Selling Your Medical Practice

Written by on June 30, 2017 in Features, Slide - No comments
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Steps for Success

Ready to sell your practice?  Not so fast!  While selling a medical practice is not impossible, it certainly is not easy.  Some practices do not sell or sell for much less than the physician expected.  However, many doctors are successful and can make money that exceeded their expectations.  Following these steps will not guarantee a sale, but can increase one’s success.

1. Prepare Early

Preparation is key when selling any business, including a medical practice.  The process should ideally begin at least a year (or more) prior to the goal sell date.   Maximizing the value of your practice, improving curb appeal, ensuring your technology is up to par, and assessing your practice value do not happen overnight.  If you are thinking of selling, it is never too early to get ready!

2. Maximize Your Practice Value: Stay Productive!

The temptation for most physicians is to slow down near retirement or at the time prior to moving.  Resist!  Avoid going part-time or decreasing your hours.  Fewer patients and fewer procedures mean fewer dollars in a sale.  Not only will the practice be worth less from an accounts receivable standpoint, but why would a physician or hospital want a practice with minimal patients?

In fact, increasing your hours is the financially-smart thing to do.  A booming practice is more desirable.  If increasing your hours is not possible, you can consider hiring nurse practitioners, physician assistants, or midwives to increase productivity.  At the very least, keep up with your current level of activity.

3. Make the Practice Desirable

First, you’ll want to improve the curb appeal of your practice.  Similar to a home sale, you want to make the office look good.  Most real estate agents will tell you that adding granite countertops and landscaping will not increase the value of your house, but will help it to sell faster and at the price you want.  Repaint the walls and baseboards, replace the flooring, clean up the clutter, and fix up the landscaping.  The office should be neat, clean and modern.  Get rid of dated curtains and carpeting.  Power wash the outside of the building.  Hire a landscaper.

Also, make sure you are up to speed when it comes to technology.  If you haven’t switched over to electronic medical records, now is the time.  Just like a home buyer does not want an outdated kitchen, a hospital or physician buying a practice does not want an outdated system.   Revamp your website.  A website should look professional and be easy to navigate.

4. Hire a Professional… the Right Professional

Hiring a professional medical practice appraiser, while a higher upfront cost, can save thousands in the long run. Determining the value of a practice is much more difficult than determining the value of a home. Priced too high and the practice will not sell.  Priced too low and you could leave thousands on the table. Unless you have an advanced degree in accounting, figuring out the value of your practice is not an easy task. While assets such as accounts receivable, the building, the equipment, and the furniture are easier to calculate, the intangible assets (called goodwill) are more difficult to define. The goodwill of a practice; which includes its reputation, patient population, and location; is incredibly subjective. Although goodwill can be estimated by the Goodwill Registry,1 a published database put out by the Health Care Group, most professionals will tell you that the values are just a starting point.

A professional medical practice appraiser will do the dirty work for you (and do it right).  He or she will review all of the financial statements over the last five years and review all current assets. More importantly, he or she can evaluate the competition (and how your practice compares), the current market, and the forecasted future value based on past performance. This will give a more accurate and detailed estimate of goodwill than the registry.

That being said, do your homework and hire the “right” professional. Medical practice appraisal is an unlicensed practice in many states. Appraising a medical practice is much different than many other businesses and far different from appraising a home. Just because someone is an appraiser does not mean he or she is competent when it comes to medical practices. For starters, it helps to ensure that the appraiser is a member of the Institute of Business Appraisers. Also, ask for references. Have they valued medical practices in the past? How many? Were the physicians satisfied with the job done?  Your local medical society might be able to help with names as well.

5. Prepare for the Transition

Once the prior steps are completed, you are ready for the transition. You know your value and the place is ready to show. How are you going to transition the practice to the new owner? Whether retiring or moving, it can be helpful to offer your assistance to the new owner.  For instance, you could stay on for 90 days (or whatever time frame deemed acceptable) to transition the practice to the new owner.  If you are not retiring and plan on staying in the community, do you plan on remaining at that office as an employed physician?

Offering to make the transition a smooth one by staying on will increase the practice value in the eyes of the buyer.  It will be much easier for patients to accept the new physician(s) if you stay in practice a few extra months.

6. Advertise… to the Right People

How do you find a buyer?  Obviously, you don’t want to stick a for-sale sign in the front of the office.  Patients would start leaving and practice value would take a hit.  You also have to be careful when it comes to talking to local physicians and hospitals.  Similar to that for sale sign, if word gets out, you might be in trouble.  Many sellers have used non-disclosure agreements and non-competition agreements when negotiating with potential buyers.  This prevents a buyer from using your information to compete directly with you as well as share the information with others.  Also, many professionals will serve as an intermediary, keeping your practice identify confidential to potential buyers until they have signed such agreements.

Many factors come into play when it comes to selling a medical practice.  Preparation is crucial.  Although the tangible values are important, the value of the intangibles cannot be stressed enough.  By keeping the production high, improving curb appeal, maximizing technology, and offering transition assistance, a physician can make his or her practice more desirable.  Furthermore, hiring professional help is not just a good idea, but in my opinion, essential.   Good luck.

References
1Goodwill Registry and Goodwill Registry Toolkit.  (2017).  The Health Care Group.  Accessed at http://www.healthcaregroup.com/goodwill-registry-goodwill-registry-toolkit.html

By Kaci Durbin, MD FACOG

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