How Medical Aesthetics Practices Maximize Value With an MSO
Maximize the value of your medical aesthetics practice with an MSO
When you opened your med spa, what were your goals for your business? Was it to treat patients and do work you love? To scale a profitable practice? Maybe even to sell your business to private equity? No matter why you started your med spa, an MSO (management services organization) may be a way to help you reach your goals.
Whether you’re a physician who wants to focus your time on patient care or a business owner with a dream of scaling, here are a few ways an MSO can maximize your practice’s value. But first, let’s define MSO.
What is an MSO?
MSO stands for Management Services Organization. In a way, you can think of an MSO model in medical aesthetics like splitting a medical spa into two separate businesses. One part of the organization is the medical clinic. This is the part that treats patients, handles medical equipment, and staffs physicians, RNs, injectors, PAs, or other medical professionals. The other business is a management company, which handles everything non-medical: staffing, payroll, scheduling, accounting, marketing, and more. 1
There are a few reasons a medical aesthetics practice might implement an MSO. Some are for the purpose of ownership, scaling, or selling. We talk about a few of those reasons below.
How do MSOs add value to a medical aesthetics practice?
MSOs allow for non-physician owners to own a med spa or medical aesthetics practice
An MSO can be used to grant ownership of the med spa to non-physicians. The regulations of who can own a medical spa or medical aesthetics practice vary from state to state. In many states, however, non-physicians (including PAs, RNs, or non-clinicians) must implement an MSO in order to own a medical aesthetics practice.
MSOs are highly scalable
There’s another benefit to bringing business-minded people into your MSO: scaling. A well-run MSO can “service” more than one location’s business and operational needs. Imagine running multiple med spa practices, while staffing, marketing, payroll, and even customer service are operated out of one MSO. The MSO can attract talented people in finance, management, marketing, customer service, and operations to drive business forward. It’s a highly efficient way to create value and profitability. We’ll share more on this later in the article, when we compare an MSO to a single location medical spa.
MSOs can be attractive to private equity groups
In the past few years, the medical aesthetics industry has become highly attractive to investors. Having an MSO in place can help practice owners with the potential sale of their business. Why? In part because MSOs are scalable, operationally efficient, and replicable, all important traits to investors. Second, an MSO opens the buyer list up to a completely different demographic. Instead of the buyer having to be a clinician, it can now be opened up to Private Equity Groups (PEGs) or family offices looking to invest and get a return on the business.
An MSO can create great value for these buyers. An MSO helps make it possible to owners to replicate their “special sauce,” or DNA. The locations under the MSO are going to most likely have the same procedures being done with similar culture, systems, financial reporting, and other operations. Depending on how large your MSO becomes, buyers could look for it to become a platform and continue to grow using your vision of the business.
It helps that the value of the MSO is the one-stop shop concept. Instead of a buyer purchasing six different locations and trying to bring them under one umbrella, the MSO already creates that umbrella for a buyer. This makes it easy for buyers to see value and potential for efficient growth.
Comparing a single location med spa and a multi-location MSO
An owners of a single aesthetics practice may wonder what scaling could look like for them. In this example, we look at one med spa’s financials in two different situations. One is under an MSO, and the other is not. The MSO runs operations for three med spa locations, including the one on the chart below.
Finding Financial Efficiencies in an MSO Model
Let’s start with Costs of Goods Sold. Efficiencies come with economies of scale. The med spa without an MSO doesn’t have as much buying power with vendors because they’re buying for a single location instead of three. They pay for clinical costs per procedure, so they aren’t going to see many discounts on the COGS line at 30%. The practice under the MSO with multiple locations can use one vendor for all supplies and gain discounts for a better margin at 28%.
On the fixed expense side, the non-MSO practice is going to have to pay for accounting, marketing, and other business services on its own. On the other hand, the practice under the MSO will pay a monthly management fee. The MSO will provide business services efficiently, as they likely house an accounting and marketing team who serves all three of their med spa locations.
Because an MSO offers opportunities to run a practice more efficiently, there are more opportunities for a practice to grow.
Growing Value Through an MSO Model
Need more proof? This chart illustrates the difference in value between a single location med spa and multi-location MSO. Sometimes, an owner will give up equity within the organization to help scale. But, that doesn’t mean you are going to make less than if you owned the organization at 100%. The chart above shows that difference clearly in two scenarios.
In the non-MSO scenario, the owner who keeps one location and does not look to scale would sell and walk away with $536,000. On the other hand, an owner who creates an MSO and brings strong employees into the organization to help scale and open new locations might have to give up some equity. This owner gives up 30% of the organization, but if they scale responsibly with strong financial margins, not only is the value of the organization greater, the owner gains a significant dollar value at the time of sale compared to if they stayed with their one location.
Maximize your practice’s value with Skytale Group
Do you already have an MSO in place? Are you looking to scale your organization? Our consulting team has hands on experience helping MSOs and medical aesthetics practices scale, add value, or potentially sell their business. Contact us to learn more.