Considering Selling Your Medical Practice?
October 28, 2015
Before you make the decision to sell your practice, it’s important to do your homework. The following four steps will help you determine your practice’s financial health and how it compares to others in your industry. The results from these assessments will arm you with knowledge and help you decide if it’s the right time to sell.
Step 1: Prepare an internal practice assessment
It is critical to know how your practice compares to other practices in your market. These key performance indicators will help you determine how you stack up against the competition:
- Physician and midlevel provider productivity
- Physician compensation
- Number of active patients
- Patient visits per year
- Average cash collections per patient visit
You should also prepare a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis for your practice, specifically focusing on your financial and operational strengths. These strengths may include:
- Diversification of referral sources
- High ancillary utilization
- Limited competition
- Dedicated staff
- Demonstrated patient satisfaction and loyalty
Be honest when identifying your weaknesses. Your perceived weaknesses could actually be opportunities for potential buyers.
Step 2: Identify non-recurring expenses
It is important to demonstrate a high level of maintainable physician compensation to potential buyers. Historical physician compensation impacts the purchase price of your practice as well as the compensation package offered to the practice’s physicians as part of the post-acquisition employment arrangement.
To identify an accurate measure of physician compensation, you will need to normalize your operating expenses to remove any non-recurring expenses. Non-recurring expenses do not occur every year as part of normal practice operations. Some examples are:
Step 3: Prepare a financial forecast
- Atypical legal fees
- Consulting fees
- Certain capital improvements that are expensed as opposed to capitalized
A potential buyer will be willing to pay more for a practice with a history of strong financial performance and a strategy for continued growth. Your financial forecast should include the practice’s long and short-term performance targets and goals. It should also demonstrate your understanding of the practice’s position within the market. This assessment provides a roadmap for how your practice plans to address the threats and opportunities identified in your SWOT analysis.
Potential buyers will also prepare a financial forecast. The two forecasts will be compared so it is important to understand why financial expectations may vary.
Step 4: Retain experts
Potential buyers will have a team of professionals helping them during the acquisition process and you should have an equally experienced team on your side. Your team should understand the valuation process and how buyers will assess your practice. They will be available to answer complex questions and market your practice to help you maximize the purchase price.
If you complete your preparation and decide you are ready to sell your practice, here are a few tips to improve your bargaining power:
- Get more than one bidder. When multiple parties are interested, bidding can increase your practice’s value.
- Make sure you EHR system is up-to-date. Converting paper charts to an EHR system is a huge task. Potential buyers could pass up your practice if your EHR system needs work.
- Prepare for two sales if you own the practice facility. You will have to decide if you want to sell or lease your office space. There are pros and cons to both options.
- Remain as an employed physician. The buyer may prefer that you remain at the practice as an employed physician. In this case you will need to consider two negotiations: the sale of the practice and your employment agreement.
- Provide transitional marketing services. You can add value to the sale if you agree to stay for a short period of time, during which you will introduce the new physician to existing patients and referring physicians.
Proper preparation allows you take an objective look at your practice and decide if you are ready to sell. Even if you are not currently thinking about selling your practice, it’s still beneficial to conduct these assessments. Addressing any issues early may help with the sale of your practice in the future.