January 16, 2024

Selling Your Practice in the Future? Eight Steps to Prepare

It takes years to build up a successful medical practice that is respected and valued by the community. It can also take time to find a qualified buyer at a satisfactory price. However, you can take several steps now to help provide a smooth transition when you finally put out a “for sale” sign.

Here are eight quick suggestions for laying the groundwork:

1. Plan well in advance. To obtain the optimal price, you need at least a year to get all your ducks in a row. It might even take two or three years. You don’t want to be forced to unload your practice in a distress sale.

Investigate the possibilities of cross-sales to other associates or colleagues. For your family’s protection, acquire adequate life insurance in the event of a premature death.

2. Keep the practice humming. There’s no need to slow things down prior to a sale. In fact, it’s generally a good idea to step up your activities the year or two before selling a practice. There’s no benefit — and a possible detriment — to morale and productivity if your staff thinks you’ll be calling it quits soon.

3. Obtain a professional appraisal. This helps fix an appropriate value for your practice. Since medical practice valuations are more complex than those prepared for other businesses, use a professional with the proper credentials for this industry.

A valuation will take into account tangible assets, such as real estate and medical equipment, and intangible assets such as trade names, patient lists, a favorable location, contracts and covenants not to compete.

4. Require nondisclosure agreements from candidates. This safeguards you from a practitioner opening an office across the street from you in direct competition. Similarly, when it is appropriate, obtain noncompete agreements from associates. Also, consider using a confidential intermediary to protect the identity of the practice.

5. Consult with your accountant about the potential terms of the transaction. There are many ways to structure a sale and the tax consequences play a big part. For example, should it be a stock sale or asset sale? Should a portion of the payment be deferred? Are you interested in employment after the sale?

6. Ensure that your firm’s accounting practices conform to industry standards. For instance, it is important to clearly segregate regular expenses from Section 179 assets.

Your accounting practices should also identify tax-deductible benefits such as health insurance, practice-owned vehicles, family members who are employed by the practice and so on.

7. Consider merging into a local group rather than selling. A merger can be structured to provide optimal income for several years in lieu of fixing a set sales price. This could provide a smooth transition that should avoid any precipitous decline in the number of patients.

8. Finally, be open to unusual, creative possibilities. The best deal may come from a long-time competitor or other surprising source.

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