Whether you’re getting ready to retire, can no longer afford to run your own private practice, or simply want to seek employment opportunities elsewhere, the decision to sell one’s practice is not an easy one. In addition, large patient loads, reduced reimbursements, increased administrative tasks and the burden of technology implementation (ICD-10, EHRs, etc.), have made hospital employment a more attractive choice when compared to the challenges of owning a practice.
If you’re in the market to sell your practice to a colleague, hospital or other healthcare system, here’s what you need to know to ensure a smooth transition.
1. Getting your finances in order
Before you spread the word that you’re selling your practice, it’s crucial that you get your finances in order for potential buyers. You will need to collect at least three years of financial records such as tax returns, expense reports as well as profit-and-loss statements. This will give better insight into the practice’s financial forecast, its strengths and weaknesses, and how it compares to other physician practices in the market. Give your accountant or financial advisor a call so they can walk you through the numbers, assess any risks, and even help prepare a report simple enough for the buyers to understand.
Spotty, inaccurate record keeping may be a red flag and reveal lack of business acumen or general lack of interest in the profitability of the practice. If your practice has had a strong financial history that has shown continued growth and success, interested buyers may pay more for your business. Even a trend of modest profits makes your practice more appealing.
2. Setting a realistic selling price
As you get your finances squared away, you will need a proper valuation of your practice’s worth. One mistake that physicians make when selling their practice is setting the asking price too high. While the physician wants a return on their investment for their years of effort put into the practice, a fair market value of the practice as a whole needs to be established. To determine the true value of your practice, you will need a professional valuator.
During this valuation, three factors will be considered:
- Your physical assets such as furniture, office/medical equipment, and real estate
- All revenue owed to the practice at the time of the sale
- Your practice’s goodwill e.g., its reputation, staff, patient base, and potential revenue
Valuating goodwill can be tricky as it’s a subjective factor and is often a contentious matter. Most hospitals won’t pay for goodwill as it’s an intangible asset, but other buyers might be more accommodating. To help place a number on your practice’s reputation and potential earnings, the Goodwill Registry by Health Care Group can help as a starting point.
3. Making a good first impression
Pristine financial record keeping aside, your physical practice will need to make a good first impression to buyers who want to see the premises. That means you and your staff will need to clear away any junk or clutter laying around the office, paper medical records should be filed away, broken or outdated equipment should be discarded, and expired medical supplies or prescription drugs should be thrown away. You don’t want to leave any sign of disorganization or mismanagement.
While you don’t need to give your entire office an expensive makeover, you may want to consider doing a bit of landscaping (or adding a vase with flowers). In addition, a fresh coat of paint and new magazines can go a long way as well as some modern décor to help breathe new life into your office.
4. Transitioning your practice
When it comes time to officially market the sale of your practice, this should be handled delicately to minimize worry among your staff and patients. To mitigate any fears, start sharing the word with a small group of people such as colleagues who may be potential buyers and local hospitals and health care systems looking to expand.
If you’re staying on as a physician after the sale of your practice, the transition shouldn’t be much of an issue with patients. This also makes your practice more valuable since you’ll be there to help maintain patient and client relationships. But if you are leaving your practice altogether, you will need to inform your patients of your departure and begin introducing the new owner or physician who will be taking over. It is suggested that you stick around for at least a year after the transition is complete.
These are just a few tips to help you make a smooth transition if you intend on selling your medical practice. This is by no means an all-inclusive list as there are many other factors to consider such as financial liabilities, contracts and agreements, attorney negotiations, property leases, staffing changes and most of all – compensation.
Selling your practice can be a difficult and emotional process, but it can be done without a hitch if you have a proper exit strategy, organize your money, do your research, and speak to the right people at the right time.
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