Are the proposed EBITDA adjustments accurate and justifiable?
This is one of the places that a maturing business can benefit from a defined focus on cost control, operational streamlining, and financial transparency — elements that are all thoroughly assessed in a QoE.
Common Red Flags That Can Reduce Valuation in the Maturity Stage
Mature healthcare organizations should guard against these common pitfalls:
- Stagnant or declining margins caused by rising operational costs.
- Revenue concentration risks due to heavy reliance on a few contracts.
- Operational inefficiencies like legacy systems or bloated processes can slow down scalability.
- Inconsistent financial reporting, making due diligence lengthy and problematic.
- Identifying and mitigating these red flags early on strengthens your ability to command a premium multiple when engaging potential buyers.
Four Strategies That a QoE Can Bolster in Maturing Healthcare Businesses
1. Optimize for Operational Efficiency and Profitability
At this stage, cost optimization is crucial. Conducting a thorough expense audit to trim excess overhead, improving revenue cycle management and embracing automation where possible, will not only improve margins but also demonstrate operational discipline to prospective buyers.
2. Diversify Revenue Streams and Payer Mix
Diversification reduces risk and protects against market volatility.[1] Mature healthcare organizations should seek to expand service offerings or enter new niches within their sector to minimize reliance on a small set of contracts or clients.
3. Strengthen Financial Documentation and Compliance
Accurate financial reporting is non-negotiable. Buyers will scrutinize the reliability of your financials as a first step in a due diligence process. Ensuring GAAP-compliant, audit-ready statements will position your company as low-risk and signals readiness for a smooth transaction.
4. Innovate Without Overextending
Mature businesses need to balance innovation with operational prudence. Whether introducing new services or adopting technology to enhance care delivery and efficiency, investments should align with clear financial outcomes that improve upon the results demonstrated in a QoE.
How M&A Healthcare Advisors (MAHA) Can Help Mature Businesses Maximize the Value Uncovered in a QoE
In tandem with a Quality of Earnings analysis, our M&A Consultation services are designed to address the specific needs of maturing healthcare businesses, offering a comprehensive blend of M&A preparation, support, analysis, and financial optimization.
Building on the insights uncovered in a Quality of Earnings (QoE) report, our team can:
- Provide proactive M&A financial optimization tailored for mature-stage operations
- Leverage exclusive healthcare market insights and transaction data to benchmark your company against industry peers
- Build specialized advisory teams (CPAs, attorneys, clinical consultants) to address the complexities of mature businesses preparing for sale.
- Craft a forward-thinking exit strategy that aligns with your company’s brand strength and market realities.
The results of a QoE serve as the foundation for an effective M&A process—informing anticipated market value, shaping the offering memorandum, and establishing the credibility buyers rely on when evaluating the opportunity. Our advisory approach empowers your business to confidently pursue its next phase, whether that’s accelerated growth or a successful transition.
Why Focusing on a QoE Now Sets You Up for Strategic Flexibility Moving Forward
Mature businesses often face the dual challenge of defending market share while simultaneously strategizing their next move — whether reinvestment, diversification, or exit. Opting for a QoE in the growth stage of your business life cycle allows you to:
- Define and execute on an informed life cycle extension strategy based on optimization, enhanced value, and expert third-party support
- Enhance the perception of your business as resilient, scalable, and attractive in today’s market
- Command stronger negotiating power in competitive M&A environments
If you’re in the maturity phase of your business life cycle, now is the time to safeguard your hard-earned market position by opting for a Quality of Earnings analysis. With the results and insights brought about by a QoE, you can further optimize operations, boost profitability, mitigate risk factors, and enhance your financial documentation practices. All of which, better positions your healthcare business for a valuation at the height of the market, when you choose to transition.
Ready to get started?
Connect with M&A Healthcare Advisors for a list of our recommended QoE partners as well as a customized M&A consultation quote. Our QoE-provider partnerships, paired with a bespoke M&A Consultation package, will help you streamline your operations, strengthen your financial foundation, and unlock the full potential of your healthcare business.
