The Executive Suite: Want to sell your medical practice?

Many physicians consider selling their practice at some point, whether that be to another physician, another medical practice, a hospital, or a private equity-backed management company. Regardless of the reason for selling, there are numerous complex issues a medical practice must consider when its owners decide to sell. Both the preparation for the sale and the actual transaction present issues.For those reasons, you should plan at least a year ahead if possible.Here are seven key considerations.

Profitability

The more profitable your practice, the easier it usually is to sell, and the more it is worth to a buyer.Consequently, you should maintain business as usual and not slow down your practice in advance of a sale. Growing practices are more attractive than stagnating ones.

Financial forecasting

You may want to develop a financial forecast sheet for a buyer. Physicians offering potential buyers documented proof of strong and consistent financial results will encounter buyers inclined to pay more than expected. Financial forecasts also show how a physician’s practice takes advantage of opportunities and addresses threats that have been described in the internal practice assessment.

Physician buyers

Dissatisfied employed physicians re-entering private practice, and physicians relocating to be nearer to their or their spouse’s family are the primary candidates for buying a practice. They have a choice of joining another group, starting their own practice, or buying your practice. You therefore are not competing just with other practices for sale but also with employment in groups and start-ups.

Your most likely buyers are already practicing in your area, since they don’t have to move or re-license, and they have a strong reason to be there. In many cases, the most likely buyer might be your competition so don’t rule out a merger either.Consider merging your practice with a local group in lieu of a sale to an unknown single buyer, with a higher compensation for one to three years in lieu of a sale price.

Due diligence

Delays due to ill-prepared sellers can have adverse consequences as time kills deals.The quicker you can respond to due diligence questions from a prospective buyer, the better off you are. Remember that due diligence is a two-way street.To avoid a financially troubled buyer, physician owners considering a sale need to have a strong team in place to help them. Due diligence is critically important to ensure that the medical group that you are selling into is financially sound. Engage a transactional consultant and accountant to assist you with this endeavor.

Buy-sell agreement

The buy-sell agreement that is drafted will include pre-closing and post-closing responsibilities of all involved parties. If the selling physician is remaining in the geographic area and will not have a continuing professional relationship with the purchasing physician, restrictive covenants will most likely be included in the buy-sell agreement. (Currently, these restrictions are enforceable if reasonable in length, duration and geographic area in all states except California.)The agreement will also have indemnification provisions.These clauses protect the purchaser in the event the selling physician breaches any representations or warranties of the buy-sell agreement. A selling physician will most likely be expected to indemnify and hold harmless the purchaser from losses that arise for any misrepresentations of the selling physician.

Your role post-closing

Prior to closing on the sale of a practice, it is important for both the seller and buyer to agree on the role and involvement of the selling physician post-closing. If the selling physician is leaving the geographic area and will no longer be practicing medicine, a formal written agreement regarding employment or consulting is likely not needed. However, if the selling physician is staying in the area and the purchasing physician wants to continue working with the selling physician during the transition, the physicians should consider executing an employment or consulting agreement outlining the roles and responsibilities of the selling physician and term of such agreement.

You may also want to provide transitional marketing services.Consider that you are selling the practice to a new owner, who may have to introduce herself to her new patients and to other members of the medical community. As part of the sale, you add value to the sale if you stay on for a couple of months.During this brief period of time, you may stay at the practice and introduce the new physician to the patients, and go with the new physician to visit practices of referring physicians and other important members of the medical community.

Final thoughts

Many buyers often seek to have a valuation performed.There is nothing wrong with that and it can certainly give you an idea of the practice’s value.Just know that the valuation may not equal the purchase price.

As you are considering a sale, remember to make a good first impression.This may entail cleaning up your practice’s website and/or Facebook presence with new pictures.Keep in mind that those are the first things a potential buyer will look at.Eventually a buyer will visit the practice, so make sure to clean up the office so that it appears modern and attractive. Fresh paint, carpet, and furnishings are inexpensive and create quality “staging.”