Selling a medical practice is no small task. There are many considerations, and that process can be lengthy and complicated. That’s why we have put together this guide to help ensure that you have everything covered. This article will walk through each step of preparing your practice for sale, from determining whether it’s time to sell to closing the deal with your buyer.
Preparing For The Sale
The goal of this step is to help achieve maximum profitability and a hitch-free process down the road. It’s natural to be nervous and excited about selling your practice, but remember that this is a business transaction. It would be best to treat it as such and not let emotion cloud your judgment.
Here are some things to consider when preparing for the sale:
Identify all of your practice’s assets and liabilities: This will help you determine an exit strategy for the business and any potential liabilities or obligations that may need to be paid out of the sale proceeds.
Financials: Check your financial records, including bank statements, tax returns, and W-2s. If you have an accountant, ask them to go through your financial records with a fine-toothed comb to ensure there are no issues that could come back to haunt you during the sale or after.
Premises: Yes, we want to believe you are doing a great job keeping your practice clean and tidy. But are there any issues with the premises? Buyers will be interested in seeing what they will be working with when they take over your practice, so it’s important that you are able to make a stunning first impression on their first visit. In other words, ensure all your equipment works, that all your supplies are accounted for and that your staff have everything ready to go.
Get all the paperwork in order: This includes getting your patients files organized and ready to transfer over and having all of the proper licenses and certifications for your practice. Before putting your practice on the market, you should also check with your lawyer to find out what documents might need updating or changing.
Prop up your online assets: In this age and time, your practice’s website is likely one of its most important assets. If it’s not up to date with the latest information, you would better fix that before the sale. Do the same with your social media and Google My Business pages if you have got them.
Valutate The Practice
It’s time to figure out how much it’s worth. This process can be complicated, and many factors are involved in determining its value- some more concrete than others.
A practice’s valuation is usually based on multiple/fraction of its annual revenue. The most common valuations are in the 0.5 to 0.7 times annual revenue range for general practices, but you can get more expensive specialities ( e.g., oncology) up to 0.8 to 1.o times annualized revenue.
Goodwill is essentially how much the practice is worth beyond its assets and liabilities. It covers things such as location, payor mix, collection rate, community relationships, reputation, practice’s competition, and intellectual property that cannot be easily quantified on paper but is extremely valuable nonetheless.
You might have some questions about what these elements mean and how they generally affect a medical practice’s value. Goodwill is an asset, not just a word. You can use it to get the best price, but it has to be reasonable. For more information check this guide on selling a veterinary practice. This will help you in understanding the basics and the key thing you need to consider before taking the important decision to sell your medical practice.
Marketing The Practice For Sale
With marketing, we want to:
- Attract the right buyer.
- Increase your chances of selling your practice.
- Improve the value of your business
Let’s briefly discuss these three marketing goals here:
- Improve the value of your business: Perception is a crucial part of selling any business asset. When marketing a medical practice for sale, you want to ensure that your messaging and other elements work together to evoke an image of success, stability, and professionalism.
Here are some examples of potential buyers:
- An investor looking for a steady return on investment.
- A doctor looking to buy a practice to take over and expand.
- A doctor who wants to transition into retirement/consulting.
- Hospitals or health systems looking for new locations or acquisitions.
- And physicians looking to buy out their partners.
Negotiation And Due Diligence
Negotiation
After the ideal buyer shows interest in buying your medical practice, it’s time to negotiate. The seller needs to know what they want from the deal, while the buyer needs to know if they can meet those demands.
Negotiating is an art form and takes some practice. If you are uncomfortable with negotiating, consider hiring someone with experience in this area.
If you decide to negotiate on your own, here are some tips:
- Make sure the buyer provides the Letter Of Intent.
- Sign a Non-disclosure agreement.
- Use every opportunity to highlight why your business is the real deal.
- Do not overprice your practice out of the market.
- When signing a non -compete agreement, consider your best interest.
Due Diligence Period
The due diligence period is the time between the offer and closing. During this time, you, as a seller, should be prepared to provide your buyer with information about your practice. You will want to provide copies of financial records and answer any questions they may have about your business.
The buyer will want access to the physical property (e.g. office space) and staff members for interviews and meetings.
Closing The Sale
The closing process is the final step in selling your practice.
Keep the following in mind:
The Sales Contract
The sales contract is the most important part of the entire process. The legal document establishes the terms of your sale- a well-drafted contract will include all the terms that are critical to the transaction and will be used as the basis for closing down the practice.
The contract should cover:
- The sale price of the practice.
- The payment schedule and closing date.
- The assumption or rejection of liabilities or debt.
- The transfer of assets, including patient records.
- The transition plan for the new owner, including marketing and advertising strategies.
Important Note: Both parties – seller and buyer, should sign the contract.
There are several types of contracts that you may use to sell a medical practice:
Asset Sale – This agreement allows a buyer to purchase all or part of the seller’s assets, including equipment, furniture, and supplies. The buyer assumes liability for any outstanding debt related to those assets.
Stock Purchase Agreement : This type of agreement allows a buyer to purchase stock in a corporation owned by the seller(s).
Tax Consideration
Asset sales: When selling your medical practice as an asset sale, you should be prepared to pay higher tax rates because gains are subject to ordinary income tax rates. Similarly, you will expose shareholders to double tax considerations with an asset sale when selling as a C-Corp.
Stock Sale: You could enjoy the benefits of a capital gains tax rate lower than your ordinary income tax rate by selling your stock for business profits.
Types Of Payments
How do you get paid when you sell your practice? Whether you have a cash buyer or a seller financing option, you may be able to negotiate what type of payment structure works best for both parties.
If you have a cash buyer, they buy 100% of the practice and pay for it upfront.
If you have a seller financing option, the buyer has agreed to pay for the practice over time with interest added to their monthly payments.
In either case, it is important to ensure that you clearly understand how much money each party will receive upfront versus monthly payments. You should also consider what happens if one party fails to make their monthly payments on time or at all ( for example: if they default on their loan).
Transitioning The Practice After Selling
It’s not enough anymore to hand over the keys and let the new owner handle everything themselves. The new owner needs to trust that you are doing everything possible before leaving them with the keys so that everything runs smoothly after the sale.
Here are three tips to help make the transition easier:
Meet with staff: You should meet with every staff member to discuss their roles during and after the transition. You may want to use this as an opportunity to introduce them to the buyer or have them meet with them beforehand to familiarize themselves.
Notify and prepare Clients/Patients: Informing patients about a pending change in ownership can be difficult, but it is necessary for everyone involved. You could send a letter/email to all current clients/patients letting them know that their care will continue uninterrupted by the sale of your practice.
Transitioning patient information/records: You should also provide any patient information necessary so that the buyer knows who each patient is and what their needs are.
