Zero-Based Budgeting for Healthcare Sellers: How ZBB Can Increase Your Sale Price

By Cory Mertz, M&AMI, Managing Partner, Mertz Taggart

At a glance

If you plan to sell your healthcare company, zero-based budgeting (ZBB) is one of the most underutilized tools available for increasing your sale price. Because valuations are typically calculated as a multiple of adjusted EBITDA, every dollar of sustained expense reduction can translate to several dollars in additional proceeds at closing. ZBB compels a line-by-line examination of every expense, starting from zero, and challenges the assumptions that allow unnecessary costs to persist year after year.

Why Expense Reduction Matters as Much as Revenue Growth

Sale price is tied to earnings, and earnings can be grown from either direction. Most owners focus on revenue, but expense reduction is often the faster, more controllable path to a higher multiple.

When selling for a multiple of earnings, commonly calculated as adjusted EBITDA, every $1 of sustained expense reduction can potentially add several dollars to the final transaction price. That math is worth taking seriously before going to market.

In practice, many companies underestimate how much unnecessary expense has accumulated over time, spending that persists not because it is needed, but because no one has challenged it. Expense reduction prior to a sale is a significant opportunity that many owners miss entirely.

→ Related: What Is Adjusted EBITDA and What Role Does It Play in Your Valuation?

What Is Zero-Based Budgeting?

Zero-based budgeting (ZBB) is a financial management approach in which every expense must be justified from scratch each budget cycle. Rather than starting from the prior year's budget and adjusting incrementally, ZBB starts at dollar zero, requiring management to add each expense back with a clear rationale.

The practical effect is a rigorous, line-by-line examination of costs that challenges habits and assumptions at every step. The questions it surfaces are simple ones: Why do we spend money on that? What would we lose if we stopped? Those questions, asked systematically, tend to produce answers that surprise even experienced operators.

As McKinsey has described, a well-run ZBB process creates deep visibility into cost drivers and sets aggressive but credible budget targets, with multiple owners tasked throughout the year with managing performance and maintaining a healthy debate on cost management.

ZBB Is Surgical, Not Draconian

A common misconception is that ZBB means cutting expenses to the bone. It does not. The goal is not elimination; it is justification. Most expenses survive the process. What ZBB removes is the spending that continues by inertia rather than by intent.

A useful test during a ZBB exercise is to ask, out loud: would anybody miss that? If the answer within the company is a quiet shrug rather than a clear objection, that expense is a candidate for savings. It is a disciplined question, applied consistently, that separates necessary spending from habitual spending.

Properly implemented, ZBB can also shift the culture within an organization, creating a more explicit ownership mentality around costs, where accountability and transparency around expenses become part of standard operations rather than a one-time exercise.

The Financial Case for Implementing ZBB Before a Sale

Companies that follow ZBB practices and principles can often realize high single-digit or low double-digit percentage reductions in SG&A expenses. Sustained through the period leading up to a sale, those reductions compound into a meaningfully higher transaction value.

The math is straightforward. If a business sells at a multiple of six times adjusted EBITDA, a $100,000 reduction in annual expenses can add $600,000 to the sale price. A $250,000 reduction, sustained over two to three years, can represent a material difference in proceeds at closing.

The earlier ZBB is implemented, the more credible the savings appear to buyers. A pattern of disciplined expense management, visible across multiple years of financials, is a stronger data point than a single year of reductions just before going to market.

→ Related: 5 Considerations for Care-at-Home Agency Owners Before Their Exit

How to Get Started with ZBB

Many business owners, CFOs, and leadership teams are unfamiliar with ZBB and its methods. Some attempt it but get bogged down in the details. Others underestimate that implementing ZBB can require more than just a financial exercise, it can involve rethinking internal reporting, employee communications, and in some cases, executive compensation structures.

A practical starting point: task the company CFO or controller with reviewing the methodology and reporting findings to the leadership team. Well-documented resources from McKinsey, Forbes, and other business publications provide a solid foundation. The first ZBB cycle does not need to be perfect to be valuable.

Key Takeaways

• Sale price for healthcare companies is closely tied to adjusted EBITDA; expense reduction directly affects that number.

• ZBB requires every expense to be justified from scratch each budget cycle, starting from zero, rather than carrying prior-year figures forward.

• The approach is surgical, not draconian; most expenses survive, but habitual or unjustified spending gets eliminated.

• High single-digit to low double-digit SG&A reductions are achievable, and at a six-times multiple, those savings can compound significantly into closing proceeds.

• ZBB is most effective when implemented well in advance of a planned sale, so that reductions have time to demonstrate a sustained pattern.

• Getting started can be as simple as tasking the CFO with a methodology review and reporting findings back to the leadership team.

Ready to Explore What Your Company Could Be Worth?

Expense management is one lever. A competitive sale process is another. Mertz Taggart has been advising healthcare services owners for over twenty years, helping sellers across home health, home care, hospice, and behavioral health get to the table prepared and positioned correctly.

If you are thinking about a sale, or just want to understand your options, we are glad to have a confidential conversation about your goals and timeline.

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