How To Prepare To Sell A Medical Practice

Written by on December 31, 2013 in Practice tips - No comments

There are several reasons why physicians decide to sell their practice. Those who run private practices may be unable to cope with the financial pressures of managing a small business, and complying with the ever-changing regulatory framework. Some sell to a larger group of hospitals, and become employees of that organization to enjoy better work-life balance, higher job security, and less financial pressure. Physicians who want to spend more time actually caring for the patients rather than tending to the business may also decide to sell their practice. Or they may have simply decided to retire.

No matter what your reasons are, it is important to take adequate steps to ensure that the selling process is smooth, right from when you start thinking about the sale to actually making the deal.

How can a physician prepare for the sale?

Start the planning process as early as possible. If you are able to plan at least a couple of years in advance, you may have enough time to organize the office and documents, identify the best buyer, negotiate a suitable price, and close the deal. Spend some time to figure out all the overhead expenses of the practice – from medical and office supplies to building maintenance costs – to determine the net worth of the practice. Throughout the selling process, you will need the services of experienced professionals such as an accountant, a health care attorney, financial advisor, and possibly even a property appraiser.

You may want to notify all your staff members, colleagues, and patients about the sale. Let them know about what is going to happen after the sale. If you’re going to sell to a larger organization and become an employee there, your patients will still have access to you, and your existing employees can also become employees of the larger hospital. On the other hand, if you’re selling to retire, then the employees will have to get used to the new employer.

You may also want to prepare for potential buyers to examine the physical premises of the practice, as well as the finances, employees, contracts, and existing patients.

Get your finances organized

Get the financial information sorted and in a form that is easily understandable to potential buyers as well as institutions who may be financing the deal. It is important to have three years of profit and loss statements and orderly tax returns. Hire the services of an accountant to help identify expenses that could potentially make the practice look less attractive to a buyer.

Personal expenses (for example the physician’s vehicle)  which may have been considered as business expenses for taxation purposes will need to be taken out of the picture while working toward a sale. Record all profits and follow best accounting practices to ensure that all the cash that comes in is recorded in the books. The practice may be deemed less valuable than it actually is if the income isn’t recorded properly. Also hold off on discretionary expenses and minimize overheads. A potential buyer will look at the profit, so maximize it as much as possible.

Continue working hard even as you are preparing to sell. Remember that buyers will also look at the revenue stream trend. If you can show an increasing revenue stream, you will be able to command a better price.

Enhance the curb appeal

You may think there is more to the practice than what it looks like from the outside, and sure there is, but first impressions do matter. Just as you prepare a house, prepare your practice too for the sale. Clean out the clutter, discard broken equipment and expired drugs, and do some work on the décor, garden and lawn. You don’t need to invest a huge amount of money to improve the appearance, just enough to bring a higher potential payoff. Investing in technology might be well worth the expense because it will be able to command a higher sale price.

Determine a realistic price

You may need the services of a professional valuator to ascertain a realistic price for your practice. A professional independent party will be able to appraise the value of the practice by considering the tangible and intangible assets, and accounts receivable of the practice. Tangible assets include medical equipment, fixtures, furniture, and the property itself.  Intangible assets include the practice good will and professional goodwill. Elements such as the policies and procedures that are in place, the quality of staff, practice history, and revenue history factor into intangible assets.

It is important for the physician to have a clear idea of the true value of his or her practice right from the start of the negotiations. Armed with a good understanding of the true value of the practice, and evaluation prepared by an independent third party, you will have significant leverage while negotiating for the price.

Find a buyer

You can get the word out among a select network that you’re looking to sell. Look for a local buyer who may be interested. If you’re selling to another hospital, you can get in touch with other local hospitals and healthcare centers. Get more than one party interested at the same time in order to get the best deal.

If you practice is in a good locality, you may not need the services of a broker. But if you are unable to find buyers, by all means hire an experienced professional to help you out. Advertise on medical publications and the Internet to find interested parties. Other practices in the locality are good prospective buyers, because they know you and your practice, and they know the market and the potential.

Be prepared to openly discuss the reasons why you’re selling. It is important to solicit the support of your staff because they can influence the sale especially when buyers come visiting.

Once you make a decision to sell, start preparing immediately because everything usually takes a lot longer than you think it is going to take.

By Nisha Salim

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