How to Buy a Medical Billing Business

efore acquiring Illuminate Billing Advocates in December 2020, Curt Neider, who comes from a real estate background and has also worked in private equity, created and sold a service business providing commercial fragrance to hotels and apartment buildings.

The experience was instructive.

It gave him a deeper appreciation for non-sexy, behind-the-scenes businesses. He liked the idea of running a company that does work that not a lot of people want to do.

Though he’d successfully started a business, creating something from scratch is tiring, which is why he found acquisition more attractive. For Curt, acquiring a niche business is like skipping the rough five to 10 years of bootstrapping.

“I liked the idea of saying, I'm going to skip five to 10 years by buying somebody else's business.”

Curt used a specific set of criteria while searching for a business.

He knew he wanted something that would support monthly debt repayments while providing him with a reasonable lifestyle. Illuminate Billing Advocates matched up well and with revenue around $1 million annually, Curt acquired the company for about a 3X multiple.

During due diligence he stumbled upon an accounting discrepancy and asked a CPA and longtime colleague to take a closer look.

It turned out that the acquisition looked fine — so fine, in fact, that the accountant asked to get in on the deal. Curt accepted, and he and Mike Hansen became partners and co-owners of Illuminate.

In this episode of Acquiring Minds, Curt explains why he became a Certified Professional Biller during the due diligence process, why he chose to focus on operational efficiencies first, and the challenges of acquiring additional medical billing companies — even though he feels well positioned to do that less than a year after their first acquisition.

‍Check out:

‍✳️ About Curt Neider

✳️ Top takeaways from the episode

✳️ Episode highlights with timestamps

✳️ Links & mentions

Acquisition Entrepreneur: Curt Neider

‍💵 What he acquired: Curt worked as a general contractor and in private equity before pairing up with a partner to acquire Illuminate Billing Advocates, a medical billing services company doing about $1 million in revenue annually. He previously started and sold a scent marketing business in Hawaii, but likes that medical billing for substance abuse professionals has an altruistic aspect to the business.

‍💡 Key quote: “There's also this altruistic kicker in this business, right? We're in health care, but we specifically deal with substance abuse and mental health providers… They're out there trying to help people get better… What we do can actually be a problem for them… There's kind of this, we're helping make the world a better place upside.”

‍👋 Where to find him: LinkedIn

Curt Neider of Illuminate Billing Advocates — Curt Neider

Acquisition Tips From the Episode

‍Top takeaways from this conversation

💵 Put working capital into a separate line of credit (not your SBA loan) for greater flexibility.

‍Originally, Curt planned to include money for post-acquisition working capital in his primary SBA loan. But his lender banker advised him to instead carve it out into a separate line of credit using the SBA Express program, which Curt did.

The advantage is that because lines of credit don’t have a fixed amortization schedule, they have more flexible payment terms. It works out to be cost effective as well. “It's actually a little cheaper to do the line of credit version, both on interest and on fees,” says Curt.

🏦 Work with a lender that specializes in SBA loans.

‍Early in the acquisition process, it’s important to get connected to multiple specialized bankers. “I think there are a lot of pitfalls in the financing elements of buying a business,” says Curt.

Not all banks specialize in SBA loans, and there are subspecialties among banks that do. For example, some lenders only work on SBA loans for real estate transactions. You want to work with banks that know their way around the process; you certainly don’t want to get your loan from the same place you get your car loan, for example.

‍❤️️ Finding a business with an ‘altruistic kicker’ adds purpose.

‍One aspect that drew Curt to Illuminate Medical Advocates was what he calls the “altruistic kicker.”

The business works with substance abuse and mental health providers who provide essential treatment to people every day. Medical billing can be a challenge for them and the health of their businesses.

Curt liked that the medical billing company helps providers solve that issue and get paid. It’s fundamentally different from other businesses that aren’t connected to life-saving work.

Episode Highlights

‍Inflection points from the show

‍[1:33] The road to the 4-hour work week: After working as a general contractor and working with a private equity group in Salt Lake City, Curt left his position and moved with his family to Hawaii. He enjoyed a sort of mini-retirement à la Tim Ferriss’ “The 4 Hour Workweek.” He still needed to work, however, so he started and ultimately sold a business.

[4:06] The decision to acquire: Having started a business while living in Hawaii, Curt knew firsthand the fatigue that comes from building something from scratch. He likens the progression to real estate investment.

[6:52] The appeal of a niche business: In Hawaii, Curt started a service business providing commercial fragrance to hotels and apartment buildings. That helped him realize he wasn’t interested in a sexy business and liked the idea of a “behind-the-scenes” company.

[7:54] Why medical billing: Curt outlines the attributes that made medical billing attractive, including that it was an “administrative hassle” for clients.

[12:01] Margins and multiples: As Curt looked at different businesses, he knew he wanted something that would support monthly debt repayments while providing him with a reasonable lifestyle. With low seven-figure revenue and a multiple around 3X, Illuminate Billing Advocates fit his criteria.

[14:13] Paying for it: To acquire the business, Curt did an 80% SBA loan, 10% seller note, and 10% equity injection. He worked with a banker who helped him pull out working capital into a separate line of credit (instead of including it in the primary SBA loan).

[16:17] Doing due diligence and finding a partner: In due diligence, Curt noticed the business was keeping their books on an accrual basis, but paying taxes on a cash basis, which made things confusing. He took the books to a CPA he knew and asked him to double-check. Not only did the CPA say the numbers looked good, he also asked to join Curt in the acquisition. They became partners in the deal.

[19:03] A step back: Both Curt and his partner could probably be making more elsewhere, but the business provides roll-up and bolt-on opportunities.

[22:32] Revenue model: Illuminate Billing Advocates’ revenue comes from a percentage of reimbursements they collect from third-party insurance agencies for providers. Others in the industry operate on fee-for-service or other models.

[24:33] Getting educated: Curt didn’t have medical billing knowledge when he began looking at Illuminate. During his due diligence process, he became a Certified Professional Biller. That helped him wrap his head around the day-to-day processes and gave him an understanding of what the team could handle.

[26:15] Building better systems: After acquiring the business, the focus was on none of the claims disappearing. Curt explains why he focused there first rather than on marketing.

[33:15] Challenges for expansion: Medical billing is a competitive marketplace, and it can be difficult to get your hands on a deal. They go quickly.

[35:21] Future opportunities: With varied experience between himself and his business partner, the potential new business opportunities aren’t limited to medical billing.

[41:22] Acquisition funding advice: Reflecting on his acquisition, Curt recommends finding specialists to help with your SBA loan financing.