Time to Wrap It Up? Navigating the Sale of Your Medical Practice

Episode 61: Time to Wrap It Up? Navigating the Sale of Your Medical Practice

Welcome to the Medical Money Matters Podcast, where we delve into the business side of healthcare. today we’re tackling a topic this is critical for many physicians: selling your medical practice. Whether you’re nearing retirement, looking to shift careers, or considering other ventures, understanding the intricacies of this process is vital.

Selling a practice is more than a transaction; it’s a transition that affects your financial future, your staff, patients, and the community you serve. In this episode, we’ll guide you through key considerations, from financial evaluations to finding the right successor, ensuring you make informed decisions for a successful sale.

As we like to, let’s begin with financial considerations, the cornerstone of any practice sale. The value of your practice hinges on its financial health. Accurate financial reporting is not just about numbers; it’s about the story those numbers tell about your practice. Profitability, revenue streams, operational efficiency – all these aspects paint a picture for potential buyers. It is critical to assure that you enter this process with clear and accurate financial statements that represent what your business’ activity has been for the last many years. If you’re unsure about this, ask your CPA for help.

But how is this value determined? There are several valuation methods, each with its nuances. The market approach, for example, compares your practice to similar ones recently sold in your area. It’s like real estate; what did the practice down the street sell for? This approach offers a tangible market perspective but remember, no two practices are identical.

Then there’s the income approach, focusing on future profitability. This method asks a crucial question: What earnings can a new owner expect? It’s forward-looking and considers the sustainability and growth potential of your practice. It employs some sophisticated projections, and time value of money calculations, and will likely give you the best valuation, if your practice is stable and/or growing.

Lastly, we can’t forget the asset-based approach, where the value is tied to physical and intangible assets. Equipment, technology, even your patient list, and reputation – all these contribute to the practice’s overall worth. This usually results in the lowest number, depending upon how the valuator treats patient list, and reputation, or in accounting speak, “Goodwill.” This can have wide variability! Buyer beware.

When selling your practice, you want to employ an expert in valuations and especially one who works with medical practices. Some valuation experts will tell you that any business can be valued using the same set of tools. True. And, if you need plastic surgery, do you really want a generalist doing that work? Medical practices are a special breed of business. Look for someone who specializes in them. Expect to pay $5,000 – 15,000 for a practice valuation if your business is $10 million in annual revenue or less. If your group is larger, the valuation will likely cost more.

Valuation is just the tip of the iceberg. Throughout this podcast, we’ll explore these aspects in depth, along with successor planning and the impact on your community and business.

As we transition into a crucial aspect of selling your practice – finding the right successor – it’s important to recognize that this is more than just a business transaction. It’s about ensuring the legacy of your care and the future of your staff and patients.
Let’s start by identifying potential buyers. The ideal successor could range from a hospital system looking to expand, a larger practice absorbing yours, or perhaps an individual physician or a group of physicians seeking ownership.

Invite a medical practice broker to discuss different types of buyers and their typical expectations. Remember, each type of buyer brings different opportunities and different challenges. A larger system might offer more financial security, but an individual physician might better preserve the culture of your practice. Finding a successor whose values align with yours is paramount. It’s not just about who can write the biggest check. Think about your practice’s ethos, your patient care philosophy, and your staff’s welfare.

Negotiating the sale isn’t just about the price. It’s about terms that matter. How long will you stay on during the transition? What happens to your staff? These are critical elements of the negotiation process. And remember, in a negotiation, everything is on the table. In general, we recommend that founders / owners stay on for a short while (a year or less) to assure a smooth transition, and that commitments made to staff and patients are kept. Much longer than a year, and the new owner can begin to make changes that leave you feeling stifled or no longer in control, which is true. Many buy-sell agreements include a “two year earn out” and we recommend shortening it up if possible to keep it manageable for all involved.

It’s essential to navigate the legal and ethical waters carefully. Ensure compliance with healthcare regulations and seek legal advice to avoid pitfalls. This is the time to employ a good healthcare attorney who is experienced with buying and selling practices. He or she will have some valuable advice for you as well about terms to consider in the sales agreement.

In finding the right successor, it’s a balance of head and heart. Financial viability is key, but so is the legacy you leave behind. Next, we’ll explore the impact this transition has on your staff, patients, and the community at large.

As we approach another vital aspect of selling your practice, let’s consider the broader impact. It’s not just a financial transition; it’s a change that will ripple through your staff, your patients, and the community.

Your staff are the backbone of your practice. A change in ownership can bring uncertainty and anxiety. How you handle this transition can significantly impact their professional lives. Clear communication and involvement in the transition process can ease concerns and foster a smoother changeover. Engaging your key staff as early as possible in the transition can help them to have a sense of stability, and a little control over their destiny. And remember, as much as you may want to be, you cannot be a savior to all of them. Many times during a sale, key people will take it as an opportunity to change practices, or careers. It’s okay. You’re off on your next adventure, and it’s okay for them to be too.

As you consider your staff, your patients’ welfare is also paramount. A new owner means new dynamics in patient care. Consider how you will ensure continuity and maintain the trust you’ve built over the years?

Your practice isn’t just a business; it’s part of the community fabric. Its role in community health, employment, and local partnerships shouldn’t be underestimated in the sale process. Bring in a community health expert to discuss the broader impact of medical practice transitions on local health care systems.

Finally, managing the post-sale transition is crucial for ensuring that the changes are as smooth as possible for everyone involved. Planning and communication are key.

As we wrap up today’s episode, let’s recap the crucial points. Selling your practice involves intricate planning and consideration, from financial and valuation aspects to finding the right successor and managing the impact on your staff, patients, and community.

Embarking on this journey can be daunting, but it’s also an opportunity for growth and new beginnings. Remember, you’re not just selling a business; as we said in Episode 58, you’re handing over a legacy. Approach this transition with the care and thoroughness it deserves.

Thank you for listening to the Medical Money Matters Podcast. Please join me for our next episode, where we’ll be discussing The Patient Experience, and how to organize your practice around delivering a fantastic one… every time!