Selling your practice

July 10, 2011

Selling a medical practice always has been very individualized, but a little planning and preparation can simplify the process and help you get the most out of your sale.

Key Points

WHAT ASSETS DO YOU HAVE TO SELL?

The initial step, and frequently a reality check, in selling a practice is identifying what exactly you have to sell. The sale of your practice can be broken down into three main categories.

The second category of assets is accounts receivable (A/R), which is the uncollected revenue for services rendered and billed by you or other billing providers. At any given time, a substantial sum of money usually is owed to the practice by managed care providers, government payers (Medicare/Medicaid), or self-payers. A key step in preparing your practice is to clean up your uncollected A/R and improve your collections processes. Based on your payer mix, this can include hiring a consultant to renegotiate your managed care contracts to achieve better payment terms.

The third category of assets is generally referred to as "goodwill," which is a little more difficult to define. Goodwill is an intangible asset that ties into the practice's reputation in the community. Accountants define goodwill as the purchase price of the practice, minus the fair market value of the net assets. In other words, it's the value of your practice above and beyond the hard assets and A/R. Goodwill encompasses such factors as a favorable location, recognizable name, patient following, and the potential of the practice to continue generating business following your departure.

A well-trained staff also may constitute a valuable asset, even though you don't "own" your staff and cannot generally assign your employment relationships. You can do certain things to maximize your key staff staying with the new owner.

First, any physician or midlevel employee should have an agreement that, at minimum, protects your confidential business information from disclosure, such as patient lists and managed care provider contracts. Ideally, you also want fair and reasonable covenants prohibiting these key employees from competing with the practice upon separation. These agreements should be assignable.

Other key employees, such as valued nurses or billers, can be offered "stay-with-us" bonuses as part of an agreement that also provides a "back-end" bonus if the key employee remains employed by the buyer for a designated period after the sale.