SELLING YOUR MEDICAL PRACTICE
There are pivotal events in the life of every medical practice that can dramatically alter its ownership structure. Your practice may expand and grow, business partnerships may dissolve and new one’s form, or your doctors may decide to retire and pass the baton onto the next generation. Navigating these complex changes to your practice ownership and legal structure can be very challenging without the right expertise to guide you through the process.
Most doctors work for years to build up their medical practice, its reputation and patient following. So what would possess a doctor to decide to sell?
It turns out that there are a host of reasons: you may have had enough of the administrative headache, you may be planning to retire, you and your family have decided to relocate, your family members have had enough of working at the practice, you are tired of looking at the same four walls, death or divorce in the family have forced you to sell, your business partners are moving on, you’ve received a tempting offer from a large corporate or you just want to free up capital for a new project.
When contemplating the sale of your medical practice there are some important considerations that you need to be aware of to ensure you take the right approach to the sale and achieve the best outcome. The sale of your medical practice can take 6-12 months. You may be required to remain at the surgery for up to three years to effect a handover to the new owners. During the sales process you need to ensure the stability of your staff, patient numbers and business revenue You will need to work hard to maintain your local reputation, set high standards of presentation in your business premises and ensure the ongoing maintenance of your capital equipment. One of the key ways to maintain stability in your practice is to ensure strict confidentiality is adhered to throughout the sales process.
When considering the sale of your medical practice, choosing between handling the process yourself or engaging the services of a broker is a major decision that can have a significant influence on the sale price, terms and conditions of sale and the duration of the whole sales process. So what is the sales process? What does a broker bring to the table? Can you do it yourself? What difference will a broker make to the end result? What is a good sales outcome?
Your Practice Profile (or Memorandum of Information) is a short promotional document which gives an overview of the history, structure and financial performance of your medical practice for the benefit of pre-vetted potential buyers. Whilst carefully hiding the location and identity of your practice, it is designed to give potential buyers a financial and operational snapshot of your practice so they can decide if your practice fits their general requirements in terms of size, location, clinical setup etc. So what does your Practice Profile contain? How do we prepare it? Why the secrecy? Who will receive your profile? What happens next for a buyer that is interested?
Determining an Asking Price
If you are considering the sale of your practice the first burning question to arise in your mind is: How much is your practice worth? After all, you cannot place your practice on the market until you’ve established on asking price!
When you take your practice to the market and begin to negotiate with buyers, you need to have a clear understanding of how you determined your asking price and the underlying factors that contribute to and underpin your decision. The main factors determining the value of your practice are: your practice history, business fundamentals, practice size and setup, location and position and security of tenure.
Finding an Appropriate Buyer
When contemplating the sale of your practice one of the biggest concerns for most owners is how to preserve your legacy. If you may have spent many years establishing your practice, building up a loyal patient following and developing a reputation in your community, you will want to ensure that the new owners are a good cultural fit for your practice, will get on well with your existing staff and will protect the legacy that you have created. Of course, you will also need to know if they are capable of taking on and managing a surgery of your size. So how do you identify the right buyer for your practice?
Is their initial offer within negotiable range of your expectations? Are they cashed up or will they need finance? Do they have demonstrated industry experience? Is your buyer located nearby to ensure effective day to day management? What are the buyers future plans for your practice? Are they willing to protect the interests of your staff?
Negotiating a Sale
The negotiation phase of the sales process can often be the most stressful and sometimes a somewhat confrontational period as both buyer and seller jockey for the best price and the most favourable terms of sale.
However it is worth keeping in mind that in 95% of cases the seller will be obliged to work with the buyer for a period of 12 months or more, so ensuring the sales negotiation goes through in a cordial and professional manner is essential and where the services of an experienced broker can make a critical difference to the outcome. The key points of negotiation are: sales price, distribution of price between the various assets, payment method, service agreements going forward, general terms & conditions of sale, purchase or lease of the premises, employment contracts for doctors & staff, sale or retention of certain fixed assets, restriction of trade clauses.
Security of Tenure
When planning the sale of your medical practice it is worth considering where most of your financial value is tied up in your business. In order to obtain a good sales price your practice must be able to demonstrate that it has strong and enduring value to a prospective buyer, long after you are gone.Security of tenure represents the physical stability of your practice premises. A large proportion of your goodwill is tied up in your patient loyalty which in turn is largely dependent on your reputation in the local community and the fact that patients know where you are located and how to get to you. So what is security of tenure? How do you obtain it? What are the pitfalls? Negotiating or terminating a lease.