Episode description

In part two of their three-part podcast series, Andre Ulloa of M&A Healthcare Advisors and Doug Walters of Walters Associates delved into the critical importance of clean financials in healthcare transactions.

They began by drawing parallels between financial statements and job applications, emphasizing the need for professionalism and accuracy in both. They highlighted that professionally prepared financials build trust in a transaction, while errors or inaccuracies can erode trust, potentially jeopardizing the deal.

The conversation shifted to the role of financial statements as the keystone of a healthcare transaction. Andre and Doug stressed the significance of accurate P&Ls, balance sheets, and cash flow statements in listing materials like the Confidential Information Memorandum (CIM). They discussed the importance of reconciling cash basis and accrual basis financials and the adjustments made for EBITDA calculations, which serve as the foundation for valuing healthcare businesses.

The podcast hosts shared their experiences in working with clients to determine appropriate adjustments, particularly when it comes to owner salaries. They emphasized that understanding whether an owner's role is operational or absentee is crucial in justifying add-backs and ensuring accurate financial representations.

As the conversation continued, they touched on some unconventional add-backs they've encountered, including personal expenses that shouldn't have been in the financials in the first place. They stressed the importance of financial integrity and the need to maintain transparency throughout the process.

The podcast concluded with a discussion about clients who may be resistant to investing in financial improvements, often due to frugality or a belief in their self-sufficiency. Doug and Andre highlighted the delicate balance of respecting client agency while emphasizing the necessity of well-prepared financials for successful healthcare transactions.