Thursday, January 27, 2022

When is it time to sell your medical practice?

The reasons physician owners decide to sell a practice are as varied as the reasons for starting a practice in the first place. Some practices are sold because no one in the younger generations wants to continue in the business as an owner. In some instances, practice owners may not be actively considering selling when they are approached by an interested party (e.g. hospital, physician practice, or private equity-backed MSO). Because of their fiducial duty to act in the best interest of the practice, shareholders must carefully consider even unsolicited offers.


A buyer’s reason for targeting a practice for acquisition can be equally varied. The target may have developed a market into which the buyer wishes to expand, whether a geographic expansion, patient base, or referral base. The target may have a medical specialty that the buyer believes would be valuable to its business operations. Often larger companies (such as hospital systems or private equity-backed MSOs) can maximize the efficiency of a smaller practice or create other synergies by bringing in-house various administrative functions that otherwise eat away at profits of smaller practices. A buyer may also attempt to literally buy market share by purchasing a competing practice.

Regardless of the motivations from the buyer or seller’s side, the ultimate driver for an acquisition is price. A seller wants to realize a return on investment (as that term is used in the broadest sense), and a buyer wants to realize value in the long term through the target’s business or assets. It is for all these reasons outlined above, that physician owners would be wise to engage experienced professionals to help them first navigate the strategic aspects and then to wade through the transaction details.

Succession planning


Waiting to sell is sometimes motivated by successors or lack of potential successors. Physician owners without succession plans, may need more in-depth planning prior to the sale of the practice.From the acquirer’s perspective, buying a medical practice with an existing succession plan complete with experienced management on board can be a huge incentive for private equity groups operating via an MSO.

For those contemplating succession planning, remember it’s never too soon to start. Succession planning helps you balance both personal and business interests and helps ensure that your family-run medical practice gets through the transition successfully. Without formal succession planning, these practices run the risk of not being sustainable. Some physician owners regard succession planning as simply a question of informally handing over the practice from one generation to the next. They do not want to plan or think about their withdrawal from the business. This reluctance typically arises from a strong sense of attachment to the practice, an aversion to letting go of control and power, fear of retirement, and also the inability to make succession choices between their children. Financial factors often also play a part. Just remember, if you want your practice to survive and your patients to continue to be cared for, you will eventually have to hand off the reigns.

Purpose and drive


Perhaps you’ve not yet reached the point of business “burn-out.” Those who’ve been there know precisely what it is when they reach it. It’s that place when the practice no longer is the autonomy-providing blessing it once was. Sometimes physician owners continue to work the medical practice until they grow tired of the grind (i.e. declining reimbursements, burdensome government regulations, etc.) and finally reach that point when they say, “it’s time.”

Selling takes an emotional toll


The journey for a physician owner who has decided to sell their business can be a very challenging; both physically and emotionally. It is human nature to put our ‘blood-sweat-&-tears’ into our most valuable assets, and for a physician, this is your medical practice. When you decide that now is the right time to sell, regardless of the reason, it is generally a painstaking process so avoid navigating these waters alone. The following four areas are some of the most common reasons medical practices are sold.


1. Exhausted, drained and “over it”


Often today this is the most common reason a medical practice is sold. General fatigue, boredom, and burnout can have very negative impacts on productivity and therefore your medical practice value. When your practice is young and fresh excitement brings you into the office. When that dies, you should consider getting out.

2. I’m too old for this


Running a practice requires a significant investment by a physician owner, and this is generally more by way of their time than actual capital. Running the practice becomes a daily routine and it can be very hard to break old habits. Physician owners are generally passionate, driven individuals who love what they are trying to achieve. If they do not reach the “I’m over it” stage, mentioned above, a physician owner will generally stick with it until they can no longer physically keep up. This happens when it is finally time for them to retire.

3. Physical illness or family problems


Life doesn’t always follow the path you intend. Should the physician owner or a close family member be distressed with a major sickness, they will look to sell. Linking to the point above, having your practice ready to sell will help alleviate some extra stress. Divorce is also a common reason for selling a medical practice, sometimes not by choice.

4. Strong, increasing competition


Medical practices that have been running for 10+ years must innovate and respond to the rapidly evolving market; or be passed by. The alternative is selling when the practice is competitive and before these positive trends have passed. This decision can lead to an increased sale price when looking to sell to private equity. What normally gets in the way here is pride and stubbornness.


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