How to sell your medical practice

September 19, 2018
Keith Borglum, CHBC
Keith Borglum, CHBC

The author is a practice management consultant, appraiser, and broker in Santa Rosa, CA.

Volume 95, Issue 18

Not every practice has value, nor does every seller try to sell their practice properly.

Practices sell regularly, many for a good price with minimal fanfare. At least half of all practices offered for sale never sell, however. Not every practice has value, nor does every seller try to sell their practice properly. This low sales rate is not peculiar to medicine-it’s similar for most small businesses according to business broker industry reports.

The more profitable your practice, the easier it usually is to sell, and the more it is worth to a buyer.

Who buys practices?

Hospitals have been the top practice acquirers since Obamacare started, and often the easiest purchasers to sell to. 

Unfortunately, hospitals usually will only pay the fair market value of your practice’s assets, and nothing for its intangible “goodwill” value. Hospitals do this to avoid government charges that they violated the law by “paying for referrals.” They likely will offer you good-paying employment and benefits; often more than you can earn on your own.

Venture capital and private equity groups pay top dollar for leading group practices in some specialties, but they are extremely selective and their terms may be onerous.

I find that graduating residents and fellows are rarely the buyers of practices. Many get 50 to 100 job offers prior to finishing their training, mostly from large and hospital-owned groups. These job offers are inundating them and not just more preferable, but easier than taking on a new practice.

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.

For a seller, putting a practice up for sale not only can result in financial reward, it can also dispose of the ongoing expense of custodianship of a career’s worth of patient records. This can easily run into the tens of thousands of dollars, so sometimes it’s even worth it to pay a buyer (like a colleague in your call group) a nominal amount to take over your practice. 

Check your state laws or guidelines with your malpractice insurance carrier or state medical association regarding medical record custodianship laws.

Tips to help you sell 

If you are considering the sale of your practice-even if you are just early on in the thought process-here are some initial steps.

Plan and pivot

Plan at least a year ahead if possible, but also be ready to sell to the first candidate on short notice, and maybe stay employed by them during the transition. That candidate might have been looking for a while, and now your opportunity pops up and they respond. 

There is no guarantee there will ever be a second candidate.

Maintain business as usual

Don’t slow down your practice in advance. Growing practices are more attractive than stagnating ones. 

Don’t rule out a merger

Consider merging your practice with a local group in lieu of a sale to a unknown single buyer, with a higher compensation for one to three years in lieu of a sale price.

Know your value

Overpricing is the number one reason why businesses don’t sell. Get a professional appraisal-both to price the practice correctly and to convince a buyer of its value-using a medical practice expert that can ­demonstrate compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). 

Learn what EBITDA stands for, and use a multiple of it in your pricing strategy.

Have your financing at the ready

Get your business pre-qualified for a 100 percent bank loan at the asking price for a qualified buyer, which reduces low-ball offers. Both the buyer and the practice must qualify for the loan. 

If you pre-qualify the practice to support a loan for the asking price, the seller then only needs to get the buyer qualified when they appear. 

On the other side of the coin, if the buyer qualifies, and the bank then refuses to loan because the practice doesn’t qualify, that’s a bad thing to learn later. Get qualified in ­advance.

Polish up your online presence

Most purchase candidates now come via internet searches. Prepare a proper professional promotional package, including a dedicated search engine optimized website separate from the practice’s business site. 

You should also have a regular website for the practice and be on LinkedIn and Facebook.

Make a good first impression

Clean up the office-and your desk-to make them appear modern and attractive. Fresh paint, carpet, and furnishings are inexpensive and create quality “staging.” Perhaps ask a local real estate broker for a referral to a stager.

Assemble your expert advisers

You have to assume the buyer will engage competent advisers to evaluate your practice, so engage competent counsel yourself including an experienced medical practice broker, certified public accountant, and business attorney. 

Many can be found through the National Society of Certified Healthcare Business Consultants( NSCHBC.org) and HealthLawyers.org. 

Get your numbers in order

Make sure your last one to three years’ accounting and statistics conform to standards like those developed by the NSCHBC or Medical Group Management Association This will give the buyer and their advisers more confidence in your data and ­operations.

Remember, you aren’t only courting a physician

Be prepared to convince the buyer’s spouse and children to live in your community, with a tour of local homes with a real estate agent, visiting schools, malls, local attractions, etc. 

Pitch a progressive purchase

Consider offering the buyer a chance to work for one to three years at reduced income, then purchasing the practice for the value of the hard assets, “without goodwill.” 

Your offer to sell then will look more competitive with employment. An offer document can cover all the relevant information to help an investor to make his or her investment decision.

Get a commitment on paper

Get everything in writing to avoid future misunderstandings or litigation. You can work with your lawyer or broker to list everything required for due diligence. The seller must assemble this for the buyer’s review.

Don’t zero in on a profit

In this current down market for practice value, sell for reasons of personal lifestyle-like reduced administrative hours, retirement, or disability-not for anticipated financial gain for equity to fund retirement or something else. 

The practice is built to create continuing income, already harvested through work years, not for future equity.

Keep an eye on D.C.

Consider waiting until after the 2020 elections to sell, as hopefully the medical environment will have stabilized at that point, with any luck improving practice fiscal ­value.

Keith Borglum, CHBC, CBB, is a licensed and certified business broker, appraiser, author, and member of the National Society of Certified Healthcare Business Consultants (NSCHBC.org) specializing in outpatient medical practices for over 30 years. He is a regular contributor to Medical Economics and many medical association journals. He is the author of The Medical Practice Valuation Workbook. 

 

 

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